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Mr Benn

How To Lose A Million

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Scenario: Professional London couple buy first home in 1997 for £180k. Home now worth £500k, and after 10 years of hard work they have paid off their mortgage. In the global scheme of monetary things (dollars) they have become net millionaires.

After climbing the career ladder they are both on £65k and decide, with a little self certification, to take out a £500k mortgage to buy their dream home for £1 million.

Along comes Great Crash 2 and due to the crazy levels of debt it is worse than GC1 and house prices halve. The £1 million pound house is now worth £500k, and with debts of £500k the couple have absolutely no equity, they are back to square one. 10 years down the drain.

The irony is had they stayed put they would still be worth £250k!!

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I think a lot of people will soon be in this situation, but I wouldn't wish it on my worst enemy. If you can avoid thinking of equity as money in the bank, it will be more bearable.

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But people DO think of equity as money in the bank.

People smugly announce that the home they bought for £80K 8 years ago is now worth £330K, as if they have that £330K sitting in the bank. They don't.

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Back to square one but with chunky mortgage repayments that just keep going up and up as IRs rise. Maybe that Porsche Cayenne and the second home in Spain will have to be sold.

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