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vfr

Overseas Property

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Acquaintances and what happened to them i'm told. Figures I have worked out on interest only and really I don't know the value of their UK property so have maybe overinflated but do know they are stuck with a new variable rate. I think the Spanish figures are pretty accurate although sounded a bit on the cheap side? . Critically I think the story below is going to happen more and more and I also think that this particular couple were lucky.

March 2005 -

1. David and Sally have loads of equity, are 37/38 and have two kids. In fact since they bought in 2000 their property has doubled in value.

David earns £50K and Sally earns £7 K part time. They feel well off. Take home about £3,300. All in all they save about a £700 a month after all bills and holidays. .

Mortgage 150K. UK property value £380.

Mortgage repayments £562. (4.5%)

They have £30 K in the bank through an inheritance.

They've just gone on a Spanish holiday. The kids love it, the area is really nice and they've met other people that own property in the area.

They see something they like and already having a purchase somewhere in the sun in mind decides to buy there. They know that they can put 10% down and buy a small apartment overlooking the sea for £120K which has been reduced for quick sale they are told. Actually they are buying an already repossessed property that 2 years earlier had sold for £180K. Still compared with anything else on the market it represents a good deal.

They can they are told let it out through than same agent that has sold them it in peak season for at least £250 a week.

When they get home they quickly see their mortgage broker and decide to add 115K to their mortgage on a self cert basis. £431.50 including an extra £5K for some new furniture/bedding a redecoration that is needed. It all seems a bargain.

New mortgage £265K . £993.25 pm. Value of property £420,000.

1 week ago . Just had two excellent holidays. Only let out the property in Spain for 3 weeks on average over the last two years to friends of friends. Still no problem. Now earning £3450 take home between them.

Time to re-mortgage.

D and S "What do mean we can't get a fixed rate, we've always had a fixed rate. "

Broker "Sorry the lending criteria have changed. Lets look at your income, good employment, no credit cards, no CCJ's, don't worry you can choose from many lenders "

3 days later ...........broker "mmm not good, any new lender will lend you 3.5 times joint so that is a maximum of £180K, still you can pay off some of the mortgage perhaps and go with a new one on a lower fixed rate of 6.1% with an arragement fee of £900 or you can stay with your existing lender on their variable rate."

S and D “we can't pay off any capital unless we sell the property in the sun, we'll have to stick with the variable rate, what's the damage

Broker ....... cough , cough splutter "£1855 per month interest only"

S and D " Ok so we have no option we'll have to take that for now and sadly sell the Spanish property"

Prediction.....3 months later

S and D "we've had an offer for £85 k includng all the furnishings and given there are over 2,000 properties for sale in our resort we've decided to take it and pay off £70 k on the mortgage to reduce our Uk payments as we are struggling to meet our monthly bills and sally’s just been made redundant. "

so two years down the line that’s 2 holidays costing £21,500 each loss including interest payments.

new mortgage repayment £1225.63 interest only. ..............phew lucky escape. just making ends meet again and off to Cornwall next year.

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so two years down the line that’s 2 holidays costing £21,500 each loss including interest payments.

Not the kind of headline number the mortgage lenders like to advertise.

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Lets hope David doesn't lose his job or they will be truly stuffed.

Think a lot of people will wonder why they let so much money slip through their hands over the last decade. They forgot the point of work which is to accumulate money for retirement not p**s it up against the walls of TKmax.

Still with a Chancellor who borrows in a boom instead of paying down debt as your supposed to do why would anyone do any different.

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I have long thought that the practice of remortgaging the family home to provide a deposit on property overseas is the straw that will break the HPI camel's back. It's all down to the doubling up of the leveraging that occurs, and the fact that effectively one property is secured against another.

In many ways this strikes me as being similar to the situation many US share speculators found themselves in in 1929, when a mixture of highly geared margin trading and the structure of the holding company consipred to magnify the effect of that gearing.

In this situation, when prices rise, gains are astronomical, but when they fall........! Ouch!

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What about if David builds a rocket ship and flys him and his family to a planet that is very similar to Earth?

What about if David and Sally decide they are p@ssed off with England and sell their house in the UK and buy a villa that needs doing up for £100k and cash in £80k worth of equity, putting it in a high interest account whilst David sets up an internet business he can run from his now new barn/office in Spain. His kids love it and he can't believe he didnt make the move earlier. He is now mortgage free and feels fantastic. His internet business takes off and he makes more than £200k a year now which he spends on a new swimming pool and BBQ area as well as a huge extension to his Villa.

What happens if David sells his Spanish property for £160k?

What happens if David bought a car for £35k with his equity (MEW) only to be told a year later it was worth £15k and he had to sell.......£15k for 200 car journeys thats £700+ for a trip to Asda!!!

I could go on for ever.

For a start you are basing everything on these assumptions:

That the flat in Spain drops more than 60% in value

That they cannot afford £1,800 per month even though they bring home £3,450 per month

That Sally can't go out and earn more than £7k

That David cannot use his £30k inheritence to pay off part of his Spanish flat. This would decrease his monthly repayments.

That David was stupid enough to have not discussed this with his broker when he was remortgaging. If he was on a fixed rate deal which ended soon he would have been stupid not to look through the repayments should that deal increase. If he bought the flat only a few months into the fixed deal then that would mean he bought in Spain more than 2 years ago in which case his flat value would have naturally increased by around £40k so he should be able to sell if he has to at a discount and still come out with a few bob for his efforts.

For what its worth I think people are grossly OTT with regards Spanish Property. Spanish Property on the whole is still selling well, take it from me as I saw it first hand the other day and not only that it is selling at more or less asking price. There have always been people in Spain desperate to sell because of personal or financial circumstances and I have no doubt that will increase when the crash hits full speed in the UK but this will certainly not mean all people selling for 20% less than what they paid. Again it is all about picking the right area in Spain, I couldnt stress this enough. Avoid Costa Blanca at all costs, areas such as Torrievieja are more than 20% overpriced and you may find yourself coming out short changed . These areas will certainly crash in my eyes. Other areas will always be popular and are absolutely undervalued when compared to other parts of Europe.

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I have long thought that the practice of remortgaging the family home to provide a deposit on property overseas is the straw that will break the HPI camel's back. It's all down to the doubling up of the leveraging that occurs, and the fact that effectively one property is secured against another.

In many ways this strikes me as being similar to the situation many US share speculators found themselves in in 1929, when a mixture of highly geared margin trading and the structure of the holding company consipred to magnify the effect of that gearing.

In this situation, when prices rise, gains are astronomical, but when they fall........! Ouch!

I have to agree that some people have overstretched themselves. I certainly wouldn't buy abroad unless I could afford the mortgage repayments easily should they treble.

The David and Sally story is sad because of the fact that even though they save £8,400 a year and are now in their late 30's they do not have any savings. Are we to assume that David has been saving with Northern Rock?

In real life David would have about £40k of savings which he would add to his £30k inheritence and he would go out and buy a £100k apartment...taking out an extra £30k on his mortgage.

Of course their will be people that go crazy and over stretch but that has nothing to do with Spanish Property per se but MEW'ing in general.

It is an interesting scenario and I think more interesting are those "speculators" and "investors" who purchased in places like Morroco, Romania and Turkey. Now these guys will be so badly burnt it is unbelieveable. I don't have any sympathy for these people because they were looking to buy simply to make quick and easy profit. Unfortunately when the UK picks up nobody is going to want to pay £100k for an apartment in Rabat which is a bugger to get to.

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I have to agree that some people have overstretched themselves. I certainly wouldn't buy abroad unless I could afford the mortgage repayments easily should they treble.

The David and Sally story is sad because of the fact that even though they save £8,400 a year and are now in their late 30's they do not have any savings. Are we to assume that David has been saving with Northern Rock?

In real life David would have about £40k of savings which he would add to his £30k inheritence and he would go out and buy a £100k apartment...taking out an extra £30k on his mortgage.

Of course their will be people that go crazy and over stretch but that has nothing to do with Spanish Property per se but MEW'ing in general.

It is an interesting scenario and I think more interesting are those "speculators" and "investors" who purchased in places like Morroco, Romania and Turkey. Now these guys will be so badly burnt it is unbelieveable. I don't have any sympathy for these people because they were looking to buy simply to make quick and easy profit. Unfortunately when the UK picks up nobody is going to want to pay £100k for an apartment in Rabat which is a bugger to get to.

WTF are you on about?

I know many people earning a lot > £50K and have £0 savings (perhaps a few £K in shares). Casing point is someone close to me who has recently mewed to buy a place in Cyprus. He and his wife earn about £75K pa and are finding it difficult to make ends meet. Simple fact is people spend what they earn, always have and always will (apart from those who are prudent or earn more than it is possible to spend).

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What about if David builds a rocket ship and flys him and his family to a planet that is very similar to Earth?

What about if David and Sally decide they are p@ssed off with England and sell their house in the UK and buy a villa that needs doing up for £100k and cash in £80k worth of equity, putting it in a high interest account whilst David sets up an internet business he can run from his now new barn/office in Spain. His kids love it and he can't believe he didnt make the move earlier. He is now mortgage free and feels fantastic. His internet business takes off and he makes more than £200k a year now which he spends on a new swimming pool and BBQ area as well as a huge extension to his Villa.

What happens if David sells his Spanish property for £160k?

What happens if David bought a car for £35k with his equity (MEW) only to be told a year later it was worth £15k and he had to sell.......£15k for 200 car journeys thats £700+ for a trip to Asda!!!

I could go on for ever.

For a start you are basing everything on these assumptions:

That the flat in Spain drops more than 60% in value

That they cannot afford £1,800 per month even though they bring home £3,450 per month

That Sally can't go out and earn more than £7k

That David cannot use his £30k inheritence to pay off part of his Spanish flat. This would decrease his monthly repayments.

That David was stupid enough to have not discussed this with his broker when he was remortgaging. If he was on a fixed rate deal which ended soon he would have been stupid not to look through the repayments should that deal increase. If he bought the flat only a few months into the fixed deal then that would mean he bought in Spain more than 2 years ago in which case his flat value would have naturally increased by around £40k so he should be able to sell if he has to at a discount and still come out with a few bob for his efforts.

For what its worth I think people are grossly OTT with regards Spanish Property. Spanish Property on the whole is still selling well, take it from me as I saw it first hand the other day and not only that it is selling at more or less asking price. There have always been people in Spain desperate to sell because of personal or financial circumstances and I have no doubt that will increase when the crash hits full speed in the UK but this will certainly not mean all people selling for 20% less than what they paid. Again it is all about picking the right area in Spain, I couldnt stress this enough. Avoid Costa Blanca at all costs, areas such as Torrievieja are more than 20% overpriced and you may find yourself coming out short changed . These areas will certainly crash in my eyes. Other areas will always be popular and are absolutely undervalued when compared to other parts of Europe.

anacdotel thats all...........I take it you have a property in spain :(

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to sell if he has to at a discount and still come out with a few bob for his efforts.

For what its worth I think people are grossly OTT with regards Spanish Property. Spanish Property on the whole is still selling well, take it from me as I saw it first hand the other day and not only that it is selling at more or less asking price. There have always been people in Spain desperate to sell because of personal or financial circumstances and I have no doubt that will increase when the crash hits full speed in the UK but this will certainly not mean all people selling for 20% less than what they paid. Again it is all about picking the right area in Spain, I couldnt stress this enough. Avoid Costa Blanca at all costs, areas such as Torrievieja are more than 20% overpriced and you may find yourself coming out short changed . These areas will certainly crash in my eyes. Other areas will always be popular and are absolutely undervalued when compared to other parts of Europe.

Shit man, even when things are crashing you still have the bull point of view. Some people really are blind.

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Adibrown

vfr's assumptions looked pretty reasonable. Spanish property has a catastrophic imbalance between supply and demand. The last 10 years has seen a building explosion in the country. There are now a huge number of unsold properties and 4 million foreign owners, many of whom would like to sell up.

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Adibrown

vfr's assumptions looked pretty reasonable. Spanish property has a catastrophic imbalance between supply and demand. The last 10 years has seen a building explosion in the country. There are now a huge number of unsold properties and 4 million foreign owners, many of whom would like to sell up.

So right....are we believing that supply and demand drives the housing market?

If so then we won't get a crash in the UK, right? Wrong!!!

Supply and demand has nothing to do with the market in terms of a crash. The developers will stop building because they will have to sell their backlog first to cover current costs. This slowdown...nay halt to building will coincide with the continued increase in people moving from the UK to Spain. So as demand increases, supply decreases. The market equilibrium is returned. For a crash to occur people have to start selling at a loss and I just dont see that happening anytime soon. I do know a few people who are looking to sell in Spain and they are all looking to sell for a 20-30% profit. They have decreased to this level but if you suggest that they have to be happy with making just 50k they are mortified. These are people who have paid cash and don't have debts so they dont really care.

What causes a crash is that people overstretch themselves on cheap credit and then feel the pinch. Granted you will find people who have to sell (distressed buyers) but you will find these in all markets globally. The difference between the Spanish and UK/US markets is that the Spanish mortgage system isnt as relaxed and over the past few years the speculators have drained away into Eastern Europe.

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Hey Adi boy - I looked at his figures and reckon that the numbers he quotes are fine, considering the type of lifestyle a lot of people now have in the UK. It would be exceptional if they had saved the amount you quote. Not impossible, but exceptional. Many people have fallen into the same hype about buying a 2nd property in the sun and may soon find the dream is not all it was made out to be. The quote re. the letting figures are not too far out either. I've a mate who has a great flat oevrlooking a golf course and it's only rented out 6-7 weeks of the year. Why? Because their are 10 other flats in the same building doing the same thing. Take away the agency fees (20-30%) , maintenance, cleaning, local taxes etc, and it just about pays for itself. When the mortgage resets next month, it will start losing money. It's being sold, but may take 6 months or more as the market has stalled. He will make some cash on it, as it was bought 4 yrs ago, but it won't be much and certainly not worth the hassle it's given in that time.

The rush to the exits has started and the example above will be repeated all over the UK as punters try to reign in their spending to pay off the rising mortgage on their first home. It's called saving the furniture.

If Spanish property is still such a great deal (in some great areas that you know about), why aren't you out at the banks securing a cheap loan to buy them up, refurbush, then flog them 4 weeks later? Plenty of ordinary punters have been doing this for years, so it can't be difficult?

However, I suspect you Adi boy have some Spanish properties you'd like to flog, no senor? ;)

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Shit man, even when things are crashing you still have the bull point of view. Some people really are blind.

Not bought that place in Spain yet then Catara? Still waiting for prices to fall ?

As I told you last year the prices will crash only in a few pockets of the Costas which are either overpriced/over developed. You may be better either buying now or just holding on until your earning enough or saved enough to buy.

I am very much a bear when it comes to the UK/US but I am a Neither when it comes to Spain. I just think that it is still reasonably priced when you take into account the enironment you are buying into. The prices are akin to mid 1990's UK. I also think that even though the ECB has raised rates substantially over the past few years the stupid lending practices of the UK/US haven't been replicated in Spain.

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However, I suspect you Adi boy have some Spanish properties you'd like to flog, no senor? ;)

I do not have any Spanish Property I would like to sell. Quite the contrary I am actually thinking of buying another place over there ASAP. I already have one house I bought years and years ago for cash and anybody who has been following my posts on here over the past year will know that I have a couple who rent this out long term from me and have done so over the past three years for £850pcm (I bought the property for £110k).

The fact that I DO have a property in Spain and have done so for years (and lived in Spain for 2 years) makes me perfectly qualified to talk about Spanish Property on this forum. Why are you qualified to discuss the matter?

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The difference between the Spanish and UK/US markets is that the Spanish mortgage system isnt as relaxed and over the past few years the speculators have drained away into Eastern Europe.

Tosh. Utter tosh.

1. Spanish market might not have the excesses of the US, but to try to suggest it is a well-regulated market is fanciful to say the least.

2. Speculators headed back to EE ? So they'll move their capital east? And how ? By selling their property in Spain and the like and taking the gains. So once the speculators leave, the market will drop/crash. Unless you're saying this market is different from any other type that's out there ? ;)

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And these guys were some of the top earners in the UK

loads of ordinary folk have mewed their home to buy in Spain.

I could never understand it as it costs £1000 for a flight and hotel for 2, for a week, no risk, go when you want. Oh and people only ever get Apartments in Spain, always wondered what the difference was from a FLAT in Spain

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So right....are we believing that supply and demand drives the housing market?

If so then we won't get a crash in the UK, right? Wrong!!!

Supply and demand has nothing to do with the market in terms of a crash. The developers will stop building because they will have to sell their backlog first to cover current costs. This slowdown...nay halt to building will coincide with the continued increase in people moving from the UK to Spain. So as demand increases, supply decreases. The market equilibrium is returned. For a crash to occur people have to start selling at a loss and I just dont see that happening anytime soon. I do know a few people who are looking to sell in Spain and they are all looking to sell for a 20-30% profit. They have decreased to this level but if you suggest that they have to be happy with making just 50k they are mortified. These are people who have paid cash and don't have debts so they dont really care.

What causes a crash is that people overstretch themselves on cheap credit and then feel the pinch. Granted you will find people who have to sell (distressed buyers) but you will find these in all markets globally. The difference between the Spanish and UK/US markets is that the Spanish mortgage system isnt as relaxed and over the past few years the speculators have drained away into Eastern Europe.

The UK is in a somewhat similar position to Spain. There is a lot of unoccupied property. If we have a recession, an army of East Europeans will repatriat.

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WTF are you on about?

I know many people earning a lot > £50K and have £0 savings (perhaps a few £K in shares). Casing point is someone close to me who has recently mewed to buy a place in Cyprus. He and his wife earn about £75K pa and are finding it difficult to make ends meet. Simple fact is people spend what they earn, always have and always will (apart from those who are prudent or earn more than it is possible to spend).

The OP said that this couple saved £700 pcm not me. Read the posts before making a comment.

You may have friends who have spent £4k a month for the past 15 years but I dont believe this is a true picture of the majority of people. In fact I thought £40k was rather conservative. I had twice this in savings by the age of 30 and I wasnt earning a lot more than £75kpa at that point.

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I do not have any Spanish Property I would like to sell. Quite the contrary I am actually thinking of buying another place over there ASAP. I already have one house I bought years and years ago for cash and anybody who has been following my posts on here over the past year will know that I have a couple who rent this out long term from me and have done so over the past three years for £850pcm (I bought the property for £110k).

The fact that I DO have a property in Spain and have done so for years (and lived in Spain for 2 years) makes me perfectly qualified to talk about Spanish Property on this forum. Why are you qualified to discuss the matter?

You seem quite a sage investor Adi. Unlike quite a lot of numpties we read about in the press, you bought for cash (not a remortgage), have lived in the country you bought in (not bought at a exhibition fair at Olympia or a Marriott hotel in Ipswich) and have a long-term rental (unlike some who rent to their friends and family back home and think this will pay their mortgage or local taxes).

Others are not so well organised and it's these types that will start to head for the exits soon as their repayments go up and the property doesn't keep rising in price. They will crash the market, not you Adi. ;)

As for my qualifications ? Mmmmm...none on paper. But hey, whenever did that hold anyone back :lol:

Have lived outside the UK for 20 yrs. Speak 5 languages. Worked in banking all over the place. IT all over the place. Have lived and worked in Spain off and on. Now living on the French Riviera and very happy doing so.

I advise, for free, friends and people they know, about property buying, managing, selling, especially for those making their first purchase. I also have friends who work in property in Europe and what they tell me today would make me reticent about buying in any of the holiday markets in Europe...............

But if you still think it's a deal, then get in there ;)

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And these guys were some of the top earners in the UK

loads of ordinary folk have mewed their home to buy in Spain.

I could never understand it as it costs £1000 for a flight and hotel for 2, for a week, no risk, go when you want. Oh and people only ever get Apartments in Spain, always wondered what the difference was from a FLAT in Spain

I think you make a valid point Bloo Loo. I enjoy nothing more than visiting a new location and staying in luxury for a week.

I also though used to enjoy going to the villa and sitting on my furniture, cycling around on my bike and opening the wardrobe to find my beach gear (means I only have to take a satchel on the plane with me). I used to like going down to the beach and sitting at my bar (well not technically) , chatting to familair faces and friends and going to restaurants that I know serve the best food. I could get my BBQ out and invite a few locals around for a wine, from my cellar.

Big Difference in my mind which is why I am looking to buy somewhere else to live in, in my area of Spain (Unfortunately I cant get my current tenants out of mine cos they love it so much).

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. Have lived and worked in Spain off and on. Now living on the French Riviera and very happy doing so.

LOL so let me get this right you are sitting in your beautiful home in the South of France telling people they shouldn't buy in Europe.

I think that makes you more than qualified. I completely agree with you. Yes, could you all stop buying abroad please.....the wine prices are increasing and I hate more than two cars on the motorway at any one time B)

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The UK is in a somewhat similar position to Spain. There is a lot of unoccupied property. If we have a recession, an army of East Europeans will repatriat.

I do agree with you but then if you look at the history of the Spanish Costas you would understand that many properties lie empty for 9 months of the year. I remember first going out to Spain in the Mid 80's and with it being October half of the village we stayed in was empty. They were all owned by people from Madrid who used them for Summer only. Much is the same nowadays. In the UK mind you it just isnt natural for houses and flats to lie empty in city centres (hello nottingham), plus the fact that they arent even occupied for one week in the year.

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The fact that I DO have a property in Spain and have done so for years (and lived in Spain for 2 years) makes me perfectly qualified to talk about Spanish Property on this forum.

Judging by the "facts" that you toss about regarding Spanish property and its economy, I for one doubt that.

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I think you make a valid point Bloo Loo. I enjoy nothing more than visiting a new location and staying in luxury for a week.

I also though used to enjoy going to the villa and sitting on my furniture, cycling around on my bike and opening the wardrobe to find my beach gear (means I only have to take a satchel on the plane with me). I used to like going down to the beach and sitting at my bar (well not technically) , chatting to familair faces and friends and going to restaurants that I know serve the best food. I could get my BBQ out and invite a few locals around for a wine, from my cellar.

Big Difference in my mind which is why I am looking to buy somewhere else to live in, in my area of Spain (Unfortunately I cant get my current tenants out of mine cos they love it so much).

Yes I agree, but if I had bought a foreign escape, then im not sure I would like the idea of any old riff raff farting and doing naughty things in my bed for 3 or 4 months when I am not there- I would rather have it for myself- then again, I suppose thats exactly what i get going to a hotel- bet then, its not my stuff :lol::lol::lol:

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The OP said that this couple saved £700 pcm not me. Read the posts before making a comment.

You may have friends who have spent £4k a month for the past 15 years but I dont believe this is a true picture of the majority of people. In fact I thought £40k was rather conservative. I had twice this in savings by the age of 30 and I wasnt earning a lot more than £75kpa at that point.

indeed I did and I think that then they were on the up and up so not sure how long they had accummulated savings over however and i have posted these figure below before and personally thought the £700 was about right on an old fixed rate mortages. Seems I rattled your cage adibrown and most other posters seem to agree with my assumptions.

The issue is though how will this mewing affect the UK. That for me is money lost forever and has increased the debt burden enromaously putting people at risk. You say how do you know he didin't discuss this before he started with his broker. Mortgage brokers in my opinion like to make the figures fit. If he had discussed it with his IFA taht might on the other hand be more pertinent.

But lets work with real figures on a couple buying . or (single)

Mortgage £300K interest only.

fixed 4.5% £1125 per month

variable rate 7% £1750 per month

variable rate 7.25% £1812.5 per month

variable rate 7.75% £1937.5 per month

Vulnerable people £50 -£60 K single or joint income. £3.2 K net or less,

car loan and running costs £350 per month, Food £500 (£250) per month, £5K loan over 5 years £130. Travel £200 (100), clothes £200 (£100), Council tax £180 (120), electric/gas £60, insurance life household £60

Total out goings £3617.50 (£3107) on 7.75% interest only variable.

£200K

fixed rate 4.5% £900 per month

variable rate 7% £1166 per month

variable rate 7.25% £1208 per month

variable rate 7.75% £1291.66 per month

Vulnerable people £40-£50 K single or joint income. £2.8 K net or less,

car loan and running costs £350 per month, Food £500 (£250) per month, £5K loan over 5 years £130. Travel £200 (100), clothes £200 (£100), Council tax £120 (80), electric/gas £60, insurance life household £60

Total out goings £2971 (2,460) on 7.75% interest only variable

I also found yor comparison with purchasing a car a little ludicrous simply because you expect to lose money on cars on not on property, or so I'm told :lol: although I do have to admit seliinga second car when it was worked out that each trip to the dump or supermarket cost £29.

But OK that last comment on a £15K a holiday was meant to be tongue in cheek and if the thread serves to save at least one person from buying overseas property, losing money and then putting there family in a difficult situation it has done it's job. Most answers also I note seem to reflect that they know of people in this situation.

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