Friday, June 18, 2010

So they are still shopping for rubbish then

Home owners struggle to reduce size of mortgages

Home owners are failing to repay large amounts off their mortgage despite historically low interest rates, a new study has suggested. When the Bank of England cut interest rates to 0.5 per cent more than a year ago, it was thought the move would allow home owners to use the spare cash from lower mortgage payments to make overpayments on their loans. But a report from Capital Economics suggested lower rates have failed to help households to reduce their loans by as much as expected.

Posted by mark @ 11:59 AM (2030 views)
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21 thoughts on “So they are still shopping for rubbish then

  • Another_pleb says:

    I keep meeting people who are absolutely thrilled by their low mortgage payments but who aren’t putting anything by for when rates eventually drag themselves upwards, often refusing to contemplate this occurring without at least a year’s warning from the government.

    Anyone with a mortgage and a secure job who hasn’t been using the current low interest rates to either batten down the hatches or else move towards the exits has only themselves to blame should they get into negative equity.

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  • mark wadsworth says:

    OK, mortgage interest rates are nowhere near 0.5% except for the lucky few.

    But here’s my bright idea of the day – a bank could tell its borrowers that they can qualify for a super duper low interest rate IF they agree to halve the term of the mortgage in years (i.e. significantly increase their monthly repayments). That might not be too good for the bank’s book profits but very good for their cash flow.

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  • If god had wanted people to pay off their mortgages, then he wouldn’t have invented flat screen TVs and package holidays.

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  • Don’t you understand, there are eleven grown men chasing a ball round a field on a different continent, this demands a massive new TV to watch them! Then there’s a new iPhone and a new iPad and a new iCrap to buy. Who cares about mortgages? They aren’t new and shiny! Those are just toys for the blokes; women have a whole other set of shopping needs which I can’t even begin to fathom.

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  • mark wadsworth says:

    Holding out, for most sensible households, that few thousand quid they spend on shiny things is a drop in the ocean compared to the amount they’ve borrowed (or would have to borrow) to “get on/stay on the property ladder”. If I totted up all my family’s physical possessions, I doubt it would come to £10,000 replacement cost (excluding hundreds of LPs, mainly bought second hand, and a few hundred CDs).

    Drewster, I don’t know much about football but even I know that there are up to twenty men chasing the ball (not eleven!), two hanging around those net thingies plus three more officials trotting up and down.

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  • Umisenyamasen says:

    So when IRs do, inevitably, go up, these flat-screen-owning profligates will blindly blame the incumbent government and expect to be bailed out with the earnings from our savings. After all, Blanchflower said as much in the FT last week. Of course, when he refers to debtors, he’s talking about his mates in the city, not mortgage owners.

    Buying and trading gold is the only political answer to this madness.

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  • MW – You’re forgetting that shiny things need to be replaced every time an ever so slightly better one is introduced.

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  • mark wadsworth,

    That’s a very good point, but there is also spending on non-goods, e.g. eating out, holidays, or things such as new kitchens and cars which don’t come under your category of “household physical possessions”. It all adds up – a few pounds on new clothes, bbq food, takeaways, kids toys – and before you know it you’ve spent your £500/month rate-cut windfall.

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  • Never mind, all this spending will have to come to a halt before long and then we might, just possibly, get some realism and sanity amongst Joe Public for the first time in goodness knows how many years.

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  • mark wadsworth says:

    @ HO, D, yes of course, but the bulk of this spending on shiny things was fuelled by the never ending wealth which rising house prices bestowed on us. Even those not on the ladder had to keep up with the Joneses – what’s the point in saving for a mortgage deposit if prices are rising faster than you can save? Blaming the debt bubble on people who want shiny things is a typical Home-Owner-Ist cop out and I’m not joining in.

    @ TC, those were the days, eh? I remember them fondly.

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  • righttoleech says:

    Chinese tat, mortgage? Mortgage, chinese tat?…………….CHINESE TAT

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  • @2-Holding out *LOL* but more accurately, if God had meant U.K people to pay down debt he wouldn’t have given them Gordon Brown. Why do they need ‘experts’ from Capital Economics to figure this out? What else could they have expected when the Government lowered interest rates and VAT at the same time? A recession is a contraction in spending and overall economic activity so I can’t see how you can avoid a recession (which the Labour government wanted to do) and have people pay down debt at the same time.

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  • anyone seen that new 4D TV out next week, it includes smelly vision too, only £15,000 for a 54 inch, what do you think? should I get one for me council flat? It will look like the Odeon in my living room, it will light up the whole street from my window, so that means it will be good for the environment, best of all the benefits office said they will pay for it because I am too lazy to work and can no longer claim for wetting the bed as they said they used to watch Bread too and are wise to the scams, but they are pleased to know my “bad back” stops me working so i need a TV to stop me killing myself from boredom or making me take drugs.

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  • Probably paranoia on the part of the public sector funded householders who are saving more so that they can keep up payments for when they are out of work. Either way it means less money for the banks to lend out in new mortgages.

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  • Agree with comments above, the overindebted seem to think they have a right to cheap mortgages for evermore – after all they smugly say, it would cause too many problems if people couldn’t pay their mortgages.
    My bro decided that he and his girlf would just take more holidays and splurge the 13k they saved on their mortgage last year, thanks to the Labour govt forcing savers like me to subsidise people like him via ZIRP. Yet they would be the first to squeal if they got foreclosed on for owing more than their home was worth. Mind you that isn’t the case now since GB and co managed to stimulate the housing market, they are probably up to 5% equity now.

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  • The British – they want Swedish welfare with American taxes. No can do. Something has to give. Time to pay.

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  • Perhaps they are still paying off credit card an loan balances that charge much higher interest. Now the 0% transfer deals have all but gone?

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  • fallingbuzzard says:

    Bootle wants face value reduction on debt but never says that publicly

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  • tenyearstogetmymoneyback says:

    I think you are being a little unfair bashing the Flat Screen TV buyers.
    As Mark W points out the costs are fairly insignificant in the scheme of things.
    Back in 1989 I had to move job and house to afford a new TV and then treated
    myself to a 25″ Toshiba for £450 (and it was a reduced obsolete model). I was about
    to start slagging off the people with expensive German cars but in reality these
    are probably no more in real terms than they were twenty years ago.

    Today at work someone was commenting on the cost of Granite worktops etc and
    we concluded they cost about the same per square foot as Flat Panel TVs, and as
    every TV property show will tell you have to be replaced by each new house buyer !

    Something that surprises me is the number of colleagues in their 40s who have
    paid off their mortgages. It makes you wonder what the deviation on the average
    figures is.

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  • In many ways, the more people have been spending on shiny things, the more comforted we should be that there is some slack in the system. Very few shiny things get made in this country now, so for the most part this is a relatively painless area of ‘expendable expenditure’.

    That people are not paying down their debts is a very serious issue, as it indicates that the increase in interest rates (which cannot be delayed for much longer) will impact directly on consumer spending – and not only shiny things..

    One of the great legacy headaches that this govt has to address is the problem that not only were the public finances dependant on ever increasing debt, but private finances were equally addicted. The cold turkey of private borrowing cooling off a little has sent the public debt into orbit.

    There is a very good case for putting the screws on card use and unsecured credit, and I would personally like to see a maximum interest rate imposed of base rate + 10%, so that higher risk borrowers are not tempted into debt by the loan trade. However, I am not sure it would be prudent to introduce this immediately.

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  • tenyearstogetmymoneyback says:

    Something I forgot to add was that the first Toshiba TV was Made in the U.K. complete with a U.K. made Mullard Tube.
    Last year I replaced it with another Toshiba “Assembled in the U.K.” presumably because all the components are foreign.
    The thing that prompted me to buy that model (and to some extent the TV) was BBC reports that the Toshiba factory in
    Plymouth which was the last remaining TV factory in Britain was closing down and production being shifted to Poland
    (sounds familiar).

    While banning imports would cause all sorts of problems in international relations I think that the Government should do alot
    more to ensure that the balance of payments balance. If someone buys a new mini there is a positive increase to the countries
    GDP. If someone buys a Mercedes all that happens is that we owe the Germans a large sum of money which will have to be
    paid back at some point. I have given my opinion on U.K. Police forces buying German made vehicles before.

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