because in other countries they do not have the artificially supported and unsustainable above inflation house price rises and proper rent protection and controls make renting easier and cheaper. so in many European countries a house is seen as a burden rather than an asset and renting seen as sensible because its cheaper. more flexible and somone else has the burden of maintaining it.
You say you have a £250 000 asset but its not one you can actually use tho is it? You can never get that money.
Our obsession with owning property is pretty weird when seen from others viewpoints.
I can pay off my own mortgage, or someone else's...?
in many European countries a house is seen as a burden rather than an asset and renting seen as sensible because its cheaper. more flexible and somone else has the burden of maintaining it.
And as counterpoint to what I just said: it's like leasing a car. You get a new car plus warranty, breakdown cover...
I've never understood the argument to rent vs buy, rent is more than the mortgage and taxes as long as you had a deposit, and all this invest instead forgets you still need somewhere to live so have to spend the money on rent you would have used on a mortgage
Only reason to rent is if you know/think you are going to move regularly for work or travel and don't want to be tied down
My idea of hell will be retiring on a fixed income and not having my own home
Is it me or is everyone ignoring the fact that Interest only works fine while your house value is appreciating, but becomes an issue if it depreciates and you don’t have financial cover?
hence, its more of a risk? Those sitting on interest only mortgages with a house value to equal or exceed the loan might be in a very different world if there was a crash tomorrow.
Or job loss.
Illiquid asset. Even less so if it's not appreciated yet.
Not like you can over pay and retrospectively draw down on an interest only.
While the facts as they are presented here -make sense.
I've watched too many people do it and fall fowl half way through and lose the house.
A secure home to bring up my kids was my priority over making money.
Is it me or is everyone ignoring the fact that Interest only works fine while your house value is appreciating, but becomes an issue if it depreciates and you don’t have financial cover?
hence, its more of a risk? Those sitting on interest only mortgages with a house value to equal or exceed the loan might be in a very different world if there was a crash tomorrow.
It is a long term thing. Over 20 years your house is not going to be worth less than it was when you bought it. If it goes down a year or two after buying (or due to a crash) so what, just keep paying the mortgage and living in it. You don't have to move because your house value has decreased do you?
And if you have a job loss how is that any better if you rent?
Over 20 years your house is not going to be worth less than it was when you bought it.
Yeah. We all thought that before the tech bubble burst.
As I said, I've seen no growth in 10 years now.
You can't guarantee that growth, therefore it is a risk.
I really haven't a clue what my house is worth, as I've no intention of ever selling it! paying inflated rent into retirement is a sobering thought btw.....
Financially speaking, renting is a fools game and a deeply unpleasant experience in the whole. I rented for 10 years in a range of shit flats & houses. Any defects raised generally not rectified until you move on & not allowed to decorate and no scope to improve your living conditions. The one flat I was allowed to decorate - I paid for the (only magnolia allowed) paint, done the work myself and then got my rent increased as the flat was now worth more on the open market!
Now bought a house and live in a 3 bed detached house in leafy suburbs of Balerno. Speaking to my cousin last night & she is spending the same as we do on our mortgage on rent for a small 1 bed & box room in Granton. This is through a housing association, so she has bedroom tax on top as she's a single twenty something so overall she is spending more than we are. It's crazy.
Kerley there are more options than just interest only or rent ....
But then that wouldn't fit the argument.
I'm very much on that path - using a decent salary while I have it to pay down the Mortgage, with a view to downsizing with the capital when/if the kids leave home in 12 years time.
As above, my view is that if I can retire without a mortgage, everything else is a little easier to manage.
I've no idea whether thats right or wrong, its just the path I decided to follow.
Financially speaking, renting is a fools game and a deeply unpleasant experience in the whole.
In the UK yes. It doesn't have to be like this. Why do so many rent across europe? High rental standards properly enforced and controlled rents. Most places its much cheaper to rent and also nie and secure with high quality property
Our obsession with owning property is pretty weird when seen from others viewpoints.
Thank you Margaret Thatcher.
because in other countries they do not have the artificially supported and unsustainable above inflation house price rises
that is often the argument, but I believe it is specious. If you look at property prices in another big capital (say Berlin, or Paris), they seem broadly similar to London, which is the one place in the UK which espouses price inflation
https://www.rightmove.co.uk/overseas-property/property-61075524.html
https://www.rightmove.co.uk/overseas-property/property-79861547.html
I'm sure we can find examples of where british prices are higher, however they are not orders of magnitude higher which would be the case if we had been running much more inflation than our european partners for years and years.
A lot of the cultural difference is aversion to, or appetite for debt. The germans generally don't buy anything on credit - the reason the €500 note exists is so they can buy cars in cash. Generally, the pattern there is that you save whilst working (and renting) then buy a house (in cash) towards the end of your life when you have enough cash.
The real financial advantage of buying is it locks in your monthly payment, whereas renting will generally inflate over time. Even if you're only talking about a in-line-with-inflation 3% annual rent increase (which is generally how the german rent controls work), after 25 years your rent will have doubled (taking home the same proportion of your household income) whereas your mortgage payments will have remained broadly flat, taking up half as much of your income as they did when you got the mortgage
Yeah. We all thought that before the tech bubble burst.
As I said, I’ve seen no growth in 10 years now.
You can’t guarantee that growth, therefore it is a risk.
The risk is based on data. I will bet that you cannot show me a period in the last 50 years where a house is worth less than it was 20 years before.
And as I said before you have only been there 10 years and you may have just made a poor choice of house, overpaid or purchased at the absolutely worst time possible. I am not saying you don't need to put some basic thoughts into the purchase but as long as you do then 20 years later you will never have a house worth less than purchase price.
Make it longer than 20 years and it is impossible to lose. My parents house cost them £2,800 50 years ago and is now worth around £250,000. Do you seriously believe that the value of their house could ever go back below £2,800 ? (i.e the price of a half decent bike)
I think commuter villages will see a huge price drop over the next 50 years as commuting becomes non viable due to the constantly rising cost and inconvenience of car driving
"I think commuter villages will see a huge price drop over the next 50 years as commuting becomes non viable due to the constantly rising cost and inconvenience of car driving"
I would suspect that will be more than offset by the increase in home / agile working.
I think commuter villages will see a huge price drop over the next 50 years as commuting becomes non viable due to the constantly rising cost and inconvenience of car driving
No they won't. A house in 50 years will NEVER be worth less than it is today, this is some basic stuff here.
No matter how much it's worth its still an illiquid asset in times of crisis.
I think commuter villages will see a huge price drop over the next 50 years as commuting becomes non viable due to the constantly rising cost and inconvenience of car driving
You're getting your desires mixed up with reality again.
Talking to the twenty somethings in the pub last night.
So a lad needs a place. £165,000 for a flat. Looks like he can afford it, though anymore ski trips and festivals might be a bit tougher?
He has a mortgage in principle.
His point is that it'll be fine, his flat will probably be worth twice as much as his loan, winner.
'But you'll still owe 165K at the end' 'how will you pay that off'
by selling the place and making 150k
What are you going to buy for 150k in 28 years time?
Fast Show, Bloke in the pub.
Well i guess the answer is you use the 150k for a huge deposit and then hope his 4.5x salary is enough to afford a 500-600kk 1 bed flat.
‘how will you pay that off’
by selling the place and making 150k
What are you going to buy for 150k in 28 years time?
Seems sensible enough. It's the middle ground option. With a repayment mortgage he'd have the whole sale value (but might not be able to afford the monthly payment). If he rents he has nothing at the end of it. Being £150,000 up isn't too bad is it?
True. I think the problem he had was not realizing he'd still owe what he had borrowed.
We've seen this before haven't we.
In 1985 interest only with endowment was the way to go, so I did. But that went **** up big time. The banks in fairness did their best to sort us out. Just scraped through that one.
Things change I guess. I still remember 12% plus interest rates. That was bad times
Can you even get an interest only mortgage on a domestic mortgage these days?
And as counterpoint to what I just said: it’s like leasing a car. You get a new car plus warranty, breakdown cover…
I wish the car I bought in 1991 for £1000 was still working fine and worth £4500.
As I said, I’ve seen no growth in 10 years now.
You must be an outlier - where do you live that has had zero increase in property value over ten years? Even taking into account the recession (which was give or take a few months ten years ago) house prices around us seem to have increased by around 20-40% since then (according to RightMove).
Most of central scotland has seen little price rises in the last 10 years IMO. Certainly around my way there was huge inflatiopn 25-10 years ago and nothing significant since
If he rents he has nothing at the end of it. Being £150,000 up isn’t too bad is it?
Exactly, and the point many are missing. If he rented he would be £0 up but would have spent the same amount. And again, my parents house example - bought house for £2,800 fifty years ago and paid off mortgage before it ended because in the 1990s £2,800 was no longer a big amount of money...
And the point many are also missing. If a mortgage is more than the rent ( common across Europe) then if you saved the difference you have a lump of money after 20 years. spend it on a mortgage instead and have no cash after 20 years.
Also when buying you are responsible for repairs, when renting not. You also have the risk of interest rate rises increasing your payments significantly.
All very well TJ, but rent costs more than mortgages in the UK. Using my example above, my cousin is paying more for a 1 bed and box room rental in Granton through a housing association (i.e. discounted housing) than I pay for a mortgage in a 3 bed detached house in a desirable suburb.
You also have the risk of interest rate rises increasing your payments significantly.
But surely if interest rates went up, the BTL owners would put rents up correspondingly?
In the UK yes. It doesn’t have to be like this.
What, rent money doesn't have to go to someone else? That sounds nice.
You say you have a £250 000 asset but its not one you can actually use tho is it? You can never get that money.
You can either leave it to your kids or sell it to cover the cost of care when you are old. You can also downsize to release a lot of money. A house is a significant asset for plenty of reasons.
My house hasn't gone up much since I bought it - local factors made it drop after the recession - but I've been paying off the capital so I'm still about £50k in the black. If I'd rented my rent would have been the same and there'd be no way I'd have saved £50k. Mortgage is the same as rent would be.
The risk is based on data. I will bet that you cannot show me a period in the last 50 years where a house is worth less than it was 20 years before.
Japanese real estate (particularly tokyo) is worth (significantly) less today than it was in the 80s. An outlier, perhaps, but it does happen
But surely if interest rates went up, the BTL owners would put rents up correspondingly?
rental pricing doesn't work like that - its driven by what people can afford\are willing to pay, not a combination of costs + margin - which is why there wasn't a big drop in rent in 2008 (when interest rates hit the floor). A lot of BTL is on relatively small leverage (particularly now as the rules got tighter) or no leverage (owned outright) anyway
I will bet that you cannot show me a period in the last 50 years where a house is worth less than it was 20 years before.
Accounting for inflation and maintenance of the house, I bet I could.
Can I ask where you live in the UK?
FWIW, as well as the flat that has flatlined on price, I do have a house that has supposedly gone up 30% in 5 years...
My point being that past performance is no guarantee of future returns.
And again, my parents house example – bought house for £2,800 fifty years ago and paid off mortgage before it ended because in the 1990s £2,800 was no longer a big amount of money…
so you are advising that we all invest in property at 1970's prices we can't fail? i'm in. where do i sign up?
can I get a defined benefit pension at the same time too?
I will bet that you cannot show me a period in the last 50 years where a house is worth less than it was 20 years before.
When I bought my house in 1997, you could buy an ex-council one or two bedroom flat in the town for £20-£25 k
22 years later you can now buy similar properties for £20-£25k
You say you have a £250 000 asset but its not one you can actually use tho is it? You can never get that money.
Of course I can.
I can sell my asset and buy something smaller. Or I could rent if I fancy it.
I have options.
I now have about 20 mortgage free working years ahead, to let my asset grow in value.
Do you honestly think when I retire and have the options that asset allows me, I would have been better off spending more by renting for 40 years and owning nothing and having no assets ?
If you do, That’s what is weird.
My house has been one of the best investments I've made, over 500% gross profit in 20 years if I sold today. Can't really see that being repeated over the next 20 years though.....
My head would ache if I tried to do the sums but if I had stayed in my first house (£42,500) I would have just about have paid it off now (and they are currently worth about £200k) - which would mean I could save lots each month (current mortgage is £1250 a month - but that's on a £210k loan against a £600k home so much more equity. I kinda think I would have been better off staying in my first home but it was tiny and had barely any outside space.
So all wonderful examples of what a great investment property has been for you.
How about if you had to do it with current property values with a 90/95% mortgage? Bet it wouldn’t look so great.
This thread has now turned into a recurring theme...
In the UK particularly, it would seem that a house purchase is marginally more positive than renting because private rents are relatively high ( BTL being a factor here) and we have very little social housing stock left. It also requires demand for housing to exceed supply, market forces.
The real winners in the house buying culture are the lenders, the fact that at the end of the loan period the ‘asset’ can sell for more than the purchase price creates the illusion of wealth, however the real wealth is in the debt and that is not for the homeowner.
The best way to treat home ownership is to pay off the debt as quickly as you can, which in real terms would mean sacrificing every bit of unnecessary spending whilst paying off the debt (holidays, nice cars, nice bikes, kids etc).
In reply to the OP’s original question, life is much easier when we get on with our own shit, rather than comparing ourselves to everyone else.
The best way to treat home ownership is to pay off the debt as quickly as you can, which in real terms would mean sacrificing every bit of unnecessary spending whilst paying off the debt (holidays, nice cars, nice bikes, kids etc).
For you maybe. Others would rather not sacrifice the things in their younger years and deal with it when they get older. Unless I end up in a care home which uses all my money I will most probably die with 100,000s in the bank and owning my own million+ pound house. What is the point of sacrificing in the years when you could have used the money to end up with that?
Completely agree Kerley. Life is short, I want the memories associated with holidays and doing nice fun things with my children while they are young.
Mortgages are still relatively cheap, my choice is to pay it off each month but still enjoying my life.
Slackalice like the other two above I completely disagree ....
A Mortgage at 2/3% is free money ... no way I'm paying it off more than I need to.
Sticking extra monies into ISA and Pension.
But anyway back to the OP .... Don't worry about it man ... you just need to remember EVERYBODY wants 10%/20% more.... from those in a one bed to those in 5 bed/3 bath... everyone wants just that little bit more and then when they get it, they'll want a little bit more again....
So the people in a big house probably aren't any happier... That being said, of course if it's well lit property, they'll be as happy as pigs in poop .... 🙂
I agree, in spirit, but the devil is in the detail. I haven't gone as far as interest only, but have a long mortgage and make only minimum payment. We could significantly overpay, but finding a balance is the answer.
We could rent absolutely nothing at all like our house near us for the monthly cost of our mortgage, let alone for the actual loss - i.e. the interest element.
This way we will own the house in the long term, but have a margin of cash each month to enjoy life while the kids are young rather than pouring it all into the repayments and Having more money after they've moved out!
I must be doing it wrong trying to pay it off before I'm 42 while it's cheap so if the rates go up I'm then potentially saving more so I can then reach about 42 and have a lot more free cash to spend on family.
How old are you now? If you're 40 then fair enough, if you're 30 then personally I agree with others above, spend some of it now whilst you know you'll enjoy it.
I have to say I wish I had overpaid my mortgage now I'm 58
I agree with slacalice - our interest rate on the mortgage is 1.8% but the 30 year average is nearer 6%. That provides a fantastic bit of head room for overpaying whilst maintaining a good lifestyle.
If we pay the mortgage pretending the interest rate we are paying is the statistical average, then we pay pretty much double the minimum payment. That saves us something like 15 years and £60,000.
Also if and when interest rates do go up, our lifestyle won't be adversely affected.
Why wouldn't that be worth taking?
How about if you had to do it with current property values with a 90/95% mortgage? Bet it wouldn’t look so great.
I had to do it when I bought my first house back in 1995 (my parents were in no financial position to help, in fact I had to use some of my saving to bail them out of debt - which I only found out about when making my own mortgage application). I scraped together the 5% deposit by scrimping and saving for 3 years then borrowed the absolute maximum I could (when I was earning £12k a year) to get a property costing £45,500. I sat in the dark with no heating on (I would watch the TV in a sleeping bag to keep warm) and I would only occasionally treat myself to Morrisons own brand lager to save money for the first few years of living there. All my furniture was second hand (I scoured supermarket notice boards for bargains) and even dragged my friends OAP dad along to Focus DIY to get their pensioners' discount (only available Thursdays)! on the cheapest of the cheap kitchen they did - which I recall cost me £275. It could be done then and it can be done now - unfortunately many people expect so much more now and don't wont to give up holidays, cars and other luxuries.
I'm not sure if this i9s an age related thing or not, but I get the impression that the tendency to pay off the minimum and 'enjoy life now' is something that 'younger folks' exhibit.
(Disclaimer - I'm 56, so the term 'younger has to be taken in that context)
Each to their own, I suppose, and there are pros and cons with each approach.
Paying the minimum does, however, remind me of those situations where large corporations would take 'pension holiday's during the good times, then get bitten by a pension black hole, later (well, the employees would get bitten)
Also reminds me of friend's daughter and son-in-law, who borrowed several thousand pounds from him, for a quite important medical procedure. Procedure went ahead, then they went off on a foreign holiday and upgraded their car. So, what they really borrowed the money for was a holiday and a car - not sure they'd have got the money if they'd pitched it that way.
I think the point the OP made a few times in this conversation is that he wasn't stressing about it. More a curiosity about how people do it. Something I ponder occasionally myself as well. I don't judge those others but am sometimes curious about how they manage. As we have seen from the discussions the answers are varied. The truth is some are not managing very well, some are putting off a proper future financial shit storm, some are frugal, some have been fortunate with prior investments and some are just plain lucky.
I wish I'd known about over-payment. I think in my day you got penalised for it.
But a pal who paid the high water mark, as it were, was very astute.
It's stuff like that that just isn't taught or available, or wasn't then.
I don't understand all these people saying to not pay off your mortgage early?
Interest rates are the lowest ever, they are only going to go up. Pay off as much capital now and then you might be able to cope when the rates go back up to a normal level.
We currently have a commercial mortgage and have to pay 3.9%, it smarts, but we are hammering the capital left and when it goes up, we will be OK.
Wish I could I could get a nice 2% residential deal.
"enor j
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I’m with How’s my dad too ,although my missus has had a moan that our house isn’t as lovely as others – I told her she better get another job. Ha."
This was me 30yrs ago!!!!
MrsT wanted to move into a new house down the estate. Told her to get a job (after 2 kids) She did.....
A neighbour and workmate thought we were daft at the time. We both moved into the new houses in our street at the same time, had kids in the same years etc. We took a gamble on a newer house on the same site 13yrs later. He has just moved into a new home recently, a site and house style and size we would not consider.
It's all down to whatever you want
I wish I’d known about over-payment. I think in my day you got penalised for it.
But a pal who paid the high water mark, as it were, was very astute.It’s stuff like that that just isn’t taught or available, or wasn’t then.
It wasnt when i grew up....and I'm still the right side of 35.
It depends on your outlook , I'm going for security over size. So I've been hammering the over payments for years while i was able to make hay while the sun shone.
Theres enough available to wipe it out - but as we like the location we live in we are choosing to use it to stick dining room on the back/new kitchen/new bathroom and converting 2 of the sheds into a utility room staying here with a small mortgage.
What i means is that although I'm currently on consultancy for redundancy i know that i can walk away when it is time and not worry about how I'm going to pay next months interest.
Compound interest
He who understands it, earns it; he who doesn't, pays it,
I did very similar to this in 2011, saved like hell, sold everything that had any value and walked the 5 miles to work to get my deposit. Every time i got a pay rise from getting the property 75% of said pay rise or bonus went on overpayments. I moved this year with my partner and we borrowed as nuch as we could (4.5 times joint income). The bit i haven't seen here where people are comparing it to renting - rent will always go up with inflation. A mortgage payment will only ever go up with an interest rate rise or by choice. I find it bonkers that anyone who is in their 20s or 30s not doing all they can to retire by 55 or sooner. I feel bad for my parents having to still work to pay for where they live at an age where they would love to be able to slow down.
How about if you had to do it with current property values with a 90/95% mortgage? Bet it wouldn’t look so great.
In 1994 we borrowed the 5% deposit on a three-year unsecured loan for our first house purchase. It was "for a car". The bank manager was happy with this arrangement, and we repaid it monthly and completed the loan. Fast forward a couple of house moves and we now have one half of our mortgage fixed at BOE + 0.25% for the lifetime of the mortgage (oh how they want people off that one). We are paying interest only, and of course, have a plan to repay the other half on retirement using pension fund 40% tax free allowance on 25% of total pot). The remainder will be a modest remortgage or we can downsize.
As I said, in times of low interest, think of financial gearing rather than absolute repayment. I view pension saving as the best investment of all. Start earlier than house purchase. Save half your age as a %. Use some to repay outstanding mortgage.
I find it bonkers that anyone who is in their 20s or 30s not doing all they can to retire by 55 or sooner.
For lots of people that isn't desirable - especially when they have family. I could have been almost mortgage free by now (even if I didn't once overpay during the 25 year term - and the repayments would only be about £170 a month based on what I borrowed so I would have overpaid ages ago). But I now have a family, a dog, rabbits, trampoline, climbing frame, shed, garage. Yes we could have coped in my first house (people used to) but I don't want to - and at the end of the day the bigger house will eventually yield a much higher return for our retirement/legacy whatever. If we'd stayed in the original place we would have just spent more on shit we don't need - we already get to have a reasonable amount of nice holidays, we have two cars (albeit one is a 13 yr old shed), I have three bikes. And I don't have much desire to retire just yet (although that might change in ten years - but the mortgage will be just about taken care of by then anyway).
I’ve just persuaded my wife to not overpay, but put the extra into her pension AVCs. She is a higher rate tax payer so any pension input automatically gets a 40% bump. Our mortgage is fixed for 10 years and will be paid off when we are 60. Taking the extra money as a tax free lump sum on retirement gives a much better return than paying extra off the mortgage.
unfortunately many people expect so much more now and don’t wont to give up holidays, cars and other luxuries.
Why's that unfortunate? Just different innit. I think in part it's because the actual sums needed now for a deposit are generally far bigger too.
Also in the don't pay it off early camp. Getting a mortgage is probably the only time most of us will get leveraged lending and very cheap rates, so it makes far more sense to stick in pension or stock and shares ISA rather than pay off the mortgage,as you'll earn more interest than it is costing you too borrow and over time that makes a massive difference to your savings.
Paid the mortgage off the first time at 35. Savings and investments. Current mortgage ‘significant!’ Carried out a major renovation over a couple of years. Made a couple of hundred thou. Have circa 65/70% equity. Costs to live somewhere very nice seems reasonable. Could always downsize if we need to.
If you want it build it.
I find it bonkers that anyone who is in their 20s or 30s not doing all they can to retire by 55 or sooner.
I'm in my 30s. I'd love to retire at 55, and will easily have the mortgage paid off, but given you can't claim your private pension till after that (currently the proposal is 10 years before public pension - so 58, but it seems likely to rise to public pension - 5 years in the future), nor can you pull out LISAs (till you're 60) funding such a move will prove tricky. Even if you had the maximum (£1m) in your pension pot (which very few will have), current annuity rates are around 2.5% if you want to retire at 55, so you'd be living on £25k - reasonable, but not enough to swan around the world living it up (considering you'll have 30+ years to go, you want to find something decent to do).
The trouble with overpaying a mortgage is it always makes that next, bigger house look more tempting. I would have paid off my first house a couple of years ago had I stayed in it, but predictably moved into somewhere much more expensive when the payments weren't too shocking looking
The best way to treat home ownership is to pay off the debt as quickly as you can, which in real terms would mean sacrificing every bit of unnecessary spending whilst paying off the debt (holidays, nice cars, nice bikes, kids etc).
No it's not. Complete guff.
And as for the poster above who advocates 25 year olds dedicating their life to ensuring they have loads of cash aged 55. Also bollocks.
Thete is a middle ground here that makes loads of sense. Enjoy life, but keep a sense of perspective, so that if you have a future it's a fairly good one.
I bought a house when I was in my mid 20s. sold it at a profit after a couple of years. Used the profit to go travelling for a couple of years. I could have kept that house and been mortgage free in my 40s. Instead I used the money to have fun then so I won't get my mortgage paid off until this year when I am almost 59
Taking about interest only mortgages makes me wonder how many people with these have no savings plan. I suspect most. I have a friend who bought a large house interest only and had no savings plan apart sell it at some point in the future and pocket the equity. He had a couple of redundancies in quick succession and lost the house. For me standard repayment mortgages were always the way to go and interest only seemed to high risk for something a major as your house.
My flat's "value" is increasing by ~£600 a month at the moment