How do people afford large houses?

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  • How do people afford large houses?
  • Premier Icon jam bo
    Subscriber

    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.

    Premier Icon slackalice
    Subscriber

    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.

    kerley
    Member

    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?

    Premier Icon w00dster
    Subscriber

    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.

    Ro5ey
    Member

    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 …. 🙂

    Premier Icon sockpuppet
    Subscriber

    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!

    Premier Icon dougietodd
    Subscriber

    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.

    Premier Icon FuzzyWuzzy
    Subscriber

    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.

    tjagain
    Member

    I have to say I wish I had overpaid my mortgage now I’m 58

    scruff9252
    Member

    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?

    johndoh
    Member

    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.

    belugabob
    Member

    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.

    Premier Icon kcal
    Subscriber

    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.

    gobuchul
    Member

    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.

    Premier Icon Trekster
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    “enor j

    Subscriber
    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

    trail_rat
    Member

    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,

    rmgvtec
    Member

    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.

    TiRed
    Member

    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.

    johndoh
    Member

    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).

    dantsw13
    Member

    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.

    Premier Icon njee20
    Subscriber

    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.

    Premier Icon lesgrandepotato
    Subscriber

    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.

    5lab
    Member

    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.

    tjagain
    Member

    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

    Premier Icon tonyg2003
    Subscriber

    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

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