How much debt?

£560k on Mortgage

Thank you, whoever that was, a few pages back. Feel better now.

35, sole income, self-employed oil & gas contractor, three little kids, £420k debt. Sleep? Hair? Time to ride? Not so much.

House going on market tomorrow.

We have our mortgage, and 2 years left on a car loan. My plan is to keep the car for at least 8 more years, saving all the time so the next car is bought cash!

I was terrible with money, and have a problem with always thinking the next new bike/thing will make everything better! Eg If I have a Santa Cruz/orange etc then I will be a proper mountain biker….people will look and think I am great! Thankfully I am slowing coming to realise that it is all a pile of crap! I still have days where I find myself obsessing about how to buy the latest xyz, but at least now I realise it!

Current obsession is HT vs FS to replace my perfectly good Boardman FS which I have decided is too small for my 6’3″ size! Then onto Cotic (I like the brand) vs Bird…local to me and much better value….It is never bloody ending, but at least now I am not just caving in and getting anything on credit to satisfy the urge! I just come on here and ask random questions and procrastinate….

who makes up these justifications for debt ? Is there a copy in print ? i’d like to see what i can acceptably have debt on.

Debt isn’t inherently bad. Its usefulness is down to circumstances.

A PCP on a car at the right rate is fine. Say you decide to spend 25k on a car and, over the period of your ownership, its value depreciates by 10k, the only upside to buying outright is the interest saving. But if the rate is low (say under 3%) then, yes, you have the cost of money but equally you don’t tie up the net 15k while you own the car. You can use that 15k for other purposes (even just sitting in the bank as part of your emergency fund). Cash is, as the old maxim goes, king.

How many people here think having any sort of mortgage is a bad idea?

Nearly having my first house repossessed in the early 90’s scared the crap out of me.
We have a mortgage which is 6% of the property value, some savings and two paid-for cars. Much to my wife’s dissapointment I’ll not borrow money to buy anything – if we want something the money has to be in the bank first (I’ll not touch the savings as I’m self-employed and you never know what the future holds).

But you have a £25K car which is certainly more than I would dream of spending if I had a big mortgage. You could buy the same car second hand for half that.

How many people here think having any sort of mortgage is a bad idea?

I don’t. You have to pay to live somewhere, you may as well use that money towards buying where you live rather than funding someone else’s investment/retirement plan.

(As long as it’s affordable)

About 130k on mortgage, and a couple of grand student loan.
Got about 20k in savings and pay off cc every month.
I did the whole get myself into debt and Bury head at uni. Am well out of that and making damn sure i don’t get in that situation again

Just found out I have the opportunity to earn a fat pile of overtime at work, unusually. That should help.

And if you give up your pcp tomorrow what are the penalties ?

People up here are being billed for the rest of their agreement when they are handing back due to job loss.

One of the pitfalls i guess.

Mortgages are acceptable as you have to live somewhere , not really any alternatives unless you live in a caravan or a tent …

Calling pcp acceptable debt is an odd one, one could – use public transport , drive a car not worth 25k , cycle , walk , hire cars when needed etc etc …. Its not a neceesary evil to have a pcp car.

And if you give up your pcp tomorrow what are the penalties ?

People up here are being billed for the rest of their agreement when they are handing back due to job loss.

One of the pitfalls i guess.

There are rules about what you can and can’t do – including handing back once 50% is paid (different if it’s a straight lease as there’s no exit options). Not sure if the same rules also apply in Scotland.

But if you’ve kept the 15k in a bank (indeed the whole 25k and funded thed depreciation out of income, say) then you have cashflow choices if you lose your job without necessarily having to sell your car.

But if you haven’t got an emergency fund to manage exactly these sort of scenarios, then any sort of debt (including a mortgage) is never acceptable as you’re right – someone will always want to be repaid.

Debt isn’t bad. But over leveraging and not having a rainy day plan is.

Continuing references to PCP are now giving me Mercedes C Class adverts..!

I don’t. You have to pay to live somewhere, you may as well use that money towards buying where you live rather than funding someone else’s investment/retirement plan.

I’ve always held that you have to pay to live somewhere. There are two choices: rent or buy. In both cases you need to decide how to fund it (your money or someone else’s).

Because of the intertwined relationship between propoerty ownership and personal debt in the UK, we’ve got to the point where very few people who choose to buy are doing so with cash.

And so a whole finance industry is built around ever increasing amounts of secured personal debt: you need to pay to live and have to borrow to do it. As house prices continue to inflate, then we have to borrow more and more to stand stil….

My glib remark is that we’ve convinced ourselves that personal debt is OK, and that mortgage debt – damaging though it can be if you lose your job and can’t pay – is the most acceptable of all, almost to the point where people don’t see it as debt but as the only reasonable method of paying to put a roof over one’s head.

And really that’s only because we view renting as lining the pockets of an individual (for their investment/retirement) but don’t (won’t?) see mortgage interest as doing the same thing but on an industrial scale.

Hence I’m happy to draw my own lines on what levels and types of debt I think is acceptable to me….

(As long as it’s affordable)

Damn right. I’ve been to the unaffordable place and I’m not going back.

Why are some people not including mortgages in their debt burden BTW?

I get the responses pointing out that you have to pay to live somewhere and you might as well get something out of it at the end.

But I do think there is a bit of a society Jedi mind trick at work when it comes to houses and money. Like cars, people have been conditioned not to think about them the same way they do other things.

Isn’t there a boatload of interest on your mortgage debt too? You don’t hear people talking about that much.

EDIT: should have read ourmaninthenorth’s post better!

Mortgages are acceptable as you have to live somewhere , not really any alternatives unless you live in a caravan or a tent …

Who was the chap on here who did that for a year to save money for a deposit?

@ MrSalmon – rather more succinctly put than my post..!

Isn’t there a boatload of interest on your mortgage debt too?

Not currently – it’s barely over inflation. Which may of course change.

Not currently – it’s barely over inflation. Which may of course change.

I think he means in the absolute amount payable over the lifetime of the loan.

Over the lifetime of the loan.. has anyone ever experienced a case where a house did not appreciate significantly in value over 25 years?

The total amount of interest paid is nothing compared to the appreciation of the asset *over the lifetime of the loan*.

And anyway – it’s academic, because as said you have to live somewhere. Buying cash isn’t an option for most people. And of the two alternatives, one results in a huge asset (almost always) and one does not.

Absolute amount isn’t a problem assuming cash flow ok for monthly payments. If house price growth is greater than interest rate then you win.

Mortgage was the best investment I ever made!

Borrowed £78.5k to buy a £91k house, paid it off in 10 years and probably paid back £90k ish with interest.

Next door but one (identical layout) is on the market for £550k at the moment.

molgrips – Member

The total amount of interest paid is nothing compared to the appreciation of the asset *over the lifetime of the loan*.

A quick calculation shows that a £250k debt, paid back at 4% over 25 years will cost c.£150,000 (before any other costs, e.g. house maintenance / remortgaging fees).

You’d need to look at the time value / relative value of money over that period and account for general inflation during those 25 years; before thinking that a £150k finance fee was “nothing” compared to any real terms asset appreciation. 🙂

Over the lifetime of the loan.. has anyone ever experienced a case where a house did not appreciate significantly in value over 25 years?

Not everyone is able to stay in the same house for 25 years though.

Personally we’ve been here nine years and now with two kids we could do with something a bit bigger, but we bought before the crash so if we sold now we’d struggle to even get what we originally paid, which is a pretty big loss when you consider interest and the money sunk on extending and improving. 🙁

The total amount of interest paid is nothing compared to the appreciation of the asset *over the lifetime of the loan*.

I was only able to buy my first house (back in the 20th century) because there had been a crash in prices. Many people had their homes repossessed when they couldn’t pay as interest rates rose and negative equity meant they couldn’t afford to sell either.

Some will say it won’t happen again but one thing I am sure of is that no one knows what will happen in the future and it can all change quite quickly too.

No more boom and bust…..until the next one.

Mortgage was the best investment I ever made!

You mean the biggest debt you ever took out…

Over the lifetime of the loan.. has anyone ever experienced a case where a house did not appreciate significantly in value over 25 years?

It is an extremely dangerous assumption to make that the long-term growth trend that we’ve seen will continue. Right now I think the younger generation are getting themselves neck-deep into debt on the basis of this assumption, ignoring the fact that prices are supported by a number of short-term props which are highly unlikely to sustain over the period of a 25-year mortgage

1. Historically low interest rates
2. Help To Buy (taxpayer-funded subsidy)
3. BTL (fashionable and supported by 1. above)
4. A tidal wave of speculative foreign money (a significant % of which is laundered criminal money) into London
5. Restrictive planning laws and games from developers failing to build

Worth also looking at basic demographics and affordability – baby boomers will soon be looking to ‘cash-in’ on their ‘asset’ ie: sell, either for their pension or to go into care – leading to increase in supply, coupled with a first-time buyer generation who are earning too little to be able to save for a deposit or afford the high prices being asked (+ an unwillingness to get themselves into a massive debt to fund the retirement of the older generation)

Many many people are saying London and SE are massively overpriced – BoE, fund managers, IMF etc etc. We may or may not see a bust but certainly the idea that prices will continue to rise as they have done recently is a heroic assumption and once that assumption turns out to be wrong, you might find sentiment changing quite fast…

Worth remembering that the bigger your debt, the higher your monthly repayments and the lower your disposable income. Worth noticing that wage growth is low and productivity and economic growth are suffering. I’m sure it’s occurred to Osbourne that there may be a link between super high house prices and weakness in all the macroeconomic measures, against which his legacy will be measured… and he’s a political schemer before he’s a Chancellor

If your options for somewhere to live are either rent or buy with a mortgage, then I don’t think there are many situations where renting is the better option for your long term financial health.

Well – if prices are falling or need to move around a lot renting is best.

Often it would be financially more rewarding to invest capital in the stock market and rent. Some years not! This is most relevant to people with a lot of capital, mortgages have been good in the past as can leverage a big investment in property. Easy to double your money but also easy to get wiped out – doesn’t happen much though in recent times just those who bought close to a house price crash.

Worth also looking at basic demographics and affordability – baby boomers will soon be looking to ‘cash-in’ on their ‘asset’ ie: sell, either for their pension or to go into care – leading to increase in supply, coupled with a first-time buyer generation who are earning too little to be able to save for a deposit or afford the high prices being asked (+ an unwillingness to get themselves into a massive debt to fund the retirement of the older generation)

There is also the danger these baby boomers will realise BTL ain’t the cash cow they were led to believe by that chap down the golf club.
Last to the table always get the leanest pickings, and those that cashed in their nice tax free pension to jump on the train that has already left the station may get a shock next tax return date.

Just split up with the Mrs and left her and the kids with everything.
£20k of unsecured debt to deal with, I’m renting and with the debt to contend with no real option of saving for a deposit for a house for the foreseeable future so could be renting for some time.
Likely another 10 years of supporting the Ex maintenance wise so prospects for getting debt free or my own house looking pretty slim….
BUT the kids are happy, I earn enough that I don’t have to worry about not being able to pay bills and debts or making ends meet.
I may not be able to get my own place but I climb and ride my bike and everything else seems to fall into place.
If I buy a house in 10 years time when I’m debt and kid free then I’ll only be 45 years old. Reckon I could buy my own little pad and pay it of in 10 years so I’ve no real concerns.

I’m in a good place. Can’t claim too much credit though.

Left uni with no debt – worked summers and weekends.
Lived in a flat the family bought so low rent.
Been able to work part time as well as save – bought all my cars/bikes up front. Not flashy, but good ones.
Now mid 30s and flat passed to me mortgage free – central Edinburgh, 2 bed place. Have a years salary in the bank and no debts anywhere.

So, I’m doing good, but mostly luck and the family helping.

A quick calculation shows that a £250k debt, paid back at 4% over 25 years will cost c.£150,000 (before any other costs, e.g. house maintenance / remortgaging fees).

Other fees are broadly the same, you still have to insure and maintain (although yes, you can avoid some big ticket maintenance stuff). At the end though, you’ll have paid £150K and then be living in a house worth £450-500K.

25 years of rent – for the same £150K = £6K / year = £500/mo. I’ve never rented but intuitively I don’t think you can rent that much for that and once inflation is taken into account, you won’t rent much for £500 in 25 years time.

It is economically a no-brainer and i wish i had a solution for young professionals like teachers and nurses in affluent areas because getting onto the ladder is nigh impossible. While property magnates continue to have their cake and eat it.

What i don’t understand though…. I have a german colleague and home ownership over there is a fraction of ours. It’s cultural, but why?

i wish i had a solution for young professionals like teachers and nurses in affluent areas because getting onto the ladder is nigh impossible.

We do have a solution. Stop deliberately propping the market up with restrictive planning laws, criminal and foreign money and taxpayer subsidies through Help To Buy and let the market fall back to it’s natural long term level of c 4.5x earnings.

Prob is, existing homeowners will refuse to vote for any government who allows this to happen… it’s an election-loser.

It’s cultural, but why?

Because as per the OP, British are uniquely idiotic about debt and don’t understand that the only real winners from ever-rising house prices are the banks who lend us the ££ to buy… the banks take advantage of our cultural refusal to see a mortgage as the massive debt that it really is. Look at all the posts above…

tbh if I were Chancellor, knowing the British attitude to house prices, I’d also be doing everything I could to keep prices going up. After all, I’ll be long gone by the time the long term damage becomes evident to the electorate

48 yrs old, manual job (engineering) so not a huge wage compared to more than a few on here i suppose.
Small mortgage, less than 20k to go, no other debt & a few grand in the bank.
I have a mortal fear of debt, ever since a bout of redundancy and i only spend what i’ve saved. We need a new bathroom, kitchen and stairs carpet but it gets done when the cash is there. Bathroom will happen next month, kitchen in six months time etc.
When i split up with the ex, she had over 4k on her credit card, i had £600 on mine. I paid mine off within two months and cut the damn thing up, 4k may not be much to most, but i couldn’t sleep with that hanging over me – i hate being in debt that much.

43 with 12 years mortgage left, hoping to sell because we have approx £120k equity in it – only because we bought way under value at the right time and gutted it. Have agreed a price on a (perfect for us) knackered old mill to gut and renovate and be mortgage free.

Last five years have been tight though – the wife started a retail business and it seems to have paid everyone else as its expanded apart from her. Has meant spannering our aged and knackered car and van myself to keep bills to a minimum. I do look at peoples new cars with a pang of jealousy now and then.

My brother and our young niece and nephew live in Oz so we have to find Oz holiday money every few years-as we cant have children ourselves they mean the world to us but I still resent having to spend the money to do so.

Wife is looking for a job and winding the shop up one way or another as I feel more and more vulnerable in UK manufacturing/engineering.

Just the mortgage. It’s over £200k but under 50% LTV, 20 years left to run but overpaying brings our expected mortgage free date to be some time in 2031.

Considering a move to cheaper house to bring that down to be mortgage free in 5 years but not seriously considered it yet.

+1

Although we’re under £200k.

Haven’t read every post but there seems to be a lot of folk on here anti mortgages. I appreciate it’s great to be mortgage free and naturally it will be wonderful when I am 🙂

However I have no unsecured debt but a fair sized mortgage, the way I see it though is the family and me need to live somewhere! So I have two options as I can’t by cash…mortgage or rent ! Regardless of the interest I will have paid over the 25 years there are a few facts that ensure I sleep well at night…

1) my mortgage payment is a couple hundred pound cheaper than renting the house next door (win)
2) each month half of my payment comes of the capital, this will increase over the years (win)
3) at the age of 55 I will not have to worry about affording rent to keep a roof over my head (win)
4) I have the security of knowing that as a home owner and not renter I won’t be forced to move when someone else dictates! (win)
5) I know how much I’m paying (yes it could rise with interest rates) and it’s unlikely to rise significantly, not sure that will be the case in 20 years for rent prices (win)

Yes you can see a mortgage as a bind but we need to live somewhere and it’s the lesser of two evils to me

Read this with interest. Surprisingly few people with a bike on finance!

Surprisingly few people with a bike on finance!

My latest bike is the cheapest thing I’ve bought for some time. £4.5k bike that’s a few years old (7) and is sublime – horrendously light, littered with big name stuff, well serviced (brakes, shocks etc are sharp) and is just lovely. I mean absolutely fantastic. Rides like new.

Bikes are one of the things I really don’t understand why people buy new, by anyone other serious riders or those with cash to burn, when you can buy a truly amazing bike for £500 to £700, second hand.

Anyhow, mild digression, but maybe I don’t ‘get’ cycling any more 🙂

I borrowed £3m once, was living in my tent in my living room to save money (no furniture, no money for heating). Building a business. Didn’t pay myself really for 3 years. I still bristle when people who know me now say I am lucky. I was absolutely bricking it sometimes, I had 190 people who relied on me for mortgages, kids and their life. Hated it but when I sold out apparently I did really well.