Interest only mortgages

mystic_trev

http://anmblog.typepad.com/this_is_money_blog/2006/08/first_time_buye.html

"So there they will be, stuck in a small house or flat with a big mortgage that is getting no smaller, and no way of paying it off. As Cornell says, a £200,000 mortgage today will feel exactly the same as a £200,000 mortgage in ten years' time"

kenshaz

RHemmings wrote:

I'm not sure I get your point. There are risks and there are risks. Some risks are worth taking because the potential rewards of success outweigh the potential loss. Other risks are not worth taking. Think about tossing a coin. Imagine that I bet that if the result of a coin toss is heads, I give you £10, but if it turns up tails, you give me £5. If you were a betting person, then you'd take the bet. Now imagine that I bet that if the result of a coin toss is heads, then I give you £100, but if the result is tails, you give me £500. There is higher risk, and the potential of higher return (£100 versus £10). But the risk is no longer worth it, and if you are smart you would refuse the bet.

Buying a property in the current market is a similar sort of bet, but we don't know what the future outcome is going to be. So people need to think carefully about what might happen if they buy a house. Prices might go up, or they might go down. If they do go up or down then you need to think carefully about how much they might go up and down. Then you need to make a sensible, rational, decision about what to do.

There seems to be an attitude on many boards, possibly including this one, that taking risks is "good" or "brave". Sort of like a financial "macho" culture. Given the history of a long rise in the market, I can see how such a psychology could develop, as many risks would have been taken and come up trumps. So it's easy to forget about the potential life-damaging consequences of taking a risk in the property market that comes a cropper. Losing a deposit that took years to save or similar.

What I think is important to consider is that the risks and potential losses and rewards of purchasing a house depends on the current state of the property market. Despite what The Daily Express and similar papers might say, I don't believe (and yes, I'm talking beliefs) that there is much further up that the property market can go. So potential rewards are limited. But in areas such as mine where there is no population growth, supply is growing, and wages are not growing, why have houses gone up? It looks like a speculative bubble to me, and those have a tendancy to pop when the prices stop going up. So my beliefs are that I'm looking at a potential of small gains, and a good probability of large losses. It looks a lot like the latter of my two coin flip bets above, and therefore it's sensible not to bet.

But that doesn't mean that I won't ever buy a house. The market changes year after year in a cycle, and I believe the time will come when houses are more fairly priced compared to wages. At that point buying a house would be much more sensible, and I intend to do so. If I was talking about small bets, maybe betting 5p a time on the roulette wheel, then I could play all night on the few quid I've got in my pocket. And if I lost that, I would hardly notice it and perhaps would choose a better gamble for tomorrow. But in buying a house, for me it's more of a once only bet. So I have to choose my time very carefully.

You should put your money in a building society and rent,and stay in doors never go out and do not drive or go in an areoplane

regularsaver1

kenshaz, you do make me laugh :P

kenshaz

libitina wrote:

You are probably in the minority in having paid off your IO mortgage. Many people have only had IO mortgages for the last couple of years in order to get themselves on the property ladder. The common misconception that many of these people have is that they own their own home. They don't. They're just paying the rent to the bank instead of a landlord and unlike renting from a landlord, they're still responsible for the maintainance and upkeep of the property they're renting from the bank.

IO mortgages will be the next endowment scandal as very few people have a vehicle in place to pay off the capital.

And all this is not even taking into account falling house prices, rising debts and rising unemployment........No more boom and bust?! Hah!

REnt do not get a mortgage you are such a worrier

PabloNeruda

RHemmings wrote:

Buying a property in the current market is a similar sort of bet, but we don't know what the future outcome is going to be. So people need to think carefully about what might happen if they buy a house. Prices might go up, or they might go down. If they do go up or down then you need to think carefully about how much they might go up and down. Then you need to make a sensible, rational, decision about what to do.



What I think is important to consider is that the risks and potential losses and rewards of purchasing a house depends on the current state of the property market. Despite what The Daily Express and similar papers might say, I don't believe (and yes, I'm talking beliefs) that there is much further up that the property market can go. So potential rewards are limited. But in areas such as mine where there is no population growth, supply is growing, and wages are not growing, why have houses gone up? It looks like a speculative bubble to me, and those have a tendancy to pop when the prices stop going up. So my beliefs are that I'm looking at a potential of small gains, and a good probability of large losses. It looks a lot like the latter of my two coin flip bets above, and therefore it's sensible not to bet.

Don't be so dramatic. :rotfl:

I'm willing to bet you a trillion pounds that if you bought a house now, you will have comfortably doubled your money in 25 years time.

kenshaz

PabloNeruda wrote:

Don't be so dramatic. :rotfl:

I'm willing to bet you a trillion pounds that if you bought a house now, you will have comfortably doubled your money in 25 years time.

not worthy of a response
bye

PabloNeruda

Phew. Thanks.

regularsaver1

no one knows what the future holds but its about taking risks.

We should not have a go at someone who wants to do something. Its their choice and their opinion.

seven-day-weekend

regularsaver1 wrote:

why does everyone say with with a BTL it can be sold at anytime ? - it doesn't seem that way with "Tenants from Hell" on TV tonight that I watched.

I don't know whether 'everyone' said it - I think it was just me!

I just found from my own experience that if you rent on an assured shorthold tenancy that, even if there is a few month's delay, the tenants WILL be out and then you can sell.


What happenend on 'Tenants from Hell' then?

RHemmings

seven-day-weekend wrote:

I don't know whether 'everyone' said it - I think it was just me!

I just found from my own experience that if you rent on an assured shorthold tenancy that, even if there is a few month's delay, the tenants WILL be out and then you can sell.

What happenend on 'Tenants from Hell' then?

Define "few". Two months if your tenants leave nicely. Six months or more if you have to evict them.