Savings Log of a 26yr old on low pay

JohnRo

FatherAbraham wrote: »

It's an incredibly bad deal for the borrower.

The UK housing market is little more than a government backed Ponzi scheme. All part of the nasties new corporate socialist agenda, privatise the profit and socialise the losses and debt.

mike88

FatherAbraham wrote: »

No, the scheme is designed to help the construction industry shift props.

You really shouldn't take government propaganda at face value.

The scheme works by deferring the purchase of a part of the residence. That deferred part still has to be paid for later, at the market rate, not the nominal price when the property was acquired -- yet the victim-of-government-meddling must nevertheless pay "interest" on the deferred price.

It's an incredibly bad deal for the borrower.

Warmest regards,
FA

How can you comment as the details of the January scheme haven't been announced yet.

FatherAbraham

mike88 wrote: »

How can you comment as the details of the January scheme haven't been announced yet?

Because I confused your reference to the HTB Mortgage Guarantee scheme with the HTB Equity Loan scheme.

I guess you're right: if the details haven't been announced yet, then all bets are off. Anything could happen, and we shouldn't recommend or condemn the scheme yet.

Warmest regards,
FA

bowlhead99

FatherAbraham wrote: »

Because I confused your reference to the HTB Mortgage Guarantee scheme with the HTB Equity Loan scheme.

Both of the schemes are
- good for the construction industry (due to house price support);
- good for the lenders (risk vs reward on borrowing that might not have otherwise happened);
- good for the individual borrowers (providing opportunities that they could not have otherwise afforded, with no obligation to take them)
- good for other borrowers in the market who are looking to refinance (fake temporary boost to house values).

They are
- bad for other people who are not in the house-buying-or-refinancing market over the period of the offer but want to be in it later (because the house prices go up without them, making them relatively worse off than the people that catch the deal);
- bad for people who do not intend ever to be in the house buying market and prefer to rent (because an increase in property prices can't be good news for people wishing to rent similar properties); and
- perhaps bad for society at large (because government manipulation of the market gives people a false sense of security which could be painful when it reverses, while meantime being unfair to those who do not specifically benefit from it).

The whole premise of the government support to the housing market is that it will boost the wider economy and not just the housing market.
- The builders and lenders and estate agents can bring in more cash and employ more people than would have otherwise been the case;
- the people with reduced finance costs or higher house values who can take cash out of a property or borrow more against the property, or who have better employment prospects will spend on the high street;
- the high street spending again allows more employment and more company profits and more corporation and income taxes being paid etc and this money bounces around the economy with a mutiplier effect.

Only in the fullness of time will we be able to evaluate this with hindsight and see whether it was the right thing for government to have done - and this is not the 'debate house prices and the economy' board so my apologies for going off-topic from the OP's issues. We can forget the pros and cons of this happening at a macro level, I was just inspired to mention it as a result of Abraham's reference to "government meddling" being "incredibly bad" for the borrower.

I guess you're right: if the details haven't been announced yet, then all bets are off. Anything could happen, and we shouldn't recommend or condemn the scheme yet.

Well, it sounds like you are happy to condemn the existing, help-to-buy equity loan scheme, right? You said:

The scheme works by deferring the purchase of a part of the residence. That deferred part still has to be paid for later, at the market rate, not the nominal price when the property was acquired -- yet the victim-of-government-meddling must nevertheless pay "interest" on the deferred price.

It's an incredibly bad deal for the borrower.

It's true that the borrower is essentially kicking the can down the road to deal with in the future - he still has the need to pay for the other part of the house at some point later, at a price that may be higher or lower than it costs today.

However if he would otherwise have been unable to buy a house large enough for his wants/needs today, he has no choice but to pay a landlord some rental profits now and then buy the whole thing at some point later at a price that may be higher or lower than it costs today. So while there is a risk he will overstretch and get a larger place than needed now, and become accustomed to the lifestyle and get a shock later when he wants to move on again without government support, it is a useful opportunity.

Essentially: person could buy a 2/3 bed house today. Government equity loan allows them to live in a 3/4 bed house today and pay them the future price of the last room in a few years time when amount of equity paid off allows it to be financed on the open market, or the person's cash savings/investments allows it to be purchased for cash.

If the house price goes up and you sell, you don't get the profits on the last room, which is fair, because you never paid for it. If the house price goes down, your loss is limited and you only lose money on the portion of the house that wasn't equity financed by the government. This is safer than borrowing 15% from the mortgage company instead, where you would have a shortfall of proceeds against mortgage on that last 15%. Your purchase is lower geared and so is safer.

Finally you mentioned paying 'interest' on the deferred price. My understanding is that this only kicks in after a certain time, is at a low rate not linked to your personal creditworthiness, and in principle seems reasonable because you are after all sitting in a larger or nicer house than you have paid for or borrowed for. To have that not kick in immediately, while being at a rate agreed now (low interest rate environment) is no bad thing.

So whatever your political views, from the perspective of the borrower who understands what he is getting into and is aware the gravy train won't last forever, this could be a very convenient deal rather than an 'incredibly bad deal'. There will be some taking it, or watching others take it, that characterise the buyer as a beneficiary - rather than a victim - of government meddling.

I guess you're right: if the details haven't been announced yet, then all bets are off. Anything could happen, and we shouldn't recommend or condemn the scheme yet.

While the fine details might still be being bashed out, the basic principles of the new guarantee scheme are known and the rest will be fine-tuning:

- Borrower puts in 5%+ deposit and finances 95% or less from the mortgage lender.

- Subject to borrower not having too many black marks on credit history and meeting certain affordability and income tests, government will write a guarantee for the 15% at risk between 95% and 80% of house value.

- The lender will pay government a fee for this 'insurance policy' and likely be required to contribute some small amount towards the shortfall to ensure they have some 'skin in the game' and discourage reckless lending decisions.

- The lender's costs of the insurance policy will presumably be built into the interest rates of the 95% mortgage. As a lender, you face less volatile returns as you are mostly hit with the price of some sort of commercial fee from the government (which can be built into your lending rates) and not the much more lumpy losses on reposessions.

- As a borrower with low deposit, you can access finance that you would have otherwise found difficult to access, because more people are willing to take you on when they can buy the government guarantee against a pool of mortgages, of which yours will be one. And you can use this finance against a house of your choosing without having to buy an inherently overpriced new build.

This doesn't mean that buying a house when you can only put 85-95% down right now is a good thing, particularly if it's accompanied by a temporary boost in house prices driven by the extra demand. But it certainly opens up your options.

Treasury's published outline for the Jan 2014 scheme is here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/221897/help_to_buy_mortgage_guarantee_scheme_outline.pdf

This has been out a few months and is the basis for government talking to banks and other stakeholders about it and media writing articles (of varying quality) about it. See page 9 of the document (p13 of the pdf)- it's surprisingly readable. Of course it could change, as government policies do, but basically it's Treasury saying, "this is what we mean by a mortgage guarantee scheme".

mike88

Bowlhead's analysis is very useful.

However, using his words the scheme is:

- good for individual borrowers (providing opportunities that they could not have otherwise afforded, with no obligation to take them)

This thread is about Moneywaster's savings and his ultimate objective to get onto the bottom rung of the housing ladder which at present is probably unachieveable.

I agree that the scheme may impact unfavourably on house prices for any prospective purchaser - hence my earlier comment that many savers are likely to reach a point where prices rise faster than individuals can save.

Leaving aside the possible "social" imperfections of the scheme an option for a person in a similar position to Moneywaster who is saving for a deposit might consider bringing plans for home ownership forward so that he avoids being in a position where savings fall behind the price rise curve.

I drew attention to this scheme so that Moneywaster could at least be aware of his future options.

MoneyWaster2007

mike88 wrote: »

Bowlhead's analysis is very useful.

However,

This thread is about Moneywaster's savings and his ultimate objective to get onto the bottom rung of the housing ladder which at present is probably unachieveable.
.

First off, thanks very much Bowlhead for taking the time to write out your very lengthy and insightful reply. Much appreciated! It has given me a better idea of the gov't help-to-buy scheme.

mike88, referring to the above quote, I'm starting to feel that building a deposit large enough to get onto the bottom rung of the housing ladder is 'probably unacheiveable' myself. So, what to do...

Well, I could (a) continue saving as I am, with a goal not of home ownership, rather more of one involving lots of hope and crossed fingers, or (b) share a house or flat (rented) with a friend who has expressed interest in doing this, with similar outgoings to what I'm currently paying, meaning a better living space.

Option (c) would be to just spend some money which I've saved and enjoy it, whilst keeping a 'safe' amount as backup.

I'm a bit flummoxed at the moment as to what is the best option. I've worked hard to get where I am, but I don't want to be chasing an impossible dream.

Even after all the explanations kindly given to me regarding the help-to-buy scheme, I still feel it's not that good and carries risk which I don't want.

ampersand - I've not been swimming for a while, I was cycling until a few moths ago, but have been suffering a bad back, so all sports are on hold, for now.

atush

OptionB sounds pretty good.

but do remind us of the average 1-2 bed property prices in your area. If you have 8K, and are going up to 10K soon yiou may find you will have enough for one of these schemes.

If you do buy rather than rent with another person, do get proper written contracts. And don't rent with someone without you being both liable for all costs.

MoneyWaster2007

ViolaLass wrote: »

OP, I contributed to this thread some months back but haven't kept up to date. Out of curiosity, what have you done this year to improve your earning power? I don't mean overtime, I mean qualifications/experience.

Hi ViolaLass, I'm still on with my Psychology degree and passed year 2 last week

At work, I'm involved with lots of things, including recently becoming a fire warden (got 100% on the exam!). I'm also first aider and module owner for part of the safety scheme. I'm possibly going onto the safety commitee aswell. All of this with no rise in wages unfortunately. People are being made redundant, including the manager last week..

ampersand

mw - I don't want to feel fears for you. I slightly think you are doing that for yourself atm.

I continue to feel that your own current view 'Even after all the explanations kindly given to me regarding the help-to-buy scheme, I still feel it's not that good and carries risk which I don't want' is more right than wrong.

Have you ever thought of a bolthole in another country with cheaper property?
I definitely would be doing so, if I were you, but I would not let it dominate me as your current search for The Meaning of Life[in Mortgage terms]seems to be doing.

To be saddling yourself with pressure, be it the pressure of debt[which you know about and have magnificently extracted yourself from]or AlwaysLearning's 'savings burnout' or 'must-have mortgage' mania is still pressure. It is not healthy.

Aims and targets need direction, underpinned by strong, stress-free belief in their ultimate value. Your savings are your present victory, earning interest daily regardless. This Government, these policies, this personal situation of yours....they will change often in your lifetime. You will look back - one day, d.v., remembering as you chat with your own young adult children - how tough things were, how they improved, how finally you arrived at where you are.

One sure thing is that you have learnt and will pass on priceless lessons from your own experience. Please don't despair at what appears to be a lack of momentum right now. IT ISN'T! Plateau periods, flat-lining, fallow times are part of the cycle. Wisdom is recognising this and going with it, mw. As for your back pain - that's nasty. What are you doing about it? GP says what? Does what? Swimming should be the best possible physical activity, because of water giving you buoyancy. It will lift this malaise of mind too.

I am so bossy with you, young man:-)! From my life vantage point: 2nd bus pass ancient kiwi lady, who so much admires all you have achieved and the way you write about yourself - simply, unvarnished, truthful - I've decided I'm entitled.

Make a proper appointment about that back pain - it affects a lot of other things. Have an MOT on it, okay? What is your mattress like?

ampersand

MoneyWaster2007 wrote: »

At work, I'm involved with lots of things, including recently becoming a fire warden (got 100% on the exam!). I'm also first aider and module owner for part of the safety scheme. I'm possibly going onto the safety commitee aswell. All of this with no rise in wages unfortunately. People are being made redundant, including the manager last week..

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mw - I just hit send and at once saw your reply to ViolaLass. Do you not see how you under-rate yourself?

WELL DONE!!!

By virtue of keeping your job, involving yourself with what is on offer, you are doing tremendously in these times.

I think you are terrific, so there.