Mortgage Interest is DEAD MONEY

Graham_Devon

Blacklight wrote: »

Are they?

That might be your perception fueled by the left wing anti government media and a few tin foil hat trolls on the internet. The figures tell a different story.

I take it you rent a place?

Quite right.

When you look at DOD (Decade on Decade) house prices are continually rising.

The BBC are just trying to spin stuff. I'd take no notice of their VI to be honest, they are out to cause mass panic.

I have my own charts which I follow. I've gone for COC. COC looks far better, and the COC just keeps rising, there is no stopping it. You can also use COC to give a great big slap in the face to those gurning, VI, doomsters, especiall Bill who sits grinning on the in the morning with his doomster arrows. And don't get me started on Elsie who makes his tea...biggest doomer out, she was the one who sneakily turned the arrow round 180 degrees on the graphics so it pointed down (completely untrue of course) as she'd been on her CLAIT computer course. I shoved my COC figure right in her face. Lost for words, she was. Unfortunately the damage was done, not only to Elsie, but the general public actually believed it.

COC (Century on Century) shows a truer comparison, and shows where prices are really going.

The boat has sailed, but thankfully there are some speedboats trying to catch up which you can board now, if you hand over your life savings, your kids potential earnings, and their kids inheritance. Your worth it.

bristol_pilot

Loughton_Monkey wrote: »

1. The mortgage interest cost vastly exceeds the 'market rent' for the house, to the extent that the excess cost will not represent a positive rate of return when set against the eventual house profit.

Yep. That's the one for my property. Rent £700. Mortgage interest £1,600. Even if I paid cash, the 'opportunity cost' (even after 40% tax) exceeds the rent. THAT is how ridiculous house prices have become.

twadge_face

Thanks everyone for your submissions.

I've spent the entire day considering and judging the submissions.

This one gets the prize for overall good sense for overarching wisdom. What anarchic common sense! :money:

getmore4less wrote: »

They are both dead money BUT.

The market is cyclic so there are a good times and bad time to do one or the other.

Inflation reduces the relative cost of debt this is the long term winner but the effects are much smaller than they used to be.

It is possible to get it wrong buying high with high rates

or get lucky buy low with high rates that then drop to all time lows.

Special award given for ending your introductory sentence with a "but".

AND, double-points for ending that sentence on a CAPITAL BUT.

I like your style.

The rest of you, I do apologise... I suppose you could accuse me of trollish behaviour. Oh, hang on, some of you did. Honestly, I just do this out of interest and never seek to wind anyone up. Ever.

I do like this forum, and you folk are wonderful. :A

twadge_face

Graham_Devon wrote: »

Quite right.

When you look at DOD (Decade on Decade) house prices are continually rising.

The BBC are just trying to spin stuff. I'd take no notice of their VI to be honest, they are out to cause mass panic.

I have my own charts which I follow. I've gone for COC. COC looks far better, and the COC just keeps rising, there is no stopping it. You can also use COC to give a great big slap in the face to those gurning, VI, doomsters, especiall Bill who sits grinning on the in the morning with his doomster arrows. And don't get me started on Elsie who makes his tea...biggest doomer out, she was the one who sneakily turned the arrow round 180 degrees on the graphics so it pointed down (completely untrue of course) as she'd been on her CLAIT computer course. I shoved my COC figure right in her face. Lost for words, she was. Unfortunately the damage was done, not only to Elsie, but the general public actually believed it.

COC (Century on Century) shows a truer comparison, and shows where prices are really going.

The boat has sailed, but thankfully there are some speedboats trying to catch up which you can board now, if you hand over your life savings, your kids potential earnings, and their kids inheritance. Your worth it.

You get second prize, sir, for your detailed analysis.

And I CANNOT believe you shoved THAT in her face.

I love a good spot of independent thinking. I used to work at the BBC. Hateful employer. Private sector is where it's at, I can tell you.

breadlinebetty

Loughton_Monkey wrote: »

You cannot compare mortgage interest with rent for this purpose. They are two different things.

Rent money is "dead" in this context. Like any form of buying, you are paying a 'fair market price' for a product - which in this case is the right to have a roof over your head. Each month's rent gives you one month's 'utility'. Same as any other spending really.

If you take an extremely narrow and pedantic view, then mortgage Interest is similar in that you pay a 'fair market price' for a product - except the product is temporary use of £250,000.

But leave aside the pedantry, the reason you have the £250,000 is so that you can invest it in a property. So let's look at the whole deal. As a by-product, is gives you the same 'utility' as renting - the right to a roof over your head. But you are also getting 100% of the profits from that investment.

[I will just refer, here, to the venemous abuse, ridicule, and sarcasm that will be due to all the namby-pamby idiots who respond with their short-term doom and gloom about double-dip, negative equity etc. The 'product' is one that lasts 25 years so even to hint that this will not be an investment over 25 years will expose anyone for the moron that they are.]

Therefore, the only way mortgage interest could be 'dead money' is a scenario like any of the following.

1. The mortgage interest cost vastly exceeds the 'market rent' for the house, to the extent that the excess cost will not represent a positive rate of return when set against the eventual house profit.

2. The mortgage interest cost is equal to, or less than, the 'market rent' and the house does not increase in value over 25 years.

The logic needs, I admit, minor adjustement to reflect additional cost of ownership such as insurance, maintenance etc. but these average quite a low percentage of value.

I would therefore strongly disagree that a long term mortgage, for residential purposes is 'dead money'. As to a debate (fine tuning really) about whether to buy this minute, or possibly wait 12/24 months before buying is an entirely different and valid debate. It would be extremely tiresome to see this thread descend to yet another 'tennis match' about what house prices are going to do next month or next January.

For 6 years, I rented out my main home. For those 6 years:

Average mortgage interest per annum = £11,264
Average Rent received per annum = £20,416
Increase in house value over 6 year period = 86%

So tell me. Who's was the 'dead money'? Mine, or the tenants?

Such a well thought-out post, and one that nobody can argue with - except a turnip, maybe?:T

movilogo

Mortgage interest is the money you pay for having the privilege of buying a house without a full cash payment.

So, you are paying for a service. You are also owning the house (assuming repayment mortgage) after you clear off your mortgage.

At the same time, when someone is paying rent, he will have nothing left after paying rent for 25 years.

So, rent and mortgage interest are not same.

JimmyTheWig

movilogo wrote: »

At the same time, when someone is paying rent, he will have nothing left after paying rent for 25 years.

Someone who is _just_ paying rent will have nothing to show for it after 25 years.
Someone who is _just_ paying mortgage interest will also have nothing to show for it after 25 years (assuming, probably incorrectly, no change in house prices).

ultrawomble

Loughton_Monkey wrote: »

For 6 years, I rented out my main home. For those 6 years:

Average mortgage interest per annum = £11,264
Average Rent received per annum = £20,416
Increase in house value over 6 year period = 86%

So tell me. Who's was the 'dead money'? Mine, or the tenants?

Seems to be an excellent example of how divorced the housing market was from the real incomes, which I very much doubt increased in proportion.

Loughton_Monkey

ultrawomble wrote: »

Seems to be an excellent example of how divorced the housing market was from the real incomes, which I very much doubt increased in proportion.

Very true, although in my case, the reason for renting was to go to the far east, where my earnings did indeed go up substantially over that period.

But overall, my main point was that Mortgage Interest is not dead money in the longer term. Over the last 40 years, I am no exceptional case, but by continually having a mortgage (overall at a cost probably less than renting similar houses) I have managed to amass a huge house value. The same will apply over the next 40 years.

Reading this thread shows quite a lot of people who don't see it. I think that so many people lack the ability to see 'strategically' or 'long term', and tend to think only of temporary difficulties in either not being able to get a mortgage, or of negative equity etc. If they had the ability to 'model' (on a spreadsheet) the overall cash flow, over a period, of say 25 years, of Renting versus Buying, then they would see it for themselves. If they didn't, then I would just love to see the assumptions they are making in the calculations. Any such set of assumptions, published on these boards, would give as all a good laugh.

abinanthanb

For a £246387 (UK avg house price) mortgage, one will pay £420,246 towards interest alone (9.77%, avg BoE rate in past 25 years) over 25 years.

Invest £9855.48 per year for 25 years (246387/25), one will receive compound interest to the value of £1,129,173 (9.77%, avg BoE rate in past 25 years).

Even if you substract £454634towards rent (7188, avg UK rent index per annum) for 25 years including 7% inflation added, you will still have £674538.9 in hand.

Rent money can be dead, but the money saved from not paying back any mortgage will be very much alive and kicking!!