BBC: Home owners risk retirement poverty

julieq

Erm, what the article is actually saying is that the idea of paying down mortgage debt as quickly as possible is preventing a balanced approach to finances. The irony of debtistheft posting this is that actually the article is saying that debt is OK when buying a house, and that you should point savings at pensions and savings which give you more flexibility rather than trying to get mortgage free as fast as possible. It actually explicitly explains that point.

I've often pointed this out. Many bears in particular are obsessed with buying as much of their house outright as possible, but that's financially illiterate. It's far better to maintain debt and hold offsetting cash and investments than to pour money into bricks and mortar where it's not available at times of need, and that's particularly true if you think house prices are going to fall.

Cleaver

debtistheft wrote: »

Its shocking how many home owners think they can downsize. How often have we heard the rather terse refrain "My house is my pension" and yet fail to see that downsizing from a 3 bed family home to a 2 bed retirement home doesn't actually release that much money, especially after the estate agents and other property leeches have had their cut.

My Dad bought a house for £90,000 in 1989 and was told he was mad for buying in what looked like a severe bubble. The house was worth a lot less a few years later. He and my Mum loved the house though so didn't really care and just got about paying off the mortgage.

Fast forward twenty or so years and he's retired and recently sold the place for around quarter of a million and downsized. Seems to have worked out all okay. The estate agent took 1.5% I think, and the 'property leeches' (is that solicitors?) took around £700 I guess. But there was plenty left after that. He never saw it as a pension though.

I'm obviously not saying that it'll be like this for everyone, but downsizing at retirement often seems a logical thing to do.

Thrugelmir

julieq wrote: »

It's far better to maintain debt and hold offsetting cash and investments than to pour money into bricks and mortar where it's not available at times of need.

Then pouring money into a pension scheme makes no sense. As the money is inaccessible.

The only beneficaries of a 25 year mortgage term are the lenders themselves.

STing

chucky wrote: »

i'm starting to think that all those mortgage free pensioners living in anything bigger than a 2 bed should be forced to sell their property.

it will be a good way to prevent property being a scarce resource.

A good idea, but I feel it'd be difficult to force them and/or prevent them from taking measures to ensure their house didn't fall into this criteria (e.g. knocking bedrooms through, taking out new mortgage, sale and renting back)? It'd be fun to see the Queen live in a two bed place though.

As an aside. Did you buy EMED shares(?). There performance hasn't been great (despite the share issue). I was tempted, JB seemed to both believe in them and have carried out due diligence. Seem cheap at the moment, maybe a good opportunity to buy in. Where is JB?

STing

julieq wrote: »

I've often pointed this out. Many bears in particular are obsessed with buying as much of their house outright as possible, but that's financially illiterate. It's far better to maintain debt and hold offsetting cash and investments than to pour money into bricks and mortar where it's not available at times of need, and that's particularly true if you think house prices are going to fall.

Doesn't it depend on an individuals circumstance? There's pros and cons for both.
<STing sits on fence>

chucky

STing wrote: »

A good idea, but I feel it'd be difficult to force them and/or prevent them from taking measures to ensure their house didn't fall into this criteria (e.g. knocking bedrooms through, taking out new mortgage, sale and renting back)? It'd be fun to see the Queen live in a two bed place though.

i was being a tad sarcastic but you've made a good point.

i was referring to those mortgage free individuals who live alone and have 3/4 bed houses and complain endlessly about the limited supply of housing stock but feel it's fine for one person to live in a house with more space than they need.

it's quite similar to those that want cheaper house prices but won't sell their current house for less than market value. the irony is quite ironic.

STing wrote: »

As an aside. Did you buy EMED shares(?). There performance hasn't been great (despite the share issue). I was tempted, JB seemed to both believe in them and have carried out due diligence. Seem cheap at the moment, maybe a good opportunity to buy in. Where is JB?

yes i did at about 13p, i then had to average down to about 11p so still in there. let's see what comes of it.

JB is probably sipping some champagne bought from his income from his landlord.

Graham_Devon

STing wrote: »

As an aside. Did you buy EMED shares(?). There performance hasn't been great (despite the share issue). I was tempted, JB seemed to both believe in them and have carried out due diligence. Seem cheap at the moment, maybe a good opportunity to buy in. Where is JB?

They may be an ok buy now. I sold out to buy elsewhere, and it's the only stroke of luck I have had, as they plumetted the week later.

Be prepared to wait though. Will probably buy back in later myself.

julieq

Thrugelmir wrote: »

Then pouring money into a pension scheme makes no sense. As the money is inaccessible.

The only beneficaries of a 25 year mortgage term are the lenders themselves.

The article is calling for balance, not favouring one thing over another. The argument for paying into a pension (or any other kind of savings) is that if you front load it you get a better outcome, and a pension ultimately ends up more liquid than a house.

But if you can yet 5% return on capital and you are paying 4.5% on a mortgage, then it's dumb to pay down the loan. That's obvious. The psychology of being mortgage free is fascinating, but it's an emotional rather than logical position. Which is what the article is arguing, essentially.

Actually it's hugely arguable that the only beneficiaries of a loan are the lenders. If that were true, no-one would ever borrow.

Thrugelmir

julieq wrote: »

But if you can yet 5% return on capital and you are paying 4.5% on a mortgage, then it's dumb to pay down the loan. That's obvious.

Return comes with risk. Investing in BP being an example of how unexpected events can impact.

.5% doesn't seem a significant margin to take the risk with. As that equates to £500 on a £100k. Better to improve your LTV and switch to an improved mortgage rate.