The moral hazard of being kind to the indebted

kabayiri

vivatifosi wrote: »

Personally I'd overpay as my nightmare would be getting to mid-50s with a fair chunk to pay, losing jobs and finding getting a replacement hard. Objective therefore to have more or less paid off by then. Second step building up savings. Pensions come third, but would be AVC driven as paying in anyway. A lot of this is down to life stages and choices as my decisions would not necessarily have been the same when I was younger.

I guess I presented the 2 options, not to over simplify the problem, but to understand peoples' value judgements and priorities.

But it will present a dilemma for larger numbers of people in the coming years. For many the squeeze on real incomes will be accompanied by a need to prioritise spending vs saving decisions.

If you are one of the many lower tax rate self employed out there is it better to build up contingency savings in ISAs than say contribute £100 a month to a pension ? I don't think there is an obvious right or wrong answer and people need to think carefully about security of employment and the need to retain funds for things like retraining.

[If you're a top exec or city banker the above issues do not apply of course].

Graham_Devon

Kennyboy66 wrote: »

Its doubtful you will get an answer, as for the majority of people this is clearly impossible.

Certainly seems that way!

Just another "I know best" rant with no substance.

RenovationMan

I wish certain people would make their minds up. Either the majority of home owners have low mortgage rates and will be reposessed when rates go up or the majority of home owners have high mortgage rates and cannot find an investment return to beat it. Which is it?

Graham_Devon

RenovationMan wrote: »

I wish certain people would make their minds up. Either the majority of home owners have low mortgage rates and will be reposessed when rates go up or the majority of home owners have high mortgage rates and cannot find an investment return to beat it. Which is it?

Neither.

As ever, there are both.

Every poster understands that there is a broad range of differing groups of people. From those struggling to those prospering.

Talking about one set of people does not mean that you do not understand, or are blind to another group of people. Just that the discussion is about a particular group. Same as talking about Nissan Motors....doesn't mean you don't recognise that Hyundai exists.

I'm sure you understand this yourself. I'm equally sure your point is a complete none point....and you know that, aswell as the rest of us.

Cleaver

hallmark wrote: »

Pensions have the sole advantage of tax concessions up front but apart from that they are a horrible investment in every way.

IMO!

You can't really say that a pension is a 'horrible investment in every way' as a pension is just a wrapper for countess different investments. Some pensions will be 'horrible', some will provide amazing returns and presumably everything in between.

Cleaver

julieq wrote: »

but the point is very simply this: mortgage overpayment is not an intrinsically sensible thing to do for most people, and in fact it can be a positively bad thing if they hit financial problems which are typically life change related. Remember, Macaque was saying that paying down debt is the only rational course of action, and it patently isn't. You may not like or accept my arguments, but they're perfectly rational.

Can't we just conclude that overpaying your mortgage is sensible, as is a diverse range of other investments. Doing one on it's own is what's not sensible and p*ssing all your money up the wall is not sensible.

ILW

May not be the cleverest way to do it, but I had paid my mortgage off by 50 and it is quite a nice feeling.

julieq

Graham_Devon wrote: »

Certainly seems that way!

Just another "I know best" rant with no substance.

I'd checked out of this thread because it was becoming the usual circular nonsense, but you've missed the main point I was making which is that differential rates are irrelevant, the issue is the geared capital risk because of the way mortgage deals are set up in favour of the lender's security. Even if you lose a little between mortgage rates and whatever rate you get on savings, it's still worthwhile to hold a liquid asset rather than owning part of a house.

It's astounding that given that the original post by Macaque really is a witless and utterly wrong "I know best that people should pay down debt" rant, that a logically constructed (and very substantial) counter argument in which I've been at pains to say that there are cases where there may be reasons to pay down mortgage debt, and that anyone who wants is free to go down that path, is in any way a rant of my own.

It is financially illiterate to suggest base rates are set to maintain house prices, and also that if no-one is lending that savers can magically access higher returns from thin air. I'm disagreeing forcefully with Macaque, but to be honest I don't see you quite so indignant when someone calls Hamish or Sibley far worse names. This is a debating forum, robust language gets used, I have to put up with that myself so man up and get used to it. Or just accept that you're a blazing hypocrite for crying foul when it's one of your mates but not when it's one of your opponents.

As usual, what happens if you challenge bears on detail is that you get deluged in tangential arguments (such as your own), ad hominem attacks and general indignation. My analysis on overpayments is NOT controversial and is relatively conventional. Bears don't like it because it's not how they see the world - debt to a bear is unconditionally bad, it puts them in thrall in some way to someone else, and you have ridiculous ideas such as Macaque's nonsense that having savings when you have a mortgage demonstrates overborrowing. Or the idea that people can't be trusted to pay off their mortgages if they don't overpay - ridiculous stuff.

But if the prevailing wind here is bear idiocy, then I'm hardly going to change that, am I? It amuses me that people who are so consistently utterly wrong are so adamant they have special knowledge, and I often wonder at what point they're going to realise that nothing they've expected to happen actually happens, but such is life. Does it never bother you Graham that despite you arguing with Hamish, he consistently gets far closer with his predictions to what actually happens than you or any of your mates? He's seeing the same data at any point in time as them.

So it's a side issue and diversionary tactic that it's also usually possible to beat mortgage rates with moderate risk investments, i.e. spreading risk across some cash, some high risk high return investments, and some dull middle stuff which generates yield. I haven't invested for some time, since paying off my mortgage a few years ago I've held residual savings in cash because I'm paying school fees and what I can afford to save goes to AVCs on which I get 40% tax relief and a preferential company share purchase deal which will double the money I've put into it sometime next year. So I'm not in a good position to give specifics. But in general what you do is take a trip to an IFA or two, explain what you want to get from your money in terms of a return, and listen to the ideas you get, acting on the ones you like. There are ALWAYS opportunities.

RenovationMan

Graham_Devon wrote: »

Neither.

As ever, there are both.

Every poster understands that there is a broad range of differing groups of people. From those struggling to those prospering.

Talking about one set of people does not mean that you do not understand, or are blind to another group of people. Just that the discussion is about a particular group. Same as talking about Nissan Motors....doesn't mean you don't recognise that Hyundai exists.

I'm sure you understand this yourself. I'm equally sure your point is a complete none point....and you know that, aswell as the rest of us.

Perhaps not all of the rest of us....

Flight2quality wrote: »

Just think of the tsunami of repossessions when interest rates go back to normal. There are even some people getting repossessed now with 300yr low interest rates, what will it be like when they are back to normal?

julieq

ILW wrote: »

May not be the cleverest way to do it, but I had paid my mortgage off by 50 and it is quite a nice feeling.

Me too, and I agree, it is a nice feeling