The moral hazard of being kind to the indebted

Wookster

silvercar wrote: »

There are a group of people who will financially never be in a position to buy, there are also those who need mobility and are therefore more suited to renting at their current stage in life.

Then along come the STRs, who increase the demand for rental properties. Not just forcing rental prices up, but jumping ahead of a lot of the committed renters, either because they are more credit worthy or because they can afford to pay rent up front.

Add to that they are gambling on future house prices and I don't see how any one can praise them as a group.

risk taking monopolisers.

So landlords can take that risk and push up prices or home buyers but STR's can't because of the impact on renters?

How strange.

RenovationMan

Wookster wrote: »

So landlords can take that risk and push up prices or home buyers but STR's can't because of the impact on renters?

How strange.

I thought this too, but then wondered if silvercar was just being ironic.

People speculate on all asset classes, good luck to them if it works out.

StevieJ

silvercar wrote: »

There are a group of people who will financially never be in a position to buy, there are also those who need mobility and are therefore more suited to renting at their current stage in life.

Then along come the STRs, who increase the demand for rental properties. Not just forcing rental prices up, but jumping ahead of a lot of the committed renters, either because they are more credit worthy or because they can afford to pay rent up front.

Add to that they are gambling on future house prices and I don't see how any one can praise them as a group.
risk taking monopolisers.

I don't think there were enough of them to do that, that is ignoring the fact that most of them have lost out anyway.

Graham_Devon

julieq wrote: »

Treliac: go back to what Macaque was saying, and read my argument. You (and he) are free to do what you want, but that doesn't make it the most rational course of action, and it's ridiculous to claim that it is.

It's actually not.

People do what they feel comfortable with. For most people, paying off their mortgage is an exhilerating experience which they gain a large sense of freedom from.

Some of your arguments make sense. Such as divorce etc. However, the other stuff is pretty anal.

Most people have familes, and most people would prefer not to be gambling constantly. The lower the debt, the easier it is to bring up a faily each month. Once the debt is gone, you are free to do whatever you please with the remainder of your earnings.

Yes, you may well get a few more quid investing in some other product while keeping your debts high....but that does not mean that anyone who does not follow your advice is an idiot, as other people are very different in their approach to what you appear to think is correct.

The biggest problem with your argument is you are unwilling to look out of the box. You just want to label everyone else as wrong and call your own thoughts the best thoughts...thats pretty clear. But you are simply talking down to everyone else now. That isn't useful and it doesn't really add anything to your argument.

For most people, paying off debt is a huge priority. Theres more to life than debt payments and investments. You are suggesting people gamble with investments with the remainder of the money they save from NOT paying down the mortgage. It may well work out. But hey, it may not, and you may lose out on the investments and STILL have the mortgage to pay. That's one point you appear to be completely sidelining.

RenovationMan

Graham_Devon wrote: »

It's actually not.

People do what they feel comfortable with. For most people, paying off their mortgage is an exhilerating experience which they gain a large sense of freedom from.

Some of your arguments make sense. Such as divorce etc. However, the other stuff is pretty anal.

Most people have familes, and most people would prefer not to be gambling constantly. The lower the debt, the easier it is to bring up a faily each month. Once the debt is gone, you are free to do whatever you please with the remainder of your earnings.

Yes, you may well get a few more quid investing in some other product while keeping your debts high....but that does not mean that anyone who does not follow your advice is an idiot, as other people are very different in their approach to what you appear to think is correct.

The biggest problem with your argument is you are unwilling to look out of the box. You just want to label everyone else as wrong and call your own thoughts the best thoughts...thats pretty clear. But you are simply talking down to everyone else now. That isn't useful and it doesn't really add anything to your argument.

For most people, paying off debt is a huge priority. Theres more to life than debt payments and investments.

Graham makes a good point here because while julie is quite correct in her analysis, we are talking about individuals here and different people have different motivations. Some people find it motivational to see a pot of savings growing, some are more motivated by seeing a debt reduce. I happen to tbe the latter and, aside from ym pension, I just build up my emergency savings to a level I'm comfortable with and then I concentrate on reducing my debt (mortgage).

Let's be honest, whether paying down a large mortgage or building up long-term savings, it's a pretty dry activity so anything that helps motivate you over the years is a good thing. As long as people are doing something to increase their net wealth then that's what is important.

Graham_Devon

Oh and one other, slight niggle Julie.

You talk about not paying down debt as this money is illiquid, and suggest investing excess money.

Could you please tell me where I can get a low risk, 5% gain each year, in an investment whereby I can access my money whenever I wish. (remember, your point about paying down the mortgage is that it was illiquid, so I'm assuming these investments you talk of are liquid?)

I'm sure there are many of us who would be very grateful for this guidance on where this is possible with little risk and no tie ins. Especially in todays climate. I'm sure the savings and investments board would be even more delighted, as they certainly don't seem to have found it.

HAMISH_MCTAVISH

Graham_Devon wrote: »

Oh and one other, slight niggle Julie.

You talk about not paying down debt as this money is illiquid, and suggest investing excess money.

Could you please tell me where I can get a low risk, 5% gain each year, in an investment whereby I can access my money whenever I wish. (remember, your point about paying down the mortgage is that it was illiquid, so I'm assuming these investments you talk of are liquid?)

I'm sure there are many of us who would be very grateful for this guidance on where this is possible with little risk and no tie ins. Especially in todays climate. I'm sure the savings and investments board would be even more delighted, as they certainly don't seem to have found it.

Straw man argument.

You invest in a product which will deliver the higher return but ties you in for longer. For the 99% of people who don't need to cash in early, this works fine and still gives them the ability to have an emergency fund if needed. For the 1% of people who do need to cash in early, they accept the penalty of not getting the interest that year but still have access to the cash when they need it.

Graham_Devon

HAMISH_MCTAVISH wrote: »

Straw man argument.

How is it a straw man argument!? Please explain. It's asking about the specifics of what was suggested.

You invest in a product which will deliver the higher return but ties you in for longer. For the 99% of people who don't need to cash in early, this works fine and still gives them the ability to have an emergency fund if needed. For the 1% of people who do need to cash in early, they accept the penalty of not getting the interest that year but still have access to the cash when they need it.

That's all fine. But Julies WHOLE POINT was around the fact that overpaying your mortgage is tying money up.....

The issue isn't differential return. It's the fact that you're putting money into an illiquid asset which someone else can force you to sell on THEIR terms under certain circumstances, and without risking their own capital.

So surely the suggestion to oppose tying money up....isn't tying money up!? Shares and investments fall under exactly the same as written by Julie herself above. You can't opt to sell you investment and not take on the losses occured should they occur.

StevieJ

Graham_Devon wrote: »

Oh and one other, slight niggle Julie.

You talk about not paying down debt as this money is illiquid, and suggest investing excess money.

Could you please tell me where I can get a low risk, 5% gain each year, in an investment whereby I can access my money whenever I wish. (remember, your point about paying down the mortgage is that it was illiquid, so I'm assuming these investments you talk of are liquid?)

I'm sure there are many of us who would be very grateful for this guidance on where this is possible with little risk and no tie ins. Especially in todays climate. I'm sure the savings and investments board would be even more delighted, as they certainly don't seem to have found it.

I have received 6.2% tax free over the last year (obviously not guaranteed for the next year) from NS&I RPI linked (readily accessable), unfortunately not for you, now withdrawn In addition my ISA was filled this year with a 5 year fix (5%) from the Coventry with 120 days penalty for earlier closure (pretty good if you can survive the first few months) sadly again withdrawn You need to keep your eyes open

Graham_Devon

StevieJ wrote: »

I have received 6.2% tax free over the last year (obviously not guaranteed for the next year) from NS&I RPI linked (readily accessable), unfortunately not for you, now withdrawn In addition my ISA was filled this year with a 5 year fix (5%) from the Coventry with 120 days penalty for earlier closure (pretty good if you can survive the first few months) sadly again withdrawn You need to keep your eyes open

The index linked certificates have a cap on them.

ISA's also have a cap on them.

I.e. those 2 above aint going to work for long. Most people would be able to pay more of their mortgage off in a year than they would be able to invest, in terms of caps. I'm not trying to be difficult, but I am trying to find the investments Julie points towards, as I personally would be very interested. I just don't think they exist in the capacity Julie likes to suggest they do. They will be more along the lines you have suggested, and dead products.

In addition, with the index linked certificates, if you take any money out before maturity, I don't believe you get anything. Whereas compound interest works on the mortgage for each and every month.