Home Equity increases by 2.7% in 2011

RenovationMan

Graham_Devon wrote: »

Well, glad to see it was everyone elses fault.

Nah, just the same old 'usual suspects'.

The discussion had run its course anyway and everything has been said. To continue it would be to just get into one of those doward-spiral conversations where it just gets increasingly abusive and then the mods lock the thread and everyone goes off licking their wounds until the next rumble. Seems a good time to depart.

My main point, which has gotten completely lost in all the frothing, still stands. Given the choice between renting off a landlord (i.e. renting) or renting off the bank (i.e. an interest only mortgage), you're better off with an IO mortgage.

As I said, you get security of tenure and as long as you don't MEW, you get a tax free lump sum at the end of it. Your 'rent' also doesn't increase with inflation. Contrast this with someone renting for 25 years. Naturally no one will contrast this or indeed even discuss it, they will just froth about the evils of IO mortgages and completely miss my point. Oh well, I'm sure some of the lurkers understood.

Graham_Devon

RenovationMan wrote: »

Nah, just the same old 'usual suspects'.

The discussion had run its course anyway and everything has been said. To continue it would be to just get into one of those doward-spiral conversations where it just gets increasingly abusive and then the mods lock the thread and everyone goes off licking their wounds until the next rumble. Seems a good time to depart.

My main point, which has gotten completely lost in all the frothing, still stands. Given the choice between renting off a landlord (i.e. renting) or renting off the bank (i.e. an interest only mortgage), you're better off with an IO mortgage.

As I said, you get security of tenure and as long as you don't MEW, you get a tax free lump sum at the end of it. Your 'rent' also doesn't increase with inflation. Contrast this with someone renting for 25 years. Naturally no one will contrast this or indeed even discuss it, they will just froth about the evils of IO mortgages and completely miss the point. Oh well, I'm sure some of the lurkers understood.

Yup, you are correct.

I don't think your point was ever being denied however. Don't think many people set out and make the decision as to whether to buy a house on interest only and live in it for 25 years, or set out and say "no, I shall rent for 25 years".

Most rent because they need to at that point. could be various reasons. Maybe they see themselves moving in the next couple of years? Maybe they can't afford to buy? Maybe renting is suitable as they don't have the job security right there and then? They could end up being in rent for 25 years. Who knows. But I doubt there is anyone who makes that concious decision to rent for the next 25 years.

Making your point, well, obvious for one. But secondly, I don't know what it really is trying to say.

I rented a car not long back. I didn't rent it because I thought it was cheaper to rent than buy. I rented it, because at that point I needed to rent a car. The circumstances that I found myself in meant renting was a LOT cheaper than buying another car for the time I needed a hire car. Let alone more convinient in every way imagineable.

So I'll make the point that renting a car from Budget Car Hire for 36 months is more expensive than buying on a loan and having a car at the end of the loan....

Pimperne1

So I'll make the point that renting a car from Budget Car Hire for 36 months is more expensive than buying on a loan and having a car at the end of the loan...

If its an interest only loan you will (probably) still have to pay back the initial amount at the end so you might have to sell the car to repay the loan (although that is probably stating the obvious).

DervProf

Pimperne1 wrote: »

If its an interest only loan you will (probably) still have to pay back the initial amount at the end so you might have to sell the car to repay the loan (although that is probably stating the obvious).

An interest only loan to buy a car ?

That's not really how the vast majority of cars are bought, is it ?

I know cars can be effectively leased for a period of time, with an option to buy at the end of the term, but I think your example is a bit too imaginative.

Graham's point that renting a car from Budget Car Hire for 3 years is more expensive than buying a car with a loan is a valid one.

wotsthat

DervProf wrote: »

Graham's point that renting a car from Budget Car Hire for 3 years is more expensive than buying a car with a loan is a valid one.

If people lived in cars it would be quite a good analogy too. It sounds more like a diversion to pretend that buying a house on IO is a more expensive way to provide housing than the private rental market.

Banks tend to charge less rent than those BTL chaps.

DervProf

wotsthat wrote: »

If people lived in cars it would be quite a good analogy too. It sounds more like a diversion to pretend that buying a house on IO is a more expensive way to provide housing than the private rental market.

Banks tend to charge less rent than those BTL chaps.

I think RM mentioned this earlier, that having an IO mortgage is cheaper in the long run than renting a property. This raises an interesting point about the availability of IO mortgages. Were, or are the banks more likely to grant an IO mortgage to a landlord or an "owner" occupier ? If IO mortgages were widely available, then it could cause a slight problem for BTL landlords, as they could be effectively competing with the banks.

Of course, there are other factors to take into consideration when comparing renting from a private landlord, or renting from a bank, such as cost of maintanance etc.

RenovationMan

Graham_Devon wrote: »

Yup, you are correct.

I don't think your point was ever being denied however. Don't think many people set out and make the decision as to whether to buy a house on interest only and live in it for 25 years, or set out and say "no, I shall rent for 25 years".

No, not many people would do that. However the point being that if someone did get an IO mortgage and didn't make a single repayment (and didn't MEW) then they would have a nice lump sum at the end. Those who buy a house with a repayment mortgage and switch to an IO one, for whatever reason, will have a larger lump sum. Worst case scenario with an IO mortgage is that if they don't repay the capital, the borrower has to sell the house and rent somewhere. However, he has a nice lump sum in the bank.

Best case scenario is that the savvy borrower has used IO mortgages to their advantage and have increased their net wealth.

The question you need to ask is whether people should take account of their own actions and their own finances or whether we have the nanny state make our decisions for us. I'm happy that I have used IO mortgages to increase my net wealth over the last 12 years of home ownership and I don't see a problem with them. Other people (many on this thread) think that people need to be protected from themselves and have heavy regulation. That's fine but people can't moan about the nanny state in one breath when talking about SMI or other benefits and then moan that there is not enough nannying in other areas such as IO mortgages.

Graham_Devon

I'm all for letting people be responsible for themselves. For banks to be responsible for themselves and to carry out responsible lending where they carry the can if they want to take higher risks.

But that isn't what we have got. And it's not what we are likely to have.

Government will always step in. Whether it's SMI and housing benefit for the homeowner, or bail outs for the banks, alongside monetry intervention and stimulus.

It seems, what we do have, is people wanting to use the products when they profit. But wanting help when they don't profit.

RenovationMan

Graham_Devon wrote: »

It seems, what we do have, is people wanting to use the products when they profit. But wanting help when they don't profit.

So true. It's the same as when people pay £50pm into a pension plan, don't monitor it for 25 years and then rage about pension ripoffs when amazingly it doesn't give them a champagne lifestyle in retirement. There are enough resources out there for people to educate themselves. If they don't want to then they should stick to repayment mortgage and cash savings accounts. However their shortcomings should not then impact others who do make the effort to learn about their finances, by having certain financial products removed just because a few people need mollycoddling.

wotsthat

DervProf wrote: »

I think RM mentioned this earlier, that having an IO mortgage is cheaper in the long run than renting a property. This raises an interesting point about the availability of IO mortgages. Were, or are the banks more likely to grant an IO mortgage to a landlord or an "owner" occupier ? If IO mortgages were widely available, then it could cause a slight problem for BTL landlords, as they could be effectively competing with the banks.

Of course, there are other factors to take into consideration when comparing renting from a private landlord, or renting from a bank, such as cost of maintanance etc.

I'm sure the BTL's aren't worried about competition from the banks just at the moment. It's playing right into their hands - mortgages for owner occupiers are tough to get so it's academic as people are having to turn to the rental market. IO mortgages are a small part of the mortgage market and if compared to the total number of households I'd bet it's insignificant.

There are other considerations and maintenance is one of them. There will be other factors for and against. It does seem to me though that it's entirely possible to get a mortgage and go through adult life never paying any capital and find that total lifetime housing costs are lower.