Lender forbearance becoming “a sick joke”

Generali

wotsthat wrote: »

dramatically reduce their lifetime housing costs which will be to the benefit of the taxpayer.

Bit of an assumption there old chap. I rent and have never had a cent, a centime or a penny of my rent paid by the taxpayer. I know plenty of others in the same situation.

I don't see where there is an immutable law that states that renters are poor and fekcless whereas home owners are upstanding and rich. After all, if home owners were all rich, there'd be no need for mortgage forbearance.

To turn your argument on it's head it would be just as reasonable to say that people in forbearance have irresponsibly borrowed more than they can afford whereas renters are paying their rent to the satisfaction of their landlord as if they weren't they'd have been evicted! Why should those sensible renters then be expected to prop up asset prices and keep people in homes they can't afford?

wotsthat

Generali wrote: »

Bit of an assumption there old chap. I rent and have never had a cent, a centime or a penny of my rent paid by the taxpayer. I know plenty of others in the same situation.

I don't see where there is an immutable law that states that renters are poor and fekcless whereas home owners are upstanding and rich. After all, if home owners were all rich, there'd be no need for mortgage forbearance.

To turn your argument on it's head it would be just as reasonable to say that people in forbearance have irresponsibly borrowed more than they can afford whereas renters are paying their rent to the satisfaction of their landlord as if they weren't they'd have been evicted! Why should those sensible renters then be expected to prop up asset prices and keep people in homes they can't afford?

People arriving at retirement with a house that is paid for will likely cost the taxpayer less during retirement than people who arrive there renting.

There will be exceptions for sure but seems like a reasonable assumption that retired people with lower housing costs have an advantage over those with higher housing costs.

That's before we get into any debate about whether or not buyers have enjoyed lower housing costs during their working lives and so will have had better opportunities to save for retirement.

Generali

wotsthat wrote: »

People arriving at retirement with a house that is paid for will likely cost the taxpayer less during retirement than people who arrive there renting.

There will be exceptions for sure but seems like a reasonable assumption that retired people with lower housing costs have an advantage over those with higher housing costs.

That's before we get into any debate about whether or not buyers have enjoyed lower housing costs during their working lives and so will have had better opportunities to save for retirement.

I don't see why any of that matters and anyway it is just conjecture.

The fact is that currently, people who chose to own one particular asset over another receive preferential treatment. After all, if I buy shares, the dividends are likely to go up in line with inflation and I can use those increasing dividends to pay my rent. That is no different to the imputed rent a homeowner receives increasing alongside inflation.

I think the Government is getting into a very dicey area, economically speaking, if they start to pick and choose which asset classes are good and bad, prudent and imprudent. There was a radio interview just after I arrived in Australia with an entrepreneur who said that the best decision he made regarding his business was to rent his home not buy it as it freed up a lot of cash for his business that would otherwise be used to pay a mortgage.

wotsthat

Generali wrote: »

I don't see why any of that matters and anyway it is just conjecture.

The fact is that currently, people who chose to own one particular asset over another receive preferential treatment. After all, if I buy shares, the dividends are likely to go up in line with inflation and I can use those increasing dividends to pay my rent. That is no different to the imputed rent a homeowner receives increasing alongside inflation.

I think the Government is getting into a very dicey area, economically speaking, if they start to pick and choose which asset classes are good and bad, prudent and imprudent. There was a radio interview just after I arrived in Australia with an entrepreneur who said that the best decision he made regarding his business was to rent his home not buy it as it freed up a lot of cash for his business that would otherwise be used to pay a mortgage.

Yes of course some people rent and COULD be using the capital from not buying to get a better return and they COULD buy dividend yielding shares to keep pace with rental inflation. In reality, and certainly in the UK, people still want to live in their own house. If they get to retirement and haven't achieved this then it's likely because they couldn't rather than having invested wisely elsewhere.

People arriving at retirement with a house that is paid for will likely have less requirement for state funding than people arriving there living in rented accomodation. Going back to this statement I can see that there's not necessarily a cause/ effect relationship between renters being a bigger drain on the benefits system in retirement but it's surely closer to fact than conjecture?

Allowing longer term benefit claimants to live in the house of their choice is preferential and my position has always been that after a reasonable period of time SMI should stop with the claimant left to negotiate next steps with their lender even if this leads to higher costs for the taxpayer.

The government, I hope, will deal with this but given the small sums involved and the fact that they'll have to deal with the bad PR of pensioners being evicted at a higher cost to the taxpayer makes me think it's way down the priority list.

People who need the state to provide housing for them should live in places that are most cost effective for the taxpayer. It seems a sound principle but just try moving a family living on benefits from London to Hull to see how it works in practice.

Kennyboy66

ILW wrote: »

OK
Try this for size.
Is it a good idea that people should try to cover down periods either through savings or insurance or a mixture of the two?

If you think it is a good idea, what is the best way to encourage people to do it?

If you have a system that says the state will pay for you, but not if you have any savings, what is that saying?

You may as well extend the argument to any social insurance such as pensions, income support or healthcare.

However, I can't see any good reason why SMI should not be time limited - and 2 years seems the right length (considering that half of claimants have no dependents).

There is also a waiting time (now 13 weeks, was previously 39 weeks).

Under the 39 weeks scheme - surely this encouraged either insurance or saving (bearing in mind very few insurance policies will pay for more than 12 months).

SMI costs about £400m a year (albeit at low interest rates, but the changes made in 2009 were suppossed to be temporary).

Housing benefit costs £12bn a year.

In an ideal world, we'd probably have neither (or at least vastly less HB), but it seems strange that people get so hung up on SMI when it is a drop in the ocean in the grand scheme of things.

Perhaps its that very petty British envy of their next door neighbour getting something they don't.

ukcarper

chewmylegoff wrote: »

The govt has to borrow the money (at the same rate) to pay the SMI or the capital. It just has to borrow much less to pay the SMI.

What I meant was they are paying 3.6% to bank but if they raised the capital from another sauce they would pay less on it. But as you say it would increase the debt in the short term.

RenovationMan

Kennyboy66 wrote: »

but it seems strange that people get so hung up on SMI when it is a drop in the ocean in the grand scheme of things.

It's not that strange when you look at the makeup of the people who are hung up about it, to be fair.

undetterred

RenovationMan wrote: »

It's not that strange when you look at the makeup of the people who are hung up about it, to be fair.

Sour grapes from grayham,hes taken a right beasting on this thread.

chewmylegoff

ukcarper wrote: »

What I meant was they are paying 3.6% to bank but if they raised the capital from another sauce they would pay less on it. But as you say it would increase the debt in the short term.

I don't think you've grasped it:

If someone has a mortgage of, say, £100, then each year the government pays £3.60 of SMI to the bank to service that mortgage. The government has to borrow the £3.60 to pay to the bank. The government pays 2% interest on that £3.60 or 7p. So it pays £3.67.

If the government pays off the £100 instead, it has to borrow £100, and has to pay 2% on that amount, or £2.

Say that the person sells the house after 10 years.

In example 1, the govt paying SMI, the govt would have paid a total of £36 to the bank, which would have all been borrowed at 2%. The total financing costs over 10 years as the debt accumulated (simple interest) would be about £4. If the govt claims back the SMI when the house is sold, the total cost to the govt would be £4.

In example 2, the govt pays £100 upfront, and then £2 interest a year for 10 years, i.e. a total of £20. If the govt reclaims the £100 when the house is sold, the total cost would be £20.

Of course you could just charge the person interest on the £100 to cover the financing cost as well, but you could do that with the SMI as well, so what is the point in the govt borrowing more now when it will never benefit it to do so?

ukcarper

chewmylegoff wrote: »

I don't think you've grasped it:

If someone has a mortgage of, say, £100, then each year the government pays £3.60 of SMI to the bank to service that mortgage. The government has to borrow the £3.60 to pay to the bank. The government pays 2% interest on that £3.60 or 7p. So it pays £3.67.

If the government pays off the £100 instead, it has to borrow £100, and has to pay 2% on that amount, or £2.

Say that the person sells the house after 10 years.

In example 1, the govt paying SMI, the govt would have paid a total of £36 to the bank, which would have all been borrowed at 2%. The total financing costs over 10 years as the debt accumulated (simple interest) would be about £4. If the govt claims back the SMI when the house is sold, the total cost to the govt would be £4.

In example 2, the govt pays £100 upfront, and then £2 interest a year for 10 years, i.e. a total of £20. If the govt reclaims the £100 when the house is sold, the total cost would be £20.

Of course you could just charge the person interest on the £100 to cover the financing cost as well, but you could do that with the SMI as well, so what is the point in the govt borrowing more now when it will never benefit it to do so?

They would also claim back the 2% SMI a year.the difference being the homeowner owes government £100 not bank.