Prose from a Poshboy

[arbboy]

People who 'own' their own house on an interest only mortgage are the ones who really make me laugh (effectively renting it from the bank) but they are seen by the Jones's as being house owners and not renting so their place in middle England is more secure.

You are more likely to lose money from a house market crash than you are arbing/sports betting long term if you know what you are doing. Houses in the UK are still massively over priced.  There is no doubt about that.  The politics of keeping interest rates low to stop millions of people going busto by renting houses from the banks effectively which they can't really afford on interest free only mortgages for political reasons to win votes does make me laugh in this country.  It just keeps artificially inflating the price of houses which are now 7/8 times the value of the average wage.  How much higher realistically can house prices go before people who buy now end up doing their money hard?  Most people on here are too young to remember 15% IR's and mass repossessions from the late 80s.  I personally think the same happening now would wake up a whole generation of DM readers from their dream world which they can't really afford but are scared of missing out on.

Sorry in advance for the derail on your diary Alex.

[Woodsey]

It's settled then I'm not going to buy a new house, I'm gonna spin my net worth up punting

[simonnatur]

You don't have to tie up all, or even most of your capital to own/invest in property. Those evil banks allow you to LEVERAGE your capital by asking for 20% deposit and allowing you to benefit from 100% of price increases. All the while having somewhere to live or collect rental on.
This is an incredibly powerful factor working for you. As long as you structure your investment, such that there is little or no chance you will be a forced seller in the next 10-15 years, it's almost impossible to lose money.
Even for someone without a secure income (in the bank's eyes) Buy To Let ought to be a very valid investment to consider.

[EvilPie]

People who 'own' their own house on an interest only mortgage are the ones who really make me laugh (effectively renting it from the bank) but they are seen by the Jones's as being house owners and not renting so their place in middle England is more secure.

You are more likely to lose money from a house market crash than you are arbing/sports betting long term if you know what you are doing. Houses in the UK are still massively over priced.  There is no doubt about that.  The politics of keeping interest rates low to stop millions of people going busto by renting houses from the banks effectively which they can't really afford on interest free only mortgages for political reasons to win votes does make me laugh in this country.  It just keeps artificially inflating the price of houses which are now 7/8 times the value of the average wage.  How much higher realistically can house prices go before people who buy now end up doing their money hard?  Most people on here are too young to remember 15% IR's and mass repossessions from the late 80s.  I personally think the same happening now would wake up a whole generation of DM readers from their dream world which they can't really afford but are scared of missing out on.

Sorry in advance for the derail on your diary Alex.

You can buy a decent house near me for £300k. Let's say you have a 90% interest only mortgage of £270k paying 3% interest so £8.1k per year. To rent the same house from a landlord would cost maybe £900 or so per month or £10,800 per year. In 25 years you will be able to buy the house which is probably worth £1M+ for £270k thus having yourself a nice little nest egg. Why does this "really make you laugh"? Is it because you haven't really given it any thought? Rather than seeing it as renting from the bank just look at it as using the bank's money to fund your house while you use your own money to make more than the rate they're charging you.

This obviously doesn't take in to account increases (or decrease) in interest rates but it also doesn't take in to account increases (doubt there would be decreases...) in rent.

You only lose money from a housing market crash if you sell your house. It's the same as any investment. If you pull out while you're down then you lose. If you stick it out then you should win. It's the same with sports betting. If you have a £150k roll and pull out after a £50k downswing then you've lost, stick it out and you should get it back + more besides.

15% interest rates now would break the entire country. The amount of people with £200k+ mortgages suddenly having to find £30k per year just to pay the interest would break everyone.

None of this matters to Alex of course because he will not be able to get a mortgage. For Alex to buy a house he'd have to buy it cash so he then loses the ability to invest that money to make more money. In his position as you quite rightly said in your previous post (the thought out one rather than the silly one quoted above) he would need to maintain enough of a bankroll to not affect his income potential before considering buying a house.

Also just so you know there aren't really such things as interest only mortgages anymore. They are available but the restrictions are insane!!

[EvilPie]

one thing on the house buying front though...

The return on your money buying a house is about the lowest on any type of investment, like 3 - 4% usually (if you count the yield as money saved on rent) so if you have a total net worth of £300k and you decide to spend £300k on a house then if you're a smart guy, to me at least, that is literally THROWING money away.

For me, house purchases should be done with "spare" money, as tucking up money that is not really actively or aggressively earning you money  in an extremely secure long term investment is a very shrewd idea. It's better than the banks rates after all. But massively stiffing your earning potential all to acquire security that, at your age you dont desperately need is a very bad business decision IMO.

Obviously the value of this security might be very high for some people, in which case obviously that's a call of individual judgement and no-one's place to say right/wrong.

Disagree totally. A mortgage is the biggest expense most of us grinding normal jobs have by far, most of are stuck paying a big lump every month for at least of our working lives. Anybody starting out with little or no mortgage in their mid twenties has got is made imo. It's not all about returns either, we all need a place to live.

I'm pretty sure that if I'd decided to do nothing for the last 20 years other than work I could have paid off my mortgage quite easily. I made the choice however to let the bank own most of my house for now, pay them a percent or two for the privilege and use most of my money to enjoy myself.

As I've already said Alex doesn't have the mortgage option unless he gets a job so he has to use 100% cash to buy a house. If doing so takes away his potential to enjoy his young years then in my opinion it would be a mistake.

[arbboy]

People who 'own' their own house on an interest only mortgage are the ones who really make me laugh (effectively renting it from the bank) but they are seen by the Jones's as being house owners and not renting so their place in middle England is more secure.

You are more likely to lose money from a house market crash than you are arbing/sports betting long term if you know what you are doing. Houses in the UK are still massively over priced.  There is no doubt about that.  The politics of keeping interest rates low to stop millions of people going busto by renting houses from the banks effectively which they can't really afford on interest free only mortgages for political reasons to win votes does make me laugh in this country.  It just keeps artificially inflating the price of houses which are now 7/8 times the value of the average wage.  How much higher realistically can house prices go before people who buy now end up doing their money hard?  Most people on here are too young to remember 15% IR's and mass repossessions from the late 80s.  I personally think the same happening now would wake up a whole generation of DM readers from their dream world which they can't really afford but are scared of missing out on.

Sorry in advance for the derail on your diary Alex.

You can buy a decent house near me for £300k. Let's say you have a 90% interest only mortgage of £270k paying 3% interest so £8.1k per year. To rent the same house from a landlord would cost maybe £900 or so per month or £10,800 per year. In 25 years you will be able to buy the house which is probably worth £1M+ for £270k thus having yourself a nice little nest egg. Why does this "really make you laugh"? Is it because you haven't really given it any thought? Rather than seeing it as renting from the bank just look at it as using the bank's money to fund your house while you use your own money to make more than the rate they're charging you.

This obviously doesn't take in to account increases (or decrease) in interest rates but it also doesn't take in to account increases (doubt there would be decreases...) in rent.

You only lose money from a housing market crash if you sell your house. It's the same as any investment. If you pull out while you're down then you lose. If you stick it out then you should win. It's the same with sports betting. If you have a £150k roll and pull out after a £50k downswing then you've lost, stick it out and you should get it back + more besides.

15% interest rates now would break the entire country. The amount of people with £200k+ mortgages suddenly having to find £30k per year just to pay the interest would break everyone.

None of this matters to Alex of course because he will not be able to get a mortgage. For Alex to buy a house he'd have to buy it cash so he then loses the ability to invest that money to make more money. In his position as you quite rightly said in your previous post (the thought out one rather than the silly one quoted above) he would need to maintain enough of a bankroll to not affect his income potential before considering buying a house.

Also just so you know there aren't really such things as interest only mortgages anymore. They are available but the restrictions are insane!!

This is the other thing about banks which i find totally illogical as someone who makes a living managing risk like banks do.  If myself or Alex rock up at a bank looking to borrow £150k to buy a £300k house with a 50% (£150k cash deposit) why do they not snap agree to the loan without asking any other questions?  Why do we even need a fixed income to get the loan?  We are the ones risking £150k of our cash which we will not get back if you don't keep repayments going on the loan.  The bank is risking nothing lending to us unless they think the £300k house can turn into an asset worth less then £150k after selling/legal fees when they repossess it from our default.  If i run a bank i would be bending over backwards to get someone like myself/Alex with a lumpy 50%+ cash deposit yet we get treated like scum when it comes to having a mortgage because we don't take home £2500 after tax every month to fit into their 'supposed' risk free lending model.

It's like the freeroll of all freeroll's for a bank yet they seem to prefer to lend to people with tiny deposits who have a steady £25k a year income.  Makes no sense to me at all from a risk management perspective.  Maybe that's why so many banks had to go cap in hand to the govt to get bailed out.

I have yet to hear any logical answer to this even from people who work in banks.  A bank (barring a property collaspe that would send the £300k house's value to below £150k that would send them skint anyway as a bank) literally can't lose a penny lending money to anyone who puts down a 50% cash deposit.  It's as risk free as arbing yet they prefer to lend to certain groups of people who can, and have, cost them millions from defaults/negative equity in the past.  Can someone explain the logic behind this to me please?

[EvilPie]

You don't have to tie up all, or even most of your capital to own/invest in property. Those evil banks allow you to LEVERAGE your capital by asking for 20% deposit and allowing you to benefit from 100% of price increases. All the while having somewhere to live or collect rental on.
This is an incredibly powerful factor working for you. As long as you structure your investment, such that there is little or no chance you will be a forced seller in the next 10-15 years, it's almost impossible to lose money.
Even for someone without a secure income (in the bank's eyes) Buy To Let ought to be a very valid investment to consider.

The problem is that someone without a secure income (in the bank's eyes) won't be able to get a buy-to-let or any other type of mortgage.

The rules changed massively in April of this year so you can't borrow money anywhere near as easily as you could 10 years ago.

My last mortgage application for example all they were bothered about was the value of the house. I could borrow 95% of the houses value at 1% above base rate and they didn't even ask for a pay slip. That's the type of irresponsible lending that has put us where we are now and forced them to go way over the top with lending criteria.

I've now got a large mortgage at 1.5% interest that just isn't worth paying off because it's so cheap. I can get 2.85% in an ISA, 3% (minus income tax) on a bank account + whatever the value of the house is increasing by. This is the sort of leveraging you're talking about but it just isn't available to people who aren't already on the property ladder.

[Woodsey]

one thing on the house buying front though...

The return on your money buying a house is about the lowest on any type of investment, like 3 - 4% usually (if you count the yield as money saved on rent) so if you have a total net worth of £300k and you decide to spend £300k on a house then if you're a smart guy, to me at least, that is literally THROWING money away.

For me, house purchases should be done with "spare" money, as tucking up money that is not really actively or aggressively earning you money  in an extremely secure long term investment is a very shrewd idea. It's better than the banks rates after all. But massively stiffing your earning potential all to acquire security that, at your age you dont desperately need is a very bad business decision IMO.

Obviously the value of this security might be very high for some people, in which case obviously that's a call of individual judgement and no-one's place to say right/wrong.

Disagree totally. A mortgage is the biggest expense most of us grinding normal jobs have by far, most of are stuck paying a big lump every month for at least of our working lives. Anybody starting out with little or no mortgage in their mid twenties has got is made imo. It's not all about returns either, we all need a place to live.

I'm pretty sure that if I'd decided to do nothing for the last 20 years other than work I could have paid off my mortgage quite easily. I made the choice however to let the bank own most of my house for now, pay them a percent or two for the privilege and use most of my money to enjoy myself.

As I've already said Alex doesn't have the mortgage option unless he gets a job so he has to use 100% cash to buy a house. If doing so takes away his potential to enjoy his young years then in my opinion it would be a mistake.

I probably could have done also, but I chose to take the middle approach where I enjoyed life but was still paying down a house more slowly, and I probably will be until my mid 50's I guess. I'm just giving the answer from my view with a job I guess, if I had enough to buy a house with little or no mortgage in my mid twenties I would have had an even better life than now, as I'd have a huge chunk more every month to live life with.

And yeah, it's down to what's people's priorities are, but just because people have taken a high risk approach to life in the past doesn't mean they always have to. There comes a time in most people's lives where nitting it up a bit is probably the more sensible approach, then again there are those that will either be skint or multi millionaires when they are older because they can't resist the risk!  

[nirvana]

Simonnatur's point about leverage is really the key here. It just has to be a tiny percentage of gamblers who could have punted to win in excess of the returns a leveraged property investor would have made in terms of house price inflation with pretty high yields of 8-10% p.a along the way

Leverage and the nature of compounding is about all you need to learn if yr main preoccupation is monaaay.

[Steve Swift]

IO for me.

I have an IO Mortgage owing 90K, I pay $67 a month for 3 bed modern semi, hard to rent/buy for that. Capped think it is 0.25% above base.  What do with I do with the ££  I save,  Invest ready to pay of the Mortgage when ever i am ready, or spend it all on sweets, my choice.

(In fact I have 2 on IO, my SIL rents one from me)

[EvilPie]

This is the other thing about banks which i find totally illogical as someone who makes a living managing risk like banks do.  If myself or Alex rock up at a bank looking to borrow £150k to buy a £300k house with a 50% (£150k cash deposit) why do they not snap agree to the loan without asking any other questions?  Why do we even need a fixed income to get the loan?  We are the ones risking £150k of our cash which we will not get back if you don't keep repayments going on the loan.  The bank is risking nothing lending to us unless they think the £300k house can turn into an asset worth less then £150k after selling/legal fees when they repossess it from our default.  If i run a bank i would be bending over backwards to get someone like myself/Alex with a lumpy 50%+ cash deposit yet we get treated like scum when it comes to having a mortgage because we don't take home £2500 after tax every month to fit into their 'supposed' risk free lending model.

It's like the freeroll of all freeroll's for a bank yet they seem to prefer to lend to people with tiny deposits who have a steady £25k a year income.  Makes no sense to me at all from a risk management perspective.  Maybe that's why so many banks had to go cap in hand to the govt to get bailed out.

They used to do it but aren't allowed to anymore. As per my post above I got a 95% mortgage based purely on the houses value because they saw it as risk free to them. House prices will never go down right!!!

Actually my circumstances were slightly different. I needed to borrow £123k to buy a house worth £203k. I was accepted but also without me asking for it they gave me what they called a "pre-agreed reserve" to take my potential loan up to the full 95%

So there was £75k sat in a pre-agreed reserve pot and all I had to do to release it was ring them up and say "send me the cash". No payslips, nothing!!

It's the most irresponsible form of lending possible and has f**ked so many people over you couldn't imagine!!

The reason they had to go cap in hand is because a lot of people took that 95% mortgage and defaulted on it. The bank then repossesses but hey guess what?! House prices have dropped and there's nobody left out there who can afford to buy them now anyway!!

Now they have to look at your income (which you have to prove) and your outgoings. They then have to assess whether you can afford the mortgage payments not only now but also in the event the rate goes up. Using mortgages to your financial advantage is absolutely incredible but unfortunately I think those days are over. I guarantee the banks would love to lend you money based on a 50% deposit but the regulators won't allow it.


 

[arbboy]

This is the other thing about banks which i find totally illogical as someone who makes a living managing risk like banks do.  If myself or Alex rock up at a bank looking to borrow £150k to buy a £300k house with a 50% (£150k cash deposit) why do they not snap agree to the loan without asking any other questions?  Why do we even need a fixed income to get the loan?  We are the ones risking £150k of our cash which we will not get back if you don't keep repayments going on the loan.  The bank is risking nothing lending to us unless they think the £300k house can turn into an asset worth less then £150k after selling/legal fees when they repossess it from our default.  If i run a bank i would be bending over backwards to get someone like myself/Alex with a lumpy 50%+ cash deposit yet we get treated like scum when it comes to having a mortgage because we don't take home £2500 after tax every month to fit into their 'supposed' risk free lending model.

It's like the freeroll of all freeroll's for a bank yet they seem to prefer to lend to people with tiny deposits who have a steady £25k a year income.  Makes no sense to me at all from a risk management perspective.  Maybe that's why so many banks had to go cap in hand to the govt to get bailed out.

They used to do it but aren't allowed to anymore. As per my post above I got a 95% mortgage based purely on the houses value because they saw it as risk free to them. House prices will never go down right!!!

Actually my circumstances were slightly different. I needed to borrow £123k to buy a house worth £203k. I was accepted but also without me asking for it they gave me what they called a "pre-agreed reserve" to take my potential loan up to the full 95%

So there was £75k sat in a pre-agreed reserve pot and all I had to do to release it was ring them up and say "send me the cash". No payslips, nothing!!

It's the most irresponsible form of lending possible and has f**ked so many people over you couldn't imagine!!

The reason they had to go cap in hand is because a lot of people took that 95% mortgage and defaulted on it. The bank then repossesses but hey guess what?! House prices have dropped and there's nobody left out there who can afford to buy them now anyway!!

Now they have to look at your income (which you have to prove) and your outgoings. They then have to assess whether you can afford the mortgage payments not only now but also in the event the rate goes up. Using mortgages to your financial advantage is absolutely incredible but unfortunately I think those days are over. I guarantee the banks would love to lend you money based on a 50% deposit but the regulators won't allow it.


 

I appreciate all that but why are the regulators so stupid to stop people borrowing with 50% deposits with no fixed income?  It's the most risk free form of mortgage lending possible.   I understand the self cert days/110% mortgages with no deposits etc etc and why everything went tits up.  I don't understand why the regulators because this happened now stop people with huge cash deposits but no steady form of income from borrowing.  It makes no sense to me at all. 

The only logical explanation for this is that people putting down big deposits pay off their mortgages quickly on average and the banks make very little money out of loans like this.  Like punters who use credit cards and pay the balance off in full every month, banks don't like sensible punters who avoid debt as they make no money out of them.  They much prefer the minium 3% monthly payment credit card types who are constantly in debt and give half their wages to them each month in interest.

[EvilPie]

I appreciate all that but why are the regulators so stupid to stop people borrowing with 50% deposits with no fixed income?  It's the most risk free form of mortgage lending possible.   I understand the self cert days/110% mortgages with no deposits etc etc and why everything went tits up.  I don't understand why the regulators because this happened now stop people with huge cash deposits but no steady form of income from borrowing.  It makes no sense to me at all.

I agreed it's ridiculous but the banks went so far past the irresponsible way they've had to drag it back equally far beyond the safe way. I would assume there's a way around it for people with such large deposits but I think you'd be looking at specialist banks with brains rather than your usual "computer says no!!" type banks. I imagine you have to sign up to all kinds of wavers as well saying it's not their fault if it goes tits up and you lose everything.

[cambridgealex]

Fwiw I can get a mortgage.

 

[EvilPie]

Excellent! How did you pull that one off?