stop blaming mortgage holders

[ClubMan]

True as it's an unavoidable cost of borrowing and ideally it would be better (for a house buyer's perspective) if the interest was lower than the rates for renting.

But somehow paying for one service (interest/rent on money borrowed to buy property) is less bad than paying for another (accommodation)?

then if you are renting, you would have to be diligent enough to save the same mortgage payment (excluding the interest componant) every month.

The renter can deduct all property purchase related transaction costs and a few decades of maintenance costs from their savings target so they have a bit of a head start on the purchaser.

I'm not arguing that renting is better than purchasing or vice versa (and what's best will depend on the details of a specific situation) - just trying to balance some of the "rent is dead money" arguments...

 

[bugler]

Is the interest paid on the mortgage (i.e. the "rent" paid on the capital borrowed) also "dead money"?

People have constantly, and in many cases wilfully, misunderstood this, that is that you must also pay "rent" on your mortgage. Few of those so keen to buy property are willing to recognise that, even now.

An estimate of the total cost of credit should be made clear to anyone obtaining a mortgage. That your €300,000 house may cost you closer to €600,000 before you are done is a point I suspect many would be shocked at.

 

[ClubMan]

An estimate of the total cost of credit should be made clear to anyone obtaining a mortgage. That your €300,000 house may cost you closer to €600,000 before you are done is a point I suspect many would be shocked at.

As far as I know such an estimate IS set out on mortgage approval/contract forms (albeit of necessity based on certain assumptions such as prevailing rate). (Now - who's going to be first to argue that inflation should also be factored in to get the real effective cost...? ).

Update: just noticed that Karl Jeacle's mortgage calculator does have a basic facility for factoring inflation into the cost of mortgage calculations...

http://www.drcalculator.com/mortgage/ie/

 

[Firefly]

I'd also argue that you have more control when buying a home...if you have the means, then you can drastically reduce the amount of interest paid by shortening the mortgage term. As an example a 15 year mortgage of 250k from BOI at current rates over 15 years works out at approximately 1,830 per month. Over the term total interest will be 130k which works out at 540 euro per month. Conversely, for the same principle over 30 years the interest works out at 1,100 per month.

Apart from finding a cheaper house to rent you really do not have this control when renting.

 

[ClubMan]

However, given the negative equity position a lot of people find themselves in, then you could argue for those people, that it is dead money.

Or you could just accept that it's reasonable to pay for any service whether it be renting accommodation or renting money if your circumstances are such that you need these services. Talking about "dead money" is meaningless in my view.

 

[Purple]

Or you could just accept that it's reasonable to pay for any service whether it be renting accommodation or renting money if your circumstances are such that you need these services. Talking about "dead money" is meaningless in my view.

I agree completely.
I've been having discussions about this for the last 10 years. Few people take the cost of borrowing into account. Given that yields tend to reduce as the value of the property increased (probably due to the floor the government places on the rental market through rent allowance payments) the nicer/better located the property is the more sense it makes to rent.

 

[Firefly]

But somehow paying for one service (interest/rent on money borrowed to buy property) is less bad than paying for another (accommodation)?

Definately...you won't feel intimitated at dinner parties

I agree...unless you have the readies to buy outright, interest and rent are both dead money. For some reason. most people seem happy to pay interest to a bank rather than rent to a landlord.

The advantages of buying over renting (or vice versa) is a massively different thread and one I don't have any particular interest in posting on!

 

[London Irish]

Any idea when this law will be reformed?

I replied "Nope" to this earlier, but now seems a bill will be published in Q1 2012: http: //debates.oireachtas.ie/dail/2011/10/25/00006.asp

Deputy Alan Shatter: In line with a commitment in the programme for Government the personal insolvency Bill is in the course of being developed in my Department to provide for a new framework for settlement and enforcement of debt and for personal insolvency. The commitment under the EU-IMF Programme of Financial Support for Ireland is to publish the Bill in the first quarter of 2012. It is my objective to publish the measure ahead of the EU-IMF deadline, if possible. Moreover, it is intended that the heads of the Bill, which are expected to be finalised in the near future, will be forwarded to the Committee on Justice, Defence and Equality for its consideration....

 

[Yachtie]

Because you could be using the money to pay off a mortgage, which in the end, will leave you with a house and no more rent to pay..

Agreed, but you haven't factored in the interest, insurance, maintenance, decorating, management fees, cost of commute to work, etc. If you added all this and spread it over the life of mortgage, you'd be surprised what works out better. Albeit, it wasn't the same calculation a few years back when the house values doubled every three months.

I'd also argue that you have more control when buying a home...if you have the means, then you can drastically reduce the amount of interest paid by shortening the mortgage term. As an example a 15 year mortgage of 250k from BOI at current rates over 15 years works out at approximately 1,830 per month. Over the term total interest will be 130k which works out at 540 euro per month. Conversely, for the same principle over 30 years the interest works out at 1,100 per month.

Apart from finding a cheaper house to rent you really do not have this control when renting.

That's one kind of control. Over the last couple of days I have seen the same teaser on RTE about the Prime Time which features commuting to and from work. They use some guy who spends 30 hours (!!!!!!) a week commuting. If he (or anyone in similar circumstances) feels that buying in the arsehole of nowhere just to own rather than 'throw money down the toilet' by renting was a smart thing to do, I don't feel sorry for them at all.

Or you could just accept that it's reasonable to pay for any service whether it be renting accommodation or renting money if your circumstances are such that you need these services. Talking about "dead money" is meaningless in my view.

That makes any money spent on solicitors, accountants, car mechanics, medical / dental professionals or anyone and anything that provides a service rather than a tangible item, dead money.

 

[ClubMan]

That makes any money spent on solicitors, accountants, car mechanics, medical / dental professionals or anyone and anything that provides a service rather than a tangible item, dead money.

Er - why the rolley eyes so? That's exactly my point - it's ridiculous to call fair payment for a necessary service "dead money" - and that includes accommodation rental.

 

[Ryandd]

In fairness I think the renting/buying argument may be put out of our hands if Government have their way, it may be a case for many that we are paying rent to the local council for the privilege of living in our homes " what a depressing thought"

 

[Firefly]

Agreed, but you haven't factored in the interest, insurance, maintenance, decorating, management fees, cost of commute to work, etc. If you added all this and spread it over the life of mortgage, you'd be surprised what works out better. Albeit, it wasn't the same calculation a few years back when the house values doubled every three months.

I've mentioned interest...it should be the same as rent.

Let's take a house costing 300,000 today with a mortgage of 20 years.

Insurance is unavoidable alright. Let's say it's 800PA. That's 16,000 over 20 years.
Maintenance is difficult to estimate - all down to the house you buy really. Lets say it costs 600 euro a year. That's 12,000 over 20 years.

Decorating is subjective. As a home owner you are more likely to spend more on decorating your home than if you were renting. Having said that, you could quite easily not decorate your house at all. Let's put that down to 800 a year, which is 16,000 over 20 years.

Not all houses have management fees, but let's say for this exercise they cost 1,000 per annum which is 20,000 over the 20 years.

You ommited propert taxes and who knows what the amounts will be but let's say they are 500 per year which is another 10,000 over the 20 years.

Total costs over the life of the mortgage are 74,000 or 25% of the 300,000. A 1.1% annual rise in the price of the house would be required to recoup this 74,000. Discussion on house prices is not allowed on AAM but the example I've provided is simply to show what a house would need to appreciate in value by to recoup the cost of ownership.

That's one kind of control. Over the last couple of days I have seen the same teaser on RTE about the Prime Time which features commuting to and from work. They use some guy who spends 30 hours (!!!!!!) a week commuting. If he (or anyone in similar circumstances) feels that buying in the arsehole of nowhere just to own rather than 'throw money down the toilet' by renting was a smart thing to do, I don't feel sorry for them at all.

I agree 100%. I could never for the life of me understand how people could commute like that. We bought an apartment and then a house in Dublin some years ago and we always bought in the city. We traded in space for convenience and glad we did so.
[/QUOTE]

 

[Swyper]

Talking about "dead money" is meaningless in my view.

The term "dead money", as far as I remember, became common in the late nineties and early noughties. People forget that prior to the asset bubble which began around 2001, there was a rent bubble in the prior 6 years. By 2001 rents had risen so much, and interest rates fallen so much, that it was not uncommon for rent to be more than interest + principal.

If you're comparing paying 1,000 a month in rent, and owning nothing at the end, or paying 1,000 in mortgage payments and having some equity at the end, then rent was of course, "dead" money. You were paying someone else's mortgage.

In my view, this momentum continued through 2002 and beyond even after the rent bubble was burst (static and falling rents since 2002) as people starting having pavlovian responses to offers to buy property instead of looking at the underlying financials. Since the rent bubble burst, there is no "dead money" out there. At some point in the next few years, we may see the return of "dead money" with falling property prices, lower repayments, and more people wanting to / having to rent rather than buy.

 

[eamo27]

I'm assuming that for these 8 reasons your purchased your home.

1. How much did you borrow and what was your income and what was the purchase price and how much of a deposit did you have?

2. Can you clarify the advice the bank gave you, did they say you can borrow as much as x and did you borrow x or less

3. Cannot tell if you were reckless until you give cold hard figures and location and type of property

4. Who gave you the advice that this home was a good investment? What exactly was that advice

5. How did Bertie Ahern affect your decision to purchase a home

6. So? Banks always have targets to lend?

7. What bank product are you referring to? Did your parents help you in the purchase?

8. Which government campaign are you referring to?

Do you now have a home in which to raise a family?

Oh dear - didn't take long 'moral Police' to arrive.

 

[Purple]

Oh dear - didn't take long 'moral Police' to arrive.

Yes, people who ask reasonable questions are 'moral police'.

 

[Ryandd]

Yes, people who ask reasonable questions are 'moral police'.

Purple
If this is the case then please give example of question and how it makes a difference to ones situation.

 

[Purple]

Purple
If this is the case then please give example of question and how it makes a difference to ones situation.

You made various points which implied that people were not responsible for buying over priced houses. Some of them were vague while others were simply untrue. Bronte listed out those points and questioned you about them. I don’t see how this makes Bronte a member of the “moral police”.

I also have a big mortgage and I am in negative equity. If I lose my house then I won’t blame anyone other than myself (and my wife) since we were adults when we bought the house and so are responsible for our own actions.
I have huge sympathy for people in negative equity, my own sister had to sell her house and move back in with my parents, but I an 100% against other tax payers subsidising mortgage holders so that they can acquire an asset and I am sick of hearing adults behaving like children and blaming others for the decisions that they made.

 

[oldnick]

Purple -whilst i usually agree with much of what you write -and well-written too - I wonder if you may not be being a bit hard here.

If something bad happens that affects someone does that mean that we should not help them even though the sufferer should have known the risks?

Do we leave the injured driver of a speeding car because he should have known better than to speed?
Do we not send out lifeboats or mountain rescue teams for those who negligently went to sea or up mountains in poor conditions?

Extreme examples - but at what point do we cut off helping those in trouble or distress, even though their own actions led to their condition?

And - one could debate whether their own actions did actually lead to their present circumstances. Surely, it is not just that people "should have known" there was a risk factor in buying a house, but also that they should have known that there could be mass unemployment, banks collapsing, worldwide economic distress etc etc.

Today's situation is so different from any normal prediction of risks that blaming those in dire straits today -and refusing to help them - because they "should have known the risks" seems ,well, cruel.

 

[Purple]

I don’t think people can be expected to have seen this recession coming; a recession yes, but not one this bad.
That still doesn’t mean that people shouldn’t take responsibility for their own actions or that it was all someone else’s fault.
There is always an element of risk and there is always the option to insure against that risk. The notion that because the country was so badly run individuals should somehow be insulated from their own misfortune (or stupidity) is juvenile. The world is a big bad place and bad things happen. I think the fact that Ireland is so insulated from the harsh reality that most of the rest of the world lives in Irish people think that “someone” will always be there to “do something” to sort out their problems. That just isn’t so and shouldn’t be so. Otherwise people will take risks which will benefit them if they pay off but which they will be able to walk away from if they don’t work out.

"Helping" - welfare to provide a basic level of income is helping. Using other people's money to buy as asset for someone is unjust.

 

[Yachtie]

Er - why the rolley eyes so? That's exactly my point - it's ridiculous to call fair payment for a necessary service "dead money" - and that includes accommodation rental.

Just saw this now. Rolley eyes weren't for you and your comment.