A Thread about Getting into Debt.

Big Debt.

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Bouncing Barlist    pirate
06/11/2012 at 15:47

Big Al,

I'll add my voice to that borrowing can be positive. 

I dont agree with the 'pay your mortgage off' camp, historically mortgage debt is the cheapest finance the average man on the street will ever have available to him.  If your even slightly risk adverse it makes sense to invest the money which will more oftern than not achieve a decent margin over the rate of interest on the mortgage.

Similarly if youve no credit cards, take out a 0% card for cash purchases, max the card via general spending, make sure you set aside savings to repay the card when the 0% period ends.  Result is a 0% loan you can invest for 13, maybe 15 months.

06/11/2012 at 16:20
Big_G wrote (see)

This is a slightly different spin on this thread, but I just want to say that used correctly, debt/borrowing can be put to good use.  I'm not talking about maxing out on credit cards for a fancy kitchen/TV/car/holiday, but using it 'appropriately'.

When he was building his business, my FiL used the "borrow as much as you can for a long as you can" line.  It doesn't sit quite right with me, but he is probably the wealthiest person I know.  Maybe he got lucky, but I don't think that's the case.  I think he borrowed money to turn it into something else and he's done okay out of it.  He is not scared of debt at all...his main financial aim in life is to keep hold of his capital and borrow against it as appropriate.

Buy to let landlord I presume

Bouncing Barlist    pirate
06/11/2012 at 17:09

No I only own the house I live in.

06/11/2012 at 17:11
He has properties he rents out now, but that isn't where he made his money. He was a tool maker in his younger days and built a business from that.

The decisions he made in his earlier years have given him flexibility now he's a bit older. He no longer 'needs' to work but he is in a position where he can try lots of new things so he does.

If I say I'm thinking of paying some of my mortgage off he looks at me like I've gone mad! Equally, if I said I was borrowing money to buy a flash kitchen, he'd also think I was bonkers.
06/11/2012 at 17:20

I'm paying my mortgage off as fast as I can - I'd rather have the cash in my bank account each month.

I'm not borrowing money for anything else, and savings accounts (which I have a modest amount in) pay diddly-squat.  I keep that money in an easy access account in case I need it for something in a hurry.

The sooner I can be mortgage-free, the better (and the more I pay off, the less interest I will pay in the long run)

Are buy-to-let landlords really the spawn of the devil?  Not everyone wants to buy a home initially - who would they rent from if there were no landlords?

seren nos    pirate
06/11/2012 at 18:09

they arenot the spawn of the devil.............they are people who saw an oportunity that let cash in...and they were brave enoguh to do it.......

The fact that they can charge such high rents and then get a lot of it repaid by housing benefit  dept does annoy me.........so  a few are getting very rich from it........oonce agioan i do not blame them i blame the system that allowed it

because they are allowed to charge such rents its put the price of houses up so much that its almost impossibel for anyone to but a house.especially if you work on the old safe 3 times your income........

so now more people have to rent because they have no chance of buying........

 so if they put a much lower maximum on rent benefit..........then they would not be able to pay more than the proper value for the house and the house prices wouyld reflect the wages of the area

06/11/2012 at 18:43
HB in my area has reduced, as it has in most areas. What it means in practice is that the LL kicks the tenants out as they can't cover the rent, and they have to move into a smaller place.

For info, it is quite difficult to get HB paid directly to the LL. The tenant basically has to say to the council they have problems and want it paid directly to the LL. Some LL build their portfolio based around those on HB. Others avoid people on HB like the plague.

For some LL, there are bargains to be had even now. First time buyers can't get deposits together for a mortgage so in some areas there is a glut of certain types of rentable properties. Rents are rising as there is a shortage of decent places to rent in many areas.

Anyway, this is all off topic apart from to say that there people who are making the most of the current economic climate and are mopping up certain properties, especially if they can get credit which is cheap at the moment. Longer term, bricks and mortar is still a good investment IMHO. Are these people the spawn of the devil....personally I don't think so.
06/11/2012 at 19:06

The worst culprits are the ones like Wonga.com, Shopacheck, Provident Finance etc who prey on those at the bottom end of the financial ladder. Many of them may be uneducated and not bother to read the small print that might say 1500% apr, and even if they do, they might not necessarilly know what it means.

That's not meant to have a knock at the people who use them, but my point is that it's wrong that they can get away with charging these vulnerable people such silly rates.

06/11/2012 at 20:24

Its not the Landlord that is the problem with Buy to let.

Back in 95/96 or thereabouts, the banks were bursting with cash and someone came up with the Buy To Let idea. Really it was Borrow to Let but splitting hairs.

At the time, the housing market was a bit flat so anything to get it moving.

The idea was sold as an investment. I objected at the time in writing on account of the ridiculous 'one on one' exploitative nature of this investment. 

The idea was that one individual not risk averse would borrow money, buy a house with it and then rent it out to someone else at a rate that would not only pay the mortgage but over and above too. The property rises in value and the 'landlord' gets all the profit.

So really its the Landlords investment, but he gets someone else to pay for it. That's not investment, its pure exploitation.

I watched as a friend of  mine went from being pleasant to being a sociopath as his  housing empire grew. Tenants were just a means to an end.

And he knew even by 2000 that the rising prices would condemn whole rafts of people to have to rent since they couldn't afford to buy. Which made him really happy.

As for affordable property. The banks don't want affordable property. They have so much of their money tied up in overpriced property due to their lending habits that they'll do anything to keep the price high. So no new towns being built, why? the price of property will fall.

I bought my own place in 1993 and apparently its worth 5 times what I paid for it. I own the thing outright but I still find it unsettling that had I not bought when I did, I could now be having to fork out £1000 month in rent to someone who snapped up a mass of potential starter homes. 

There's a social problem developing here. If someone does not have or is excluded from having a stake in society. Then why the hell would they respect its values?

06/11/2012 at 21:01
Just to add a slightly different spin on the not-all-debt is bad argument - it depends on what you use it for. When I bought my first flat it never occurred to me to borrow extra money to buy household things. I didn't come from that kind of environment, and it genuinely didn't cross my mind. As a consequence I bought everything as cheaply as possible to set up the flat. It was only afterwards that I realised if I'd bought some of it on credit, particularly furniture and kitchen stuff, I could have bought better quality that would have lasted longer, and probably cost me less overall. If it's managed properly, borrowing isn't necessarily the road to ruin.

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