From the BBC:
Parents spend so much money to get their children onto the housing ladder that they are now among the biggest lenders in the UK, a survey suggests.
The average parental contribution for homebuyers this year is £24,100, up by more than £6,000 compared to last year, according to Legal & General (L&G).
Collectively parents have given £6.3bn, high enough to rank the bank of mum and dad 10th if it was a mortgage lender. Clydesdale Bank, the UK's 10th largest mortgage lender lent £5bn last year...
L&G's research, based on a poll of 1,600 parents, found more than half were using cash to help their children, but others were withdrawing money from their pensions or said they would consider using equity release from their homes.
Is it just me, or has the world gone completely mad?
Older generations, who own most of the housing, are taking out second mortgages to give their children money to buy housing?
At the level of an individual family, this might make a warped sort of sense, but collectively is is a massive Ponzi/pyramid scheme. Old people borrow money to lend it to young people so that they can sell their assets to young people for inflated prices, there being no net gain to anybody apart from banks and large landowners.
I also wonder how many of those who borrow from BOMAD disclose the fact on their mortgage applications...
Tuesday, 27 August 2019
Bank of Mum and Dad
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14 comments:
Yes. It's gone mad. And I speak as someone with direct at the coal face experience of the madness. I do all I can to discourage it.
L, good, not just me then.
I've almost managed to convince a bunch of people that for every £1 their home goes up, they lose out if they are looking to buy a better home as it goes up by > £1, and even if they can stay put, their liability for their kids or other relatives / friends goes up too. I suppose if it takes someone out of negative equity or allows them to pay a stamp duty bill to move it's a positive but it's a small minority
My parents sold their house to buy me one and they now rent.
One of my genuine 'hates' is the phrase 'the housing ladder'. It encapsulates all that is wrong with homeownerism. No-one thinks through what they are saying when they say it, which is to condemn their children to keep on paying for them. I'm with Goebbels on this. "When I hear the phrase housing ladder I reach for my (mental) Luger".
M, I've no intention of moving so I don't care what my house would sell for. My argument is, every £1 paper gain for me and Mrs W is a £4 loss for our two children.
Each will have to pay £1 more for their home, and double that for mortgage interest.
If me and Mrs W get 50p paper loss each and each child gains £2, that's a massive increase in our true family net wealth.
C, that's very generous of them!
L, agreed!!
One of my genuine 'hates' is the phrase 'the housing ladder'.
Amen.
The only good news involving the 'property ladder' is if the rungs get closer together. Preferably to the point where the gaps are roughly equivalent to the difference in build cost :-)
Two Nations: owners and renters. Quite like the old days.
MW ,
Is it the case that for a single house , the net present value of total mortgage interest payments to maturity equal the principal principal ?
I thought they would be more .
Thanks
Simon
MW ,
Sorry , I just realise that I'm unsure how the question I think I was trying to ask should be expressed formally .
Informally my question was meant to be whether to maturity , the repayments of the principal in real terms are approximately equal to the interest payments in real terms .
I can now see that to express my question formally , one would have to be specific about what "real terms" means and that could mean a number of things such as net income minus all essential living expenses except mortgage repayments/rent or something completely different .
Str, broadly speaking, yes. Depends what interest, inflation and discount rates you assume.
MW ,
Thanks for your reply .
In "general terms" is about as good as can be done given none of us know what will happen to interest rates etc in the future .
Mortgage interest vs (wage) inflation appears to be the crux of it ; i.e. what goes to the land/finance lobby .
You may only be making your children £4/£1 worse off if they remain single . If they find someone then with 2 sets of parents it looks like £2/£1 worse off .... or maybe after 94 days in hospital my brain could be going :)
Str, sure, each child will probably share their £2 extra burden with a partner. Or maybe not. It's still a collective loss to my 'family'.
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