How are people paying for their lifestyle

[walk2dewater]

Why do you find the concept of affordability so amusing? Do you not feel that it can be a very important aid to comparability?

What does being able to afford something mean to you GB? If I said here’s a loan to buy a new Porsche 911 with a monthly payment of €99.99. Do you think you can “afford” it? What if I told you the term was 200 years, backloaded to the last 150yrs, and the rate was set at ECB^1.5, can you afford it now?

“Affordability” as used in todays parlance is a joke concept. It’s a term coined by marketeers and moneylenders into making you believe that if you can meet the monthly payment today then you can “afford” it.

 

[Glenbhoy]

But if you're comparing the affordability of a 15-/20-year "average" mortgage from 1986 and a 35-/40-year "average" mortgage from 2006, and both figures seem to suggest that affordability hasn't changed much, well then that is pretty laughable......

Ah, but Conor, since our economy moved into this new paradigm we will all now work for the full 35 yrs, back in the day the bank knew you'd be lucky to work for 10 of the 20 yrs term, thus we've more time and income to pay it back. And, obviously improvements in healthcare mean that as 40 is the new 20, 60 the new 40 etc..... and we'll all live to 120 then there is no need to adjust the 35/40 term to compare it with 20
Are there many 40yr mortgages being issued btw? - I don't anecdotally know of any.

 

[Glenbhoy]

“Affordability” as used in todays parlance is a joke concept. It’s a term coined by marketeers and moneylenders into making you believe that if you can meet the monthly payment today then you can “afford” it.

I know what you're saying, but surely that's up to the individual to see through the parlance and figure out what's affordable for them?
Now, where can I get that porsche, and what year are you talking about - I might hold out for an 07 at this stage.

 

[Winnie]

I have to say im suprised by the responses. I think that a large number of people are living well beyond their means & there is a huge 'keeping up with the Joneses' mentality in Ireland at the moment.
I know of plenty of people who are living on credit.
One friend in particular is earning less than 1/2 what I do & yet she has a new car, goes on 2/3 holidays, etc etc.
Another told me that I was stupid to have money in the bank & that it was just loosing value there.......fair point in some ways.......but her solution to the money losing value was to spend it on something! I don't think that is a valid argument - if you want to tell me to start investing etc then you may have a point but spending is not the solution.
How many people who buy new homes deck out the houses completely in new gear immediately! I would say that the majority of people do now. What ever happened to doing up a room at a time or taking 2nd hand furniture from relatives.

Basically I think that many people are very exposed in terms of their debt & are living well beyond their means..........& I think that they are mad........but I suppose my spending is all I can control so I concentrate on that. I do find myself occasionally lapsing into the 'I deserve a new car if my friend has one' & I have to cop myself on!

 

[ClubMan]

I think that a large number of people are living well beyond their means & there is a huge 'keeping up with the Joneses' mentality in Ireland at the moment.
I know of plenty of people who are living on credit.

I think that a large number of people are living well within/below their means. I know plenty of people who don't live on credit.

 

[walk2dewater]

where can I get that porsche, and what year are you talking about - I might hold out for an 07 at this stage.

Im sure someone down the bank, highly knowledgeable in these things, can make your dreams come true, for an “affordable” monthly payment of course. Afterall, our general “affordability” hasn’t been better, havent you heard!!

 

[conor_mc]

I think that a large number of people are living well within/below their means. I know plenty of people who don't live on credit.

And everyone I know has a home to live in - doesn't mean that there aren't homeless people out there.

 

[ClubMan]

And everyone I know has a home to live in - doesn't mean that there aren't homeless people out there.

Neither does this

I think that a large number of people are living well beyond their means & there is a huge 'keeping up with the Joneses' mentality in Ireland at the moment.
I know of plenty of people who are living on credit.

mean that there is a widespread/pervasive problem.

For example it is estimated that there are c. 6,000 people homeless in Ireland which means that c. 0.1% of the population is affected. 6,000/0.1% too many but arguably not the "crisis" claimed by many people/agencies?

 

[conor_mc]

Neither does this

mean that there is a widespread/pervasive problem.

I think the private debt for the country as a whole is enough cause for concern, don't you?

Either this debt is indicative of a pervasive problem, or there is a small minority of individuals who have some very serious debt issues!!!

 

[ClubMan]

I think the private debt for the country as a whole is enough cause for concern, don't you?

Either this debt is indicative of a pervasive problem, or there is a small minority of individuals who have some very serious debt issues!!!

Not necessarily judging by [broken link removed].

Key Findings of the Report

Among the key findings of the report are;

• The financial position of Irish consumers is very healthy; the value of the houses they own and their deposit accounts exceed their debts by around €440 billion.
• A very strong ‘macro’ position conceals wide differences in personal circumstances.
• ...

 

[conor_mc]

Not necessarily judging by [broken link removed].

Uh-oh..... better not go there ClubMan. I assume that ESRI report refers to the current value of the houses they own.

I think we need to differentiate between living within your means and having a positive net worth. A healthy balance sheet doesn't necessarily equate to a healthy cash-flow.

 

[argolis]

Are there many 40yr mortgages being issued btw? - I don't anecdotally know of any.

There are, me&OH had our first mortgage from Ulster Bank @ 40 years. I think it's acceptable to them if they can aim to have you finish your mortgage before you're 65, so if you're under 25 (as we were) and can meet the other criteria, it's ok. Therefore, people over 25 will only be offered 35 years max. That's my take on it anyway!

 

[Remix]

Not necessarily judging by [broken link removed].

There were eight key findings in that report. All of them quite negative on the debt issue except for the first one.

And in my opinion this first key finding is bogus - I wouldn't be surprised if this point was inserted by bank economist Austin Hughes (report co-author).

 

[cjh]

In the interest of a balanced argument:

Key Findings of the Report

Among the key findings of the report are;

• The financial position of Irish consumers is very healthy; the value of the houses they own and their deposit accounts exceed their debts by around €440 billion.
• A very strong ‘macro’ position conceals wide differences in personal circumstances.
• An increase in indebtedness and a rising trend in interest rates has caused a notable rise in debt concerns among Irish consumers in early 2006.
• 2 out of 3 Irish borrowers feel their debts are now putting a burden on their household finances.
• The number of borrowers who feel that their debt represents a ‘heavy burden’ has increased notably in the past year. One in six mortgage borrowers and one in five of those with other personal borrowings say their current debt level is a significant concern.
• Financial stresses are greatest for those with relatively modest incomes but because of higher borrowings, sosme of those earning up to €80k also have significant concerns.
• Debt concerns rise with age and tend to peak in the 40 – 50 age groups. This appears to be a decade in which many people are asset rich but cash poor.
• A rising trend in interest rates will hurt Irish borrowers further . Roughly 40 per cent of borrowers reckon their financial position would deteriorate substantially if interest rates rose by 1 per cent. As many as 80,000 borrowers would be hit by another half per cent rise in interest rates. Of these we reckon some 50,000 borrowers who already expressing significant concerns about both household and non-household debt will feel a considerable pinch.

 

[TTV]

Originally posted by Clubman

Nothing wrong with an equity release if your mortgage is already down to a comfortable level and you don't have any other significant borrowings. No point in paying for a car, holiday, kitchen etc. over 20 years though.

i agree in the same way as there is nothing wrong with heroin as long as its not used to get high. Unfortunately we seem to have as many if not more credit junkies than we do heroin addicts. I wonder in the long run which will be more harmful to the state. Is there any equivalent of rehab for credit junkies?

 

[Satanta]

i agree in the same way as there is nothing wrong with heroin as long as its not used to get high. Unfortunately we seem to have as many if not more credit junkies than we do heroin addicts.

I fail to see the comparison to the previous point.

Equity release, when needed (and given the conditions above - comfortable level, no other debts etc.), can provide a low cost loan for unforeseen circumstances (essential purchase of a new car for example - cars can and do have accidents).

As long as the loan is serviced in a reasonable timeframe (as short as possible) and not over the life of the mortgage then savings from a "normal" loan will be made. (this also assumes that the person isn't running out to grab a 07 porche but simply replacing a needed asset)

People can't always manage everything in time without getting into some level of debt, it just comes down to how they handle that debt. To suggest that all mortgage equity releases are wrong is an over simplification of complicated issues.

 

[TTV]

Originally Posted by Satanta

I fail to see the comparison to the previous point.

Equity release, when needed

???? Thats exactly my point, the same way as opiates are useful when needed but what about when not needed? and by people not previously understanding interest rates (and believe me they did exist until rates started rising) and the affect of borrowing this extra money. I have often heard people talk about equity release as it they had won some tax free prize. Its when its done by people in these circumstances that I worry. Its obvious that handled correctly by financially prudent people, equity release can be a cheaper and more suitable form of credit but when used by Joe Schmo to get ripped of in some guaranteed rental scheme in Bulgaria or to gamble further on the Irish property market with countless holidays thrown in for good measure, thats when you have to ask if someone is living beyond their means on borrowed money and borrowed time

 

[conor_mc]

i agree in the same way as there is nothing wrong with heroin as long as its not used to get high. Unfortunately we seem to have as many if not more credit junkies than we do heroin addicts. I wonder in the long run which will be more harmful to the state. Is there any equivalent of rehab for credit junkies?

I disagree too. I wouldn't consider "equity release" a problem where it's comparative in terms to alternative unsecured loans, and it's for what might be considered capital expenditure.

My problem is where equity is released over unsuitable terms to fund current spending - in other words, to clear CC/other debt, 20-year loan to buy a car, etc.

It's not the product itself I disagree with, but its utilisation.

 

[Satanta]

...thats when you have to ask if someone is living beyond their means on borrowed money and borrowed time

I think we could all safely answer yes to this one.

Apologies if I'm taking you up wrong, but if it's an issue simply with mortgage equity release I wouldn't agree. Those same people will/would live beyond means and rack up debt with or without that outlet of credit. Where there's a will and a lack of self control, there's a way!
If it's an issue with the general spending habits of some, then fully agree. They will find themselves in trouble in the very near future, if they aren't some of the ones who've already arrived there.

 

[Satanta]

It's not the product itself I disagree with, but its utilisation.

Technically, this is where a lender will make the greatest profit. They will happily allow it. It's up to the individual to have more knowledge than to allow this, not the ability to do it to be removed.