Brendan said:owning your own home is the most important financial objective of everyone.
I have to say that it would mean a lot to me.That's an intangible. Besides, the bank own it until the last repayment, and you have a mortgage burden each month.
However, taxation policy favours renting
- Investment mortgages more tax relief on interest than residential mortgages
- Tenants get partial rent relief
- Landlords can write off many costs against tax, such as maintenance and insurance, and wear and tear.
But the impact of the opposite scenario could be devastating. House prices and rents rise while the stockmarket falls. You will end up with €400k worth of equities and loans of €500k, while your rent is rising.
What about the scenario where house prices fall while stockmarkets rise? That would be devastating for the home buyer.
By the same token, it would not be devastating if having taken the equities route, stockmarkets subsequently fall for a time, as long as they continue to service their loan repayments.It would not be devastating as long as they can continue to service their loan repayments.
Why do they have to get onto the housing ladder?If they buy into the stockmarket and it falls while house prices and rents rise, they might never be able to get onto the housing ladder.
If they buy equities and their value falls, at least they have ownership and entitlement to the future earnings of companies held.If they buy a home and its value falls, at least they have a home.
Therefore, I will have great security if I know what the cost of that will be for the rest of my life. If I decide to invest in the stockmarket and rent property, rental costs could double in ten years, and I might not be able to afford the rent.
Neither is the situation common where someone has borrowed €500,000 to invest in the stockmarket which subsequently collapses while their rent doubles and the bank gets on their case.Of course. Inevtiably some people will get into mortgage difficulties at some stage that requires them to cut their losses. But this doesn't mean that it will be a common situation.
So you would be in the same position as the recently repossessed in scenario 1 but without having to sell your house at a loss while still owing interest and possibly a compromised credit history.Only if you can find a place that matches your budget.
What if I buy a home for €500,000, it then falls to €400,000 and interest rates rise to 8%? I might not be able to afford to keep my home, a truly devastating outcome. This scenario is just as likely to occur as the stockmarket collapsing and rental costs doubling in ten years.
You are making a fairly simple matter very confusing by introducing issues which are irrelevant to the main argument.
But the impact of the opposite scenario could be devastating. House prices and rents rise while the stockmarket falls. You will end up with, say €400k worth of equities and loans of €500k, while your rent is rising.
My point was that you could end up in negative equity and lose your home so it's important to keep the other issues included to highlight how devastating that situation would be. My question should read exactly as I wrote it.Your question should simply read:
"What happens if interest rates rise to 8%? I might not be able to afford to keep my home".
Back in the early 80's when rates rose to 17%, very few people lost their homes as a result of interest rates alone. If rates rise to 8%, lots of people will fall into arrears and struggle. The lenders won't repossess them all. They will reschedule loans and rates will, in time, fall again.
You should be comparing the likelihood of an interest rate rise with the likelihood of a rent rise. Rents will rise over the next 10 or 20 years. Many tenants will find difficulty in paying their rents and they will be put out by their landlords.
A fall in the value of your home is unlikely to significantly increase your chances of losing it. You will lose it if you can't meet your repayments over a long period of time which is most likely to happen through changed personal circumstances such as redundancy, illness or splitting up with your partner.
However, a fall in the value of your equity investments is not going to increase your chances of getting evicted either.
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