Saving up for a house

shane86

Ive always wondered though, what the hell incentive does a bank have in giving you a 30 year mortgage? As in what benefit is it for a bank exec to keep the bank making a profit when he has retired/died?

tbh I dont know why everyone just doesnt apply for an affordable house, theyre often in roughly the same condition as the ones down the road but for 120,000 less. And besides, if everyone applied for affordable and refused to buy off private sellers theyd have no option but to bring the price to a reasonable level.

themole

chump wrote:

It is clear that you possess such a simplistic and unsophisticated understanding of economics that your input is akin to that of my grandmothers.

Biff

humbert wrote:

You talk to your grandmother about economics? You should get out more.

Pow

Holy trading of insults batman!
Look in your utility belt robin, there is always a tool for the job there:D

themole

shane86 wrote:

Ive always wondered though, what the hell incentive does a bank have in giving you a 30 year mortgage? As in what benefit is it for a bank exec to keep the bank making a profit when he has retired/died?

Its in the banks interest, and acting in the banks interest is the bank exec's job.

shane86 wrote:

tbh I dont know why everyone just doesnt apply for an affordable house, theyre often in roughly the same condition as the ones down the road but for 120,000 less. And besides, if everyone applied for affordable and refused to buy off private sellers theyd have no option but to bring the price to a reasonable level.

Affordable houses are not easy to get. But, yes if people stop buying houses then the price will stabalise.

The reason some people will not wait is because they see their neighbours making money and feel that the longer they wait the more profit they are loosing out on. This is a true situation at the start of a boom, but towards the end, where i believe the market in ireland now is, this is no longer the case and future increases are by no means guaranteed.

A Random Walk

shane86 wrote:

Ive always wondered though, what the hell incentive does a bank have in giving you a 30 year mortgage? As in what benefit is it for a bank exec to keep the bank making a profit when he has retired/died?

It's not about the length of the mortgage, for them it's about getting you to take out the maximum amount you can pay per month so that they make a profit. 20/30/40 years it doesn't matter, as long as you are handing over the maximum amount to them per month. The naivety of people who say they have "bought" a house when all they've done is become mortgaged to the hilt never ceases to amuse me.

shane86

themole wrote:

Its in the banks interest, and acting in the banks interest is the bank exec's job.

Affordable houses are not easy to get. But, yes if people stop buying houses then the price will stabalise.

Is it a lottery or a waiting list? I know a single guy, no kids, early 20s who got one in a town on the outskirts of Dublin/Meath (shant say where) after a very short time on the list (6 odd months). He now rents the house out.

Some people really just seem to land on their feet everything they do :mad:

themole

shane86 wrote:

Is it a lottery or a waiting list? I know a single guy, no kids, early 20s who got one in a town on the outskirts of Dublin/Meath (shant say where) after a very short time on the list (6 odd months). He now rents the house out.

Some people really just seem to land on their feet everything they do :mad:

Info here. One point to note is that it requires that

you are in need of housing

If you rent out the house then this is hardly the case.

WhatsGoingOn

themole wrote:

about 1/2 or max 2/3 of the equivalent morgage to buy the same house.

Once you have your mortgage paid off in 20 (or 30) years that is it, no more payments. Whereas if you are renting, you have to rent for the rest of your life

So if you are a 25 year old who will live until 85, you are paying rent for 60 years, whereas if you are a 25 year old with a 30 year mortgage, the last 30 years of your life will be 'rent free', leaving you with better things in life to spend your money on.

themole

WhatsGoingOn wrote:

Once you have your mortgage paid off in 20 (or 30) years that is it, no more payments. Whereas if you are renting, you have to rent for the rest of your life

So if you are a 25 year old who will live until 85, you are paying rent for 60 years, whereas if you are a 25 year old with a 30 year mortgage, the last 30 years of your life will be 'rent free', leaving you with better things in life to spend your money on.

That reasoning does not always stack up. It did when houses were cheap and the amount of money spent on rent was enough to pay a mortgage. In the past the only people in ireland who did not buy a house were those who could not get credit and they ended up loosing out as they paid more in rent say over 30 years than it would have cost to pay a mortgage and buy the house.

That is no longer the situation and owning your house is not always the financially best option.
What if i rent for 30 years and invest the money i would have otherwise spent on a mortgage. That invested money could well end up being more than the value of the house.

There is nothing at all stopping you from then buying a house for cash.

Conar

themole wrote:

That reasoning does not always stack up. It did when houses were cheap and the amount of money spent on rent was enough to pay a mortgage. In the past the only people in ireland who did not buy a house were those who could not get credit and they ended up loosing out as they paid more in rent say over 30 years than it would have cost to pay a mortgage and buy the house.

That is no longer the situation and owning your house is not always the financially best option.
What if i rent for 30 years and invest the money i would have otherwise spent on a mortgage. That invested money could well end up being more than the value of the house.

There is nothing at all stopping you from then buying a house for cash.

This does make sense, but this all depends on you having the neccessary diligence when it comes to saving a decent lump every month.
And in the end even if that does work out would you have saved any money by doing it that way?
Also don't forget that as your mortgage becomes less and less due to inflation (salary increasing over time etc) you can pay it off a lot earlier than the 30 years.

themole

Conar wrote:

This does make sense, but this all depends on you having the neccessary diligence when it comes to saving a decent lump every month..

No different than paying a mortgage. You can have the money taken directly out of your pay, or a transfer from you account the day you get paid.

Conar wrote:

And in the end even if that does work out would you have saved any money by doing it that way?

You are straight away saving the variable apr charged by the bank for the mortgage (you of course have to take the rent into account, as you are not making money on that). Plus you are investing the money in something else that may give a higher return than the increasing house value.

Conar wrote:

Also don't forget that as your mortgage becomes less and less due to inflation (salary increasing over time etc) you can pay it off a lot earlier than the 30 years.

But interest rates can also change, so the amount you have to pay back can increase.

Bottom line is that buying a house, paying a mortgage on it and living in it can often make sense. But not always.

Most people automatically presume it makes sense to buy a house. They never make the calculations to see if they might be better off investing and renting.

jhegarty

jhegarty wrote:

How much do you think 20 years of rent adds up to ?

less than 2k a month?

A Random Walk

Conar wrote:

This does make sense, but this all depends on you having the neccessary diligence when it comes to saving a decent lump every month.

Why does this always come up in these discussions? There's plenty of us who do have this diligence, so why is it always questioned - I don't turn around and say "a house may be a good investment, if you have the diligence to not burn the place down" . Maybe it's just as well some people buy a house, because they have very little confidence in themselves otherwise.

Conar

A Random Walk wrote:

Why does this always come up in these discussions? There's plenty of us who do have this diligence, so why is it always questioned - I don't turn around and say "a house may be a good investment, if you have the diligence to not burn the place down" . Maybe it's just as well some people buy a house, because they have very little confidence in themselves otherwise.

Because its a valid point.
Maybe it is often questioned in these threads but it wasn't questioned by me if you read my comments, I simply pointed it out.

BUT seeing as how you seem to want to discuss it further, saving isn't everyones bag so I don't think that everyone would have the "diligence"
to save large amounts of money (a decent double figure percentage of their wages) every month for 20-30 years.

HelterSkelter

humbert wrote:

Yea, renting is basically flushing money down the toilet.

Depends on if you rent long term or short term. Houses are dropping in price by 5% accoding to sites such as irishpropertywatch. If I was going to buy a €400,000 house today, at those rates it would have dropped by €20,000 in a years time. If I rent at €1,200 a month for one year I will spend €14,400 in rent. That's €5,600 profit.

Also you have to take your lifestyle into consideration. Would you rather buying a house 20 miles from where you work, travelling up to 4 house a day to and from work, stressed out, tired, no social life midweek. On the other hand you could rent a place 5 mins walk from your job, having time to enjoy your life, meet your friends after work, actually have a life during the week.

WindSock

jhegarty wrote:

(i should note I am wearing a pizza as a hat , just in case)

I would like a slice of your hat, sir.

chump

humbert wrote:

Yea, renting is basically flushing money down the toilet.

humbert as you are incapable of answering the question I put to you - maybe you can respond to these scenarios and explain how the above comment ties

1. Mr Humbert, a Corkonian, is undertaking a 1 year diploma in Enunciation in Dublin city centre. He plans on returning home to Cork after the year is complete.

2. Frau Humbert, a widowed Hausfrau from Hamburg, has been wooed by the charming Mr Humbert. Frau Humbert has €0.5 million in the bank. As Mr Humbert does not believe in rent she purchases a home for €0.4 million euros + stamp duty. 1 year later the passion for Mr Humbert wans somewhat. She is no longer satisfied in the relationship and seeks to return to Hamburg. House prices have grown by 3% in the year. Acquisition and disposal costs total €5000.

3. Mr Humbert, single but enunciated up, wishes to remain in Dublin in the hope of catching another weighty beauty. He purchases a home with a 100% mortgage for €400,000 + stamp (cash reserves) in Balbriggan. He commutes into his job in Dublin daily on public transport with a return journey of 2.5hours daily, and a cost of €2000 yearly. House prices fall by 10% in year one, but have recovered their value by year 5. He plans to upgrade home after 5 years.

4. Mr Humbert buys an apartment in Cork city on a 100% mortgage for €317000 in 2002. House prices increase by 400% in 1 month and he sells up and banks his profit. He is shrewd.

Harpoon

humbert wrote:

Not taking rent into account is a fairly hefty omission. Renting at a 1000 a month over the same 30 years would be 360000 and you have nothing to show for it.

totally incorrect. The place that you are renting would probably cost EUR 1,500 by way of mortgage. The interest that the landlord pays the bank, or theoretically would, is the main factor in how the rent is determined.

So this is what you do instead. pay the EUR 1,000 rent on the apartment, and put EUR 500 per month in a savings account. Over 30 years, your disposable income would be the exact same if you had bought. And you have 300,000 in the bank plus interest over that period. Im simplifying of course.

Renting is by no means dead money. If you rent you are renting a property. if you buy you are renting the money. And you dont have to worry about house prices and all of that nonsense.

Harpoon

humbert wrote:

Not taking rent into account is a fairly hefty omission. Renting at a 1000 a month over the same 30 years would be 360000 and you have nothing to show for it.

totally incorrect. The place that you are renting would probably cost EUR 1,500 by way of mortgage. The interest that the landlord pays the bank, or theoretically would, is the main factor in how the rent is determined.

So this is what you do instead. pay the EUR 1,000 rent on the apartment, and put EUR 500 per month in a savings account. Over 30 years, your disposable income would be the exact same if you had bought. And you have 300,000 in the bank plus interest over that period. Im simplifying of course.

Renting is by no means dead money. If you rent you are renting a property. if you buy you are renting the money. And you dont have to worry about house prices and all of that nonsense.

Conar

Harpoon wrote:

totally incorrect. The place that you are renting would probably cost EUR 1,500 by way of mortgage. The interest that the landlord pays the bank, or theoretically would, is the main factor in how the rent is determined.

So this is what you do instead. pay the EUR 1,000 rent on the apartment, and put EUR 500 per month in a savings account. Over 30 years, your disposable income would be the exact same if you had bought. And you have 300,000 in the bank plus interest over that period. Im simplifying of course.

Renting is by no means dead money. If you rent you are renting a property. if you buy you are renting the money. And you dont have to worry about house prices and all of that nonsense.

I think your sums are a bit out there.
500 a month for 30 years is actually 180k plus interest.

A Random Walk

Conar wrote:

I think your sums are a bit out there.
500 a month for 30 years is actually 180k plus interest.

500 a month for 30 years at an average return of say 9% (which is what the average stock market return has been) leaves you with €1 million. Deduct 2.5% inflation, you are left with €600,000 in "real" money. Not to mention that the average mortgage in Dublin is usually a lot more than €500 higher than the rent for the same place.

Save €750 a month over a mortgage and the renter ends up with €800k adjusting for inflation. I could live well on €800k.

Conar

A Random Walk wrote:

500 a month for 30 years at an average return of say 9% (which is what the average stock market return has been) leaves you with €1 million. Deduct 2.5% inflation, you are left with €600,000 in "real" money. Not to mention that the average mortgage in Dublin is usually a lot more than €500 higher than the rent for the same place.

Save €750 a month over a mortgage and the renter ends up with €800k adjusting for inflation. I could live well on €800k.

Not bad indeed.
Those figures sounded so fantastical that I had to check but yeah you're right.
Still, what house will you buy in 30 years for 600k?
You may not be able to buy much for that though and what if youu experience a crash or 2 during that investment.

I do see peoples reason for chosing to rent......BUT personally I would rather have a place that I know will always be mine (as long as I can keep up the payments) and that I won't have to pay rent/mortgages in 20 odd years time (yes assuming everything goes how I hope it will +/- 1 or 2 disasters)

jhegarty

bluewolf wrote:

less than 2k a month?

Really ?

You think you will be able to rent somewhere for 2k in 15 years time?

vorbis

Why do people assume rents are going to rocket??

Rents are more linked to what people can afford than mortgages! If you can't rent somewhere for 2K in 15 years, it means people's wages have skyrocketed.

constitutionus

daveirl wrote:

This post has been deleted.

presuming their worth something when you retire and didnt get shafted by your pension provider or suffer a catastrophic "re adjustment" in the market. the flaw in your argument is your spending pretty much the same on rent as you are on a mortgage so youve still got the same disposeable income but nothing to show for it 25yrs down the line.

and hey according to the politicians the state pension is gonna be my part time wage in 5 years time so ill have no problem traveling abroad let alone feeding myself not to mention benefiting from all the pension age benefits of free phone , TV , electricity and so on where as you'll be paying rent till you cop it

daveirl wrote:

This post has been deleted.

considering the average person is meant to last till 100 now if you think saving and investments will provide for yourself till then your deluded.
you'd need to put some serious money away to cover that many years and most people in this country (see 98% of the population) cant do that. when you consider 80% of the population earn less than 35k a year (figure taken from brian cowans budget speech in 06) and your average rent in dublin is circa 1500 a month that leaves you with 17k to live on. nowhere near what you'd need to provide for yourself so i stand by my statement. renting is dead money, people who say otherwise are probably landlords or divorced from reality

Conar

vorbis wrote:

Why do people assume rents are going to rocket??

Rents are more linked to what people can afford than mortgages! If you can't rent somewhere for 2K in 15 years, it means people's wages have skyrocketed.

If you get a 4% pay rise every year then your wages should double over 15 years approx.

constitutionus

yup, thats fairly reasonably. when i started working in '93 the average industrial wage was 15k. now its circa 35k. do the maths to see where it'll be in the future when your stuck on your dwindling assets

chump

constitutionus wrote:

renting is dead money, people who say otherwise are probably landlords or divorced from reality

How can you say this - what about the scenarios outlined above?

There is no doubt that purchasing can be wise decision but there is EQUALLY no doubt that renting can be a wise decision. It depends on many external parameters. You can choose any set to fit your argument, but you can't deny the existence of another set.

You are comparing ONE scenario and extrapolating from that that renting is dead money. Your ONE example is the purchase on one home

- over 25 odd years
- average age of death 100
- 98% of the population cant put some serious money away
- 80% of the population earn less than 35k a year (figure taken from brian cowans budget speech in 06) I'd love to see backup for this figure - does it include children and pensioners??
- average rent in dublin is circa 1500 a month
- 17k to live on.

I just find it laughable that some people can't actually understand that a generalisation like "rent is dead money" is wrong. There's no two ways about it - the statement is simply false.

vorbis

yes but they're linked! This seems to be escaping people. If I earn say 4K a month now and pay 1 K in rent, put 1K into savings. In 15 years, if I earn 8 K a month, rent is say 2K and I put 2K into savings!

As long as rents stay so low relative to a mortgage there is little sense to get one! When you're 70, that house won't be much good to you without any other money. You'll end up selling it just to get by. Then you'll be back again to renting.

Conar

Thats actually made me think all over again ...now my head hurts

If in 15 years wages have doubled then probably rent will have doubled too.
So while the people paying the mortgages are still paying 1600 (subject to interest rate changes) , renters will be paying 2k.
By the end of the 30 years if it has even gone up by 50% further the mortgage payers will be paying 3k while the mortgage payers have stopped paying.

Would this not negate any savings that may have been made by the renters or even possibly cost them more while having no home to show for it?

Please excuse my basic calculations....perhaps some of you have guessed that I'm not an economist.

chump

vorbis wrote:

yes but they're linked! This seems to be escaping people. If I earn say 4K a month now and pay 1 K in rent, put 1K into savings. In 15 years, if I earn 8 K a month, rent is say 2K and I put 2K into savings!

As long as rents stay so low relative to a mortgage there is little sense to get one! When you're 70, that house won't be much good to you without any other money. You'll end up selling it just to get by. Then you'll be back again to renting.

Nevermind the costs incurred with buying/selling, the burden of stamp duty, the increasing likelihood of having to pay annual maintenance charges. On top of that the increase costs associated with home-owning.

And what about short-term decisions?

Anyway I've participated enough in this! begone

Conar

vorbis wrote:

yes but they're linked! This seems to be escaping people. If I earn say 4K a month now and pay 1 K in rent, put 1K into savings. In 15 years, if I earn 8 K a month, rent is say 2K and I put 2K into savings!

As long as rents stay so low relative to a mortgage there is little sense to get one! When you're 70, that house won't be much good to you without any other money. You'll end up selling it just to get by. Then you'll be back again to renting.

Yes thats a very valid point but you are also generallising about the people that are paying mortgages.
A lot of people have a private pension now which they will have on top of their state pension...asuming that the pension doesn't go belly up.
Also as you're mortgage becomes lower and lower in relation to your salary you can either up your payments and lower the term or top your pension up even further.
A 30 year mortgage maybe be quite a daunting prospect at the start in terms of duration of the loan and the cost per month but as time goes on it gets easier and easier (fingers crossed about the interest rates).

Also I must add that if you have 2 old people living in a paid off house with 2 state pensions then you shouldn't be in that bad a state. Its not like you need much disposable income in your later years.

jhegarty

Conar wrote:

Thats actually made me think all over again ...now my head hurts

If in 15 years wages have doubled then probably rent will have doubled too.
So while the people paying the mortgages are still paying 1600 (subject to interest rate changes) , renters will be paying 2k.
By the end of the 30 years if it has even gone up by 50% further the mortgage payers will be paying 3k while the mortgage payers have stopped paying.

and don't forget the 30 years after that when renters are paying €4k,€5k and 6k and up... all the mortage people pay nothing....

constitutionus

this is true. not to make people sick but my mortgage is circa 650 for a three bedroom house in dublin bought in 02. my mate was renting a one bedroom kip on the fith floor of an apartment block that you literally couldnt swing a cat in for 850 a month

i can undestand if your just talking short term that renting is attractive but anyone i know thats done it for 5yrs or more get really wound up about having nothing to show for it and i just dont understand what the attraction is for the long term. particularly if you want to start a family 5 to 10 yrs down the line

in regards to the state pension i have to ask, how much money do people think they'll need when theyre 65? i get by quite comfortably on 300 a week and i cant see myself partying as much as i am now when im that age. ditto the traveling around the world. in fact im really looking forward to abusing the free travel pass to explore ireland north and south. i think the governments pushing a lie on the "pension crisis". ok if your on 100k a year your in for a rude awakening but after your mortgage/rent your pretty much in that area of disposable income if your an average worker and if your on the minimum wage (full third of the workforce) its a complete waste of time to take out a private pension. hell according to macdowel you'd probably earn more retired than working .

dont get me wrong im providing for my future by setting up my own business because i dont like to depend on anyone. but im fecked if im getting a pension, thats far too dodgy on my current wage.

jhegarty

constitutionus wrote:

this is true. not to make people sick but my mortgage is circa 650 for a three bedroom house in dublin bought in 02. my mate was renting a one bedroom kip on the fith floor of an apartment block that you literally couldnt swing a cat in for 850 a month

Nice, I am paying €531 a month for a 3 bed in west cork (bought in 05)... before that was renting a 1 bed appt for €450...... (there was 20k spent before moving in , but that will be paid off in a few months)...

constitutionus

jhegarty wrote:

Nice, I am paying €531 a month for a 3 bed in west cork (bought in 05)... before that was renting a 1 bed appt for €450...... (there was 20k spent before moving in , but that will be paid off in a few months)...

hell of a difference isnt it? really makes ya feel for young couples though, my gaff'd cost over 1800 a month now and thats without whatever increases are to come. theres no way i could afford it now and cant help thinking all the newbies in my estate must be up to their arse in debt.. i havent a clue how people commute for hours on end to come in from the surrounding counties either . im in dublin and its bad enough!

Conar

constitutionus wrote:

hell of a difference isnt it? really makes ya feel for young couples though, my gaff'd cost over 1800 a month now and thats without whatever increases are to come. theres no way i could afford it now and cant help thinking all the newbies in my estate must be up to their arse in debt.. i havent a clue how people commute for hours on end to come in from the surrounding counties either . im in dublin and its bad enough!

It all depends on where you work.
I moved out to Meath but I changed my job.
I now travel twice as far to work but it takes me half the time.

constitutionus

think thats like my brother, he tavels against the traffic to kildare everyday and because its all coming the other direction he's no problem. still its murder on the car, hes doing pooling now to cut down on the milage and save on wear and tear. poor lad drives as much as a taxi driver

jhegarty

jhegarty wrote:

If you can show my any time in the last 100 years when houses were not worth more after 12 years I will eat my hat....



I am not say it will be worth more next year, or the year after , but I will after 12....


and yes, prices do keep going up forever (in the long term)....

They do but overall they tend not to give the huge returns you would expect.

Why? Inflation.

Discounting medium term boom and busts the overall trend tends to track inflation. So while some people can make a killing buying or selling at the right time everyone can't be winning. Its basic supply and demand.

Your 350,000 house now might be worth a million in 20 years time but that million won't have the same value as now. Everything will be more expensive.

The only people making serious money are people selling at the crest of the boom. Everyone else can expect their long term investment to possibly do better than keeping it in the bank for the same or depending on how heavily their leveraged their credit worse in the long run or even no gain at all.

As the banks would say past performance is not a garuntee of future performance.