Boat Mortgage or House Mortgage?

[blueglass]

rent and mortgage free by the time you're 45.

I wish! I agree and symathise with a lot you say - I have 2 sons in their early 30's who are both on the housing ladder and know they had to struggle for it, as we did in our time.

Your concept of being mortgage free by 45 can only work if you want to live your entire life in that tiny little first buy. This doesn't happen, especially if you have family, and that mortgage gets added to and extended many times. I personally got myself out of that with a series of hard graft property developments, but I have many friends in the same age group as me (early 60.s) who still have big mortgages with many years still to run.

 

[ska_mna]

Your concept of being mortgage free by 45 can only work if you want to live your entire life in that tiny little first buy.

Fair point!

Oh dear, you've depressed me even more... ;-) As of course that is equally true of younger generation too. So presumably if we want to raise a family (i.e. upgrade from that first studio flat), we won't be mortgage free until we're 85. Hahahahahahah!!!!

But seriously, I've heard people are putting off having families longer and longer these days. I guess that's the knock-on effect.

Screw it, there's no point in homeownership if you're paying it off till you're 85. May as well rent instead.

ATTENTION POLITICIANS! MAKE 3 YEAR, FRENCH-STYLE TENANCIES A STANDARD OPTION ALONGSIDE SHORTHOLD TENANCIES FOR ALL BUY-TO-LETS!!

 

[xxyyzz]

ATTENTION POLITICIANS! MAKE 3 YEAR, FRENCH-STYLE TENANCIES A STANDARD OPTION ALONGSIDE SHORTHOLD TENANCIES FOR ALL BUY-TO-LETS!!

One for the landlords and the tenants really.

 

[ska_mna]

One for the landlords and the tenants really.

Hmm, have to say I disagree with you there. The Assured Shorthold Tenancy was introduced by Thatcher in the 80's I believe as part of the Housing Act. It was never intended to be used by people long term renting.

The natural progression from there is to have a revision to the housing act which raises the bar of the default tenancy agreement to a longer, European-style one.

So while yes, you could potentially go out on your own and try to negotiate a longer term lease with your landlord, government could do a lot to raise the bar and make long term letting more simple. Perhaps with the AST as a secondary opt-in option? In other words, turn the tables on the current situation.

Surely if the % of homeowners vs tenants starts to swing in the other direction again for the first time in decades, the housing act needs to be updated to reflect this. Therefore it IS a Westminster issue.

Would welcome other opinions on this.

** thread topic tossed violently in differing directions! **

 

[E39mad]

Leave the system alone - it works well as it is at present - landlords are not leaving in droves so what's the issue?

If you place long tenancies on new agreements you will get a lot of landlords pulling out and selling therefore less stock for the tenants - not what is needed. Private landlords provide most of the social housing need of the country - best not to tinker with that!

 

[ProDave]

Some interesting points.

To some extent the housing market is a self fulfilling prophecy. By that I mean in boom times, people may rush into buying their first house when not really ready to do so, because if they don't buy right then, they will be priced out. So that fuels the boom to continue by unrealistically raising demand.

Likewise in "bust" times, with house prices falling, albeit only slowly, there's no rush. You might as well just keep saving, and buy later, by which time you will have a bigger deposit, and the house you buy will be cheaper. Just make sure you do buy before prices go back up again. But people "waiting to buy" just ensures the "bust" continues for longer than it should.

Perhaps if it stopped being a national obsession, and the news stopped sensationalising boom or bust conditions, then the market would behave in a more settled way based on people's real desire to buy and own their own house, rather than feel pressured into buying quick, or holding off by continual forecasts of what the market is doing.

As regards mortgage free by the time you are 50 or less. There's a simple formula that works. That is buy the best house you can, and move up as soon as you can until you finally get the house you want. House buying is just like boat buying, buy the house you can afford, rather than waiting for the house you really want. But the magic thing, is make sure you get a repayment mortgage (none of that endowment rubbish if they are still flogging those lame ducks) and then, whenever you have ANY spare money, raise your payments so you are over paying.

When I started out, I created a little mortgage calculator program, that would let you enter mortgage amount, interest rate, and repayment amount, and it would draw you a graph of how the loan amount reduced over time. Repaying just a modest £10 per month extra would knock a few years of your mortgage term. Overpayments in the early years (when interest is dominant) will have a huge effect on reducing the term.

Remember, most mortgage companies will recalculate your payment at the end of each year. If you have over payed, they will set your payment at a lower rate, thus ensuring your mortgage stretches out to the full term. Don't be tempted by that to reduce your payment, keep on overpaying as much as you can afford.

Which brings the question of HOW you pay each month. Steer clear of paying by that awful system called Direct Debit, because THEY set the monthly amount ther collect, making it hard or even impossible to over pay. Instead make sure you set it up to pay your monthly payment by standing order. Then YOU set the montly payment, and can easilly increase it when you have spare cash, or reduce it when things are tight (just make sure you never go below the prescribed minimum payment)

Over paying on a repayment mortgage will give you a much better long term return than any savings plan you are likely to find so is a much better home for spare cash than savings. And many mortgage companies will let you "borrow back" anything you have overpaid, so if you get into trouble, you can often get your overpayments back.

And lastly, after you have worked your socks off, in the overpriced, over crowded South, when you reach 40, sell your house down south (even if not fully paid off), and move somewhere much nicer, less crowded and much cheaper. There you are, aged 40 in a nice house in a nice location with no mortgage. So now you can start to relax a bit, do an easier job, and enjoy life a bit. It worked for me.

To the renters: What's wrong with a short assured tenancy? I've had the same tenant in one of my properties for 5 years. He's happy and I'm happy. No landlord wants to keep changing tenants as that incurs costs and dead time with no rent, so I can't see the issue.

 

[ska_mna]

Leave the system alone - it works well as it is at present - landlords are not leaving in droves so what's the issue?

Works well for landlords maybe! Particularly those just wanting to turn a quick buck or having their retirement paid for by the work of others. I think the thousands of young middle class couples and families with no long term security, no chance of "owning" a family home, no freedom of customising the rented house to their needs etc. would probably disagree with you.

Not that I want to imply all landlords are money grabbing children of satan as they're clearly not, but I think the roof over your head is something that needs to be treated with a little more seriousness in terms of the law.

And a more European rental system wouldn't be all skewed in the tenants favour; I believe long term leases mean the tenants are responsible for the upkeep, white goods etc. meaning landlords don't have to worry about any of that. Think I'm right there?

Anyway, we'll probably have to agree to disagree on this one! I'm aware I'm dragging this thread away from the OP's original question "Boat Mortgage or House Mortgage?"

On which note, I think I'm probably prepared to answer that now:

Neither. Rent and save. Buy a boat outright when you can afford one because:

House Mortgage: for most people it means you won't have paid it off till you're almost in your grave, lost thousands in interest, stamp duty and maintenance (if you buy/sell multiple times you climb the "ladder"), plus you'll be living in a small house in a c**p area for most of your life as that's all you can afford a mortgage for. Unless you're lucky and inherit money or assets, or make a fortune from your company's IPO etc. ;-) In other words, if you're Mr and Mrs average middle class, rent.

Boat Mortgage: It's a depreciating asset, and borrowing money for something that doesn't give you any ROI is not good financial management.

Welcome to posts to change my opinion though!

 

[Flying Penguin]

Neither. Rent and save.

I'd personally put this down as the least preferable option. If you have the deposit now and choose the right place (we did ~2 years ago) you can be paying less in mortgage than the equivalent to rent, and the amount we can save hasn't changed. Rent is 100% down the drain, the mortgage might be 75% down the drain (worst case scenario, figures for us were a shade under 50% iirc).

We pay exactly the same in mortgage as we did to rent (somewhere decent enough you could have a child in, unless you plan to delay that as well). If you have the deposit to do that, it's the only way that makes much sense. Even if prices fall (and I think a very long period of stagnation is most likely), we'd be cushioned by actually getting some ownership back for our payments.

Jamie

 

[muyuu]

What conditions do you usually get for a boat? 6% fixed over 10 years? better?

 

[Phideaux]

What conditions do you usually get for a boat? 6% fixed over 10 years? better?

I was quoted under 5% APR (actually about 4.5% for £80k over 10 years)

 

[temptress]

JFDI

I'm in my late twenties and am starting to earn enough money to think about long-term finances. I'm currently renting and whilst I'd like to save for a deposit for a house, I'm more interested in buying a boat.
.......
Have other people foregone houses in order to buy boats? .....

Thoughts? Advice?

Just remember that you priorities change as you get older. Now having said that I bought a boat in my Mid 20's and lived on her (including a spell in Norway when I was working there). Later on I bought a house lived in that for a while then rented it out. Now I am much older, have a bigger boat (all paid for) and several houses - all rented out.

My family and non-sailing friends used to say i was reckless now they are not so sure. I don't regret any of it. It's a lifestyle choice and you have to make it.

Did I have to give up things - well yes but I got to go sailing all the time. did I have financial security? - no and I guess i still don't have that really. DID I HAVE FUN - yes. Would I do it again? Oh YES!

 

[Phideaux]

Just remember that you priorities change as you get older. Now having said that I bought a boat in my Mid 20's and lived on her (including a spell in Norway when I was working there). Later on I bought a house lived in that for a while then rented it out. Now I am much older, have a bigger boat (all paid for) and several houses - all rented out.

My family and non-sailing friends used to say i was reckless now they are not so sure. I don't regret any of it. It's a lifestyle choice and you have to make it.

Did I have to give up things - well yes but I got to go sailing all the time. did I have financial security? - no and I guess i still don't have that really. DID I HAVE FUN - yes. Would I do it again? Oh YES!

Sounds good to me

 

[prv]

Remember, most mortgage companies will recalculate your payment at the end of each year. If you have over payed, they will set your payment at a lower rate, thus ensuring your mortgage stretches out to the full term. Don't be tempted by that to reduce your payment, keep on overpaying as much as you can afford.

Which brings the question of HOW you pay each month. Steer clear of paying by that awful system called Direct Debit, because THEY set the monthly amount ther collect, making it hard or even impossible to over pay. Instead make sure you set it up to pay your monthly payment by standing order. Then YOU set the montly payment, and can easilly increase it when you have spare cash, or reduce it when things are tight (just make sure you never go below the prescribed minimum payment)

I *think* my payment is recalculated monthly rather than yearly. However, there's a "switch" on the account for whether overpayments should shorten the term or reduce the minimum payments. The latter is the default, but naturally I've switched mine to the former so the fixed payments stay the same.

Not sure why direct debit is such a big deal. I let them take the minimum amount by direct debit, but if I have spare cash I can pay that in separately at any time. Usually by BACS transfer, but back when I was still in the promotional period and had a cap on monthly overpayments, I've toddled round to their shop with a bundle of cash to get that month's allowance in before the deadline.

Pete

 

[mcframe]

So, if you will, this isn't the 30-year-old-me whining that I want a house for nothing and that I don't want to have to work really bloody hard to get there, it's the 50 year old me saying "Hang on, I'm 50 and still have 15 years of mortgage to pay and no pension. S**t."

Is that worse than:
"Hang on, I'm 50 and still have 15 years of mortgage to pay and no boat. S**t." ?

Just make sure the house and boat are commensurate with your ability to keep paying for 'em - with a decent safety buffer.

It's not an either/or; choose both and cut your cloth appropriately, but avoid borrowing for anything but a house.

And don't forget the "pension" (savings-so-you-don't-have-work-and-can-sail).

 

[mcframe]

What conditions do you usually get for a boat? 6% fixed over 10 years? better?

I was quoted under 5% APR (actually about 4.5% for £80k over 10 years)

Rent the house/boat or rent the money; these things tend towards equality, but there are times when either can make sense.

I'll resist the temptation for a boat vs house value poll, 'cos the cost of *keeping* 'em with minimal toil is what counts.

As AdamS said:
"What every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it, or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people."

 

[Babylon]

My family and non-sailing friends used to say i was reckless now they are not so sure. I don't regret any of it. It's a lifestyle choice and you have to make it.

Did I have to give up things - well yes ....did I have financial security? - no and I guess i still don't have that really...Would I do it again? Oh YES!

I'm not so sure its a 'lifestyle choice'. You were (and are still) being 'true to your own nature'. You can dress it up as choice, but in your heart-of-hearts you know you were just being true to yourself - and I'd bet that you've been taking reasonably impressive calculated risks since nursery school!

 

[Phideaux]

Lombard interest rates on marine mortgage

The current rates offered by Lombard for a 10 year mortgage are 3.88% above base (variable) (=current APR 4.7%). If you work on an estimate of £10.50 pcm for every £1,000 borrowed, you'll have a reasonable approximation of likely monthly cost for the loan.

You can also pay off lump sums of capital at any time without penalty and settle in full after the first year without penalty (which is pretty good IMHO).

*NOTE Lombard do say that they won't lend for intended use as a "liveaboard" (but long-stay cruising etc is OK) and therefore you would need a domestic address at which you were officially resident (= ? move back to parents for vote registration, mail etc).

 

[muyuu]

Rent is 100% down the drain, the mortgage might be 75% down the drain (worst case scenario, figures for us were a shade under 50% iirc).

This is a pet peeve of mine and one of the reasons why most of the sheeple will basically borrow just as much as banks let them.

Worst case scenario is much worse than 75% down the drain. Worst case scenario is well over 100% down the drain: losing all the investment, plus getting dispossessed of other goods (yours or your family's), plus being unable to borrow a penny in the future and ending up basically destitute. That's worst case scenario.

"Bad enough" case scenario is having your assets lose value faster than you pay off capital and the interest you pay being higher than renting. In this case you would be actually saving money by renting.

Statements like "rent is 100% down the drain" / "rent is paying somebody else's mortgage" ignore the fact that timing is absolutely crucial when buying property. More so than getting a few %s discount.

Some "winners" will tell you that they played Russian roulette with their life and it turned out okay, so you should play as well. With a few extra bullets in the cylinder even.

However this is the way things are and there are simply no better alternatives as long as the economy is debt-based.

 

[Flying Penguin]

This is a pet peeve of mine and one of the reasons why most of the sheeple will basically borrow just as much as banks let them.

Worst case scenario is much worse than 75% down the drain. Worst case scenario is well over 100% down the drain: losing all the investment, plus getting dispossessed of other goods (yours or your family's), plus being unable to borrow a penny in the future and ending up basically destitute. That's worst case scenario.

"Bad enough" case scenario is having your assets lose value faster than you pay off capital and the interest you pay being higher than renting. In this case you would be actually saving money by renting.

Statements like "rent is 100% down the drain" / "rent is paying somebody else's mortgage" ignore the fact that timing is absolutely crucial when buying property. More so than getting a few %s discount.

Some "winners" will tell you that they played Russian roulette with their life and it turned out okay, so you should play as well. With a few extra bullets in the cylinder even.

However this is the way things are and there are simply no better alternatives as long as the economy is debt-based.

Or alternatively, a conservative mortgage (as ours, <2.5x combined salary. We took a much much smaller mortgage than we could have), paid down as quickly as you can afford. Of course if you take out a crippling mortgage and pay it off slowly you increase your risk dramatically.

If you are in a position to buy and have sensible aspirations (i.e. don't go straight for a Chelsea town house), you'll be at least as well off in all but the worst case scenarios.

The figure I hear banded around for average house price fall last year seems to figure at around 4% at the higher end. We could take that fall every year for the life of the mortgage and still be out ahead against renting. House prices (achieved, not asking) locally have held up well, being in London commuter belt, so I don't think we've seen that size drop here.

It's not a strategy for everyone, nor is it 100% disaster/crash/major adjustment/price stagnation proof. No strategy is. But at least we know we will own our house at the end of it all (personal catastrophes, loss of job etc. aside).

We have a much smaller house than we could have had if we went all in, but we know we are paying it down quickly (in mortgage terms). Your personal circumstances may vary.

Jamie

 

[muyuu]

Glad it worked for you. <2.5x would be entering in pipe dream territory at this point. I hope this changes some day before I'm in my 40s.