correction : some of you are in trouble....
correction : some of you are in trouble....
"Andy Pandy" wrote
Ah, so you consider someone who has a mortgage to be "lucky"? [They're the ones who get more than a third of equity.]
"Andy Pandy" wrote
But they get the use of the house for the rest of their life for that. They're not exactly "giving two thirds or more of their equity to the finance company". What they're effectively doing is "selling" the house at full price, then paying two-thirds back in lieu of "rent" for the rest of their life...
Do you think they should get the *full* house value,
*plus* live there for free for the rest of their life?"Andy Pandy" wrote
Eh? ...
"Andy Pandy" wrote
I thought you were talking about an **equity release mortgage** ? Weren't you?
"Andy Pandy" wrote
Why is it that so many people think it's fine to spend all the interest if (say) interest rates are at 8% and inflation at 6% (so that the real value of their savings balance is falling by 6% per year), but won't deplete their savings by 4% per year if (say) interest rates are at 3% and inflation at 1%? (the real value of their balance would then only be falling by 5% per year, less than under the higher interest / higher inflation scenario)
Well, an argument could be made for that. In the good old days of house price inflation comfortably exceeding general cash inflation, the finance company could expect the capital gain to cover the "rent" and then some.
It's a much better deal for the finance company than it would be to be an actual lettings landlord. They would "own" the house but the contract would be drawn up in such a way that the "tenant" would continue to be responsible for the cost of insuring and maintaining the house.
We're not used to working with "real value". Occasionally the concept drifts past in news items, but we don't get used to it in relation to our bank balance or other assets. People have some vague notion of inflation and how it increases the apparent cost of things we buy and eats away at our money, but only a small minority of the population can work out the numerical consequences. So your paragraph above is entirely sensible, but the content will wash over most readers.
After that, the problem is psychological. For many years, it has been possible to rake in a reasonable amount of interest from a decent lump sum. Eg, if you have a #100K lump sum, and can abstract #8Kpa interest from it, then you can kid yourself that you haven't really spent anything. If interest rates go up to 9% or down to 7%, OK, you seem to be a little better or worse off, but there is still the comfort blanket of that #100K. That the #100K is now "worth" only #94K is irrelevant, for that is in last year's money. You could explain it better as that last year your lump sum was really worth #106K -- but that was last year, what seems to matter is that you still have #100K. Cometh the time when interest rates drop so far that you can no longer take a sensible amount of interest, and your mental picture of your wealth suddenly disappears. That's a real problem!
The other side of the psychological problem is that if you calculate your finances more logically, you are brought hard up against your own mortality. If your #100K is earning nothing, and you take #5K out of it, then it is manifest that it will run out in 20 years. Most people find that quite a scary thought, even if their life expectancy is less than that.
In the current climate of low interest rates and high inflation then savers are worse off since they are earning little interest /and/ the capital is reducing more quickly in real terms. Definitely better to spend it before it is worthless ;-)
Well it would seem so.
No, that's my point. You can't have your cake and eat it.
But Mr Bean seems to think you can.
No. Read the context instead of snipping it. Mel referred to two arrangements, the bit above was about "the former arrangement" which was a re-mortgage hence he said it was suitable if you have a pending lump sum.
So what has the capital gain on the house got to do with anything? Why mention it?
They might not live off *just* interest.
Why not just regular savings?
But that's not the case, is it? Inflation is around 3% and the base rate is 0.5%.
If you go back to the beginning you'll see that it was you who introduced it.
It's possible
tim
Eh? Mr Bean introduced it, that's the whole point of this thread.
"Andy Pandy" wrote
I didn't say whether it was the case or not, did I? I merely asked a question...
"Andy Pandy" wrote
What's the base rate got to do with anything? It's the *savings* rate that we're talking about here. You can get much more than the base rate if you try!!
Maybe that's correct. I would have hoped otherwise, but maybe the old saw about it never being possible to underestimate the intelligence of the general populace is accurate. At any rate politicians and con artists seem to think so.
It's odd though that the man in the street can do a better job than I in so many different ways.
20+ years ago I used my primitive skills, newly acquired after a course in 'C', to write a little program which showed the actual amount of interest+principal received (calculated as a constant real value), with the principal declining (or not, if the withdrawal was small enough) according to an assumed rate of inflation.I suppose a spread sheet would have done the same, but I was unemployed, couldn't afford one, and hardly knew what they were other than being in all probability a better? way for companies to cook the books.
It scared me into ignoring the ads about "guaranteed safe returns" etc. etc. and convinced me that property ownership was better.
At that time, at least.
But I still suffer from the naive idea that people will do what they are supposed to do, what they are in business to do.
Don't seem to be able to shake that off.
You can't disbelieve *everything*, so the problem then reduces to one of who you can trust to do what.
At which I am dismal. Though it wasn't I who trusted Bernie Madog!
Seems to me that we all must become more knowledgeable. People who can calculate betting odds can surely do better when it comes to their carefully-fostered (mis)understanding of economics.
It's no good electing a government which will try to sell the family silver (Ted Heath's comment about the privatisation of nearly all publicly-owned utilities) when there isn't much left to sell. Other than us all, into financial captivity. Branson, Souter, et alii excepted, of course.
The press dwelled happily on the comment about a third world country attributed to someone called Ratzinger (IIRC) but maybe he is correct.
Britain waived the rule 5 decades ago.
Back then the Chinese called us 'capitalist imperialist running dogs' and it has taken me that long to realise that although I knew it for propaganda, it was nevertheless accurate.
If Ratzinger is correct it might be better to acknowledge the bitter truth.
I really enjoy the unlikely vision of ministers saying they overrated themselves, wearing sackcloth and ashes, and self-flagellating. (Clearly I'm biased.)
Which is the point that I have been commenting upon all along
tim
So did I. You can tell by the question mark at the end.
The point is that inflation is about the same or even higher than in recent history, yet interest rates are lower. So it's not the case that both inflation and interest rates have fallen. So what was the point of your "question"?
"Andy Pandy" wrote
Yep, I know. But how does that go any way towards answering my question?
"Andy Pandy" wrote
So what? - How does that answer my question?
"Andy Pandy" wrote
Well, I wondered why so many people thought it, so I asked why they did. The point of my question, then, was (obviously) to try to find out what other people thought the answer was! Isn't that the usual reason for asking a question?
Now - do you have an actual answer to the question, instead of just mentioning other irrelevant factors about current circumstances?
It isn't always about intelligence, it can sometimes just be psychology.
For example, study after study has shown that people are much more likely to enter into a double or quits bet with money that they have been given than money that they have earnt.
tim
It doesn't.
It doesn't. It's pointing out that your question is irrelavent to the issue under discussion.
I was wondering what the reason behind the high price of haddock was. Any ideas?
"Andy Pandy" wrote
"Andy Pandy" wrote
Not so! (even if you had spelt 'irrelevant' correctly) The quote said that savers shouldn't expect to just spend income if interest rates are low, and could eat into capital as well. I asked why people think it's OK for the real value of capital to be eroded when interest rates are high, but not when they are low. So it was very relevant to the issue under discussion!!
"Andy Pandy" wrote
Supply & demand?
Well, my Mummy always used to say to me that I must save for a rainy day! She also said that bricks and morter were the safest bet! Deary me! What a change! I agree with Mr. Bean, nowadays, spend spend spend! Leave yourself with no money if possible and rely on Social Services and the State to look after you. If they don't, resort to crime and let the powers that be put you in Prison! That way you get five star treatment and good food to boot!! - At the taxpayers expense! Why not? There is no incentive to do otherwise.
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