to wonder why anyone in their right mind would want to take out a 125% mortgage?

[wannaBe]

Obviously these mortgages aren't really as available now as they were a year or so ago.

But earlier I caught the end of a discussion about Northern Rock and how people didn't consider the reality that when they take out a 125% mortgage they are already in negative equity as soon as they move in.

I can kind of see why someone might take out 100% although even that would be risky IMO, but 125%? why why why? Surely if you had that much debt that you needed an extra 25% of the value of your new home to cover it then that's not really the best time to be considering buying a house in the first place?

yes I think that finance should be taught in schools.

I think that we now live in such a materialistic society that children just have no concept of money and where it comes from and its value, because in a lot of instances what they want they get, from an early age. The toys they want/the games consoles they want/50% of 3 year olds has a television/dvd player in their bedroom. mp3 players/mobile phones/designer clothes. And foreign holidays. Obviously this isn't the case for everyone but for a lot of children it certainly is. And then when they leave home they just don't grasp the concept of having to budget because they've always been able to have what they've wanted.

So they're not used to having second-hand, everything has to be new. And they've never had to appreciate the value of money before so they find it difficult.
And I genuinely believe that is how so many people get into debt.

Of course there are people who have no choice. But there are certainly lots who feel they should have whatever they want.

The problem is not just with Northern Rock - though, even there, the wbankers there who chose to push debt on desperate people enjoyed thier bonuses and got away scot free with doing so much damage to our economy.

During the boom times they made a packet

• heads they win

In the inevitable bust, the taxpayer bails out the banks

• tails we all lose

I disagree that finance should be taught in schools. Many schools seem to struggle to turn out children capable of basic maths so adding personal finance to the mix seems a little ambitious.

It could be taught as part of the maths syllabus I suppose.

Just how much more can schools take on though? Shouldn't budgeting/money management knowledge come from parents? You learn it via saving up weekly pocket money for things that you would like. Or am I being hopelessly naieve?

Biggitdad - I agree with most of what you have to say.

To the OP, yes it seems a crazy idea but you have to remember that for a lot of people who were watching house prices go up every month, it seemed the only way to get on the ladder (it was impossible to save a deposit as quickly as prices were rising). Also, when a lot of the deals were taken out by people,

a) lenders were desperate to lend money (we used to constantly be pestered to move our mortgage elsewhere)
b) other bills e.g. food and fuel were pretty low.

Now banks are really reluctant to lend money and will only offer high interest rates to those with little or no equity in their house. Add that to rising food bills etc and I actually feel quite sorry for most of the people who took out these deals because whilst they may have been foolish, I don't think that many were greedy (apart from the BTLers of course...). Negative equity/house price fall isn't just a problem for those needing to sell - it will also be a major problem for anyone who needs a new mortgage deal in the near future who has very little equity in their house.

I don't think its so much that people don't understand finance its that they allow themselves to stick their heads in the sand or be misled by marketing. Finance is really no more complicated than what can be learnt in infant school. If you have 3 pennies and an apple costs a penny you can buy 3 apples. If you have no pennies you can't buy an apple. If you spend all your pennies on apples you have no pennies left.

Beyond that, most other things can be learnt in the playground. You can only swap something with your friends if they want something that you have. If somebody lends you something they will eventually want it back. Beyond that its useful to know about percentages and statistics, but as far as I know these things have never been off the syllabus.

mp in theory that's true, but in practice borrowings are up massively, and more people are in serious debt now than ever before

And while some people are in debt through desperate need, there are many many more IMO who are in debt because they believe that when they want something, they should be able to have it, now.

People have a far greater need for things now than say 30 years ago. Two cars/foreign holidays/television in every room with sky tv.

And the kids don't go without, never learn to go without. I've heard so many people talking both in rl and on here, saying that they feel their children should have the latest gadgets/designer clothes etc because if they don't then they will become victims of bullying.

So we are teaching our children that they have to have everything, and somewhere along the line other children are giving out the message that if you don't have everything then you are somehow less worthy.

So parents will either go without themselves or go into debt so their children can have the latest and greatest things. And the children learn that if they want, they get, and when they reach adulthood the cycle continues...

Because we're worth it........

I think that says it all really.

I was chatting to a colleague and she said her 5 year old niece had recently set out her birthday list and it contained things like a Wii, ipod and various other really quite expensive items.

I was quite appalled actually. Is this normal? I genuinely don't know.

I agree totally with Wannabes last post and the inanity of competitive consumerism. I was at a 3 year old's birthday party a couple of weeks ago and the child recieved more gifts than could possibly fit in her bedroom, many of them very expensive. After she had opened the first twenty or so presents, she was no longer looking particularly excited.

But that kind of consumerism is a bit different from the 125% mortgages. Maybe some of it is "equity withdrawal" or second mortgages to cover immediate gratification, but I think a lot of families have been under too much pressure to borrow more than they could afford, just to live in a very ordinary house or flat.

The two bedroom flat I live in now is identical to one next door which sold for £300,000. These are far from luxury penthouses but few young families could afford them. When you compare the price of an ordinary house with the wages for an ordinary job - the problem is obvious.

There would have been much less of a problem if private tenants had better protection under the law or if social housing was actually a viable option.

Apparently "no presents" is being seen more and more on invitations although mainly on adult invites.

Apparently people have so much crap cluttering up their house they just can't deal with it anymore.

I agree with Upwind, particularly in London and the SE.

My brother lives in Gr. London and his flat is one-bed. It cost 3 times what my 3-bed flat cost in Newcastle.

Many jobs in London are paid more, but he and his DP are teachers, so the wage is much the same. Both had rented since they were 18, have stable, professional careers and no kids/ cars/ fancy holidays. It's hardly greedy is it?

They did have a small deposit, but only because of family help. Which, of course, is just another reason the rich get richer and the poor get poorer.

wasabipeanut, I'd far rather people gave DD a £5 book than a £20 bulky, plastic toy you have to find somewhere to fit when she gets bored of it a week later. I'd feel weird asking though.

Go for it Laugs you might start a trend!

"Do you remember the state of the economy when you were ten years old? When you were 25 would you have remembered the state of the housing market 10 - 15 years previously?"

• I'm 27. And, well, actually yes. Because my parents were informed, and discussed it at the time, and I just 'got' what was going on through osmosis, and sitting at the dinner table and listening.

So, I very much agree with wasabipeanut that it is entirely down to the parents to teach their children about personal finance, and how to control your money, how to live within your means, to budget. We cannot just turn to the schools and expect them to fit it yet another subject into the already stretched curriculum.

We have bugger all to live on, but are never in debt. I know how much I have. When it is gone, it is gone. Full stop. If there's suddenly only £50.00 left to last the next two weeks, well, that is what the family will be living on for the next two weeks. If by some bizarre and wondrous twist of fate we have £500(!) left for the month, well, we live on that quite easily too!!

Thing is 1996 was the bottom of the last crash wasn't it (I'm slow to make this point I know) so anyone buying in 96/97/98 on greater than 100% mortgage would have been fine and known it having seen house prices crash by whatever percentage oever the previous few years
Bit shaky on the figures I know funnily enough I said to dp I would look that up last night

" so anyone buying in 96/97/98 on greater than 100% mortgage would have been fine"... unless they were working in a dotcom start up that was about to go bankrupt.

It still comes down to basic common sense though. Perhaps the problem is financial gambling is dressed up with PR and marketing to make it seem more grown up - in the olden days at least people knew that they were gambling when they went down the dogs. On the other hand, debtors' prisons were around long before credit cards and sub-prime mortgages. People have always been able to fool themselves.

Dot com didn't go bankrupt until 2000 though did they wasn't that when that bubble burst?
Yes of course if you loose your job/get run over by a bus/have triplets and give up work you will have to re-think your financial arrangements what I ment to say was that historically they would have been secure in the knowledge that they were buying at near to or the actual bottom of the market.

Between 98 and 00 there was a decent rise in prices I'm sure because it all took off again towards the later part of 96 didn't it?

I fear people thought house prices would only go up. They would be priced out of the market altogether. There was a real panic at one stage my neighbours at the time bought a house they could no way afford.

On a related note, I keep being shocked to find people (who are not exactly on the breadline) who are not paying into a pension or any other kind of savings for the future. People are putting their head in the sand and hoping that the state (or their dc?) will support them in years to come. The pressure to buy things seems to have taken priority over making sure we are financially secure in the future. Reports of pension collapses don't help.

Unfortunately lots of people are relying on thier property to support them

We took out a 125% mortage because the house we were buying was (lets say a) "DIY dream" so we took the money to pay for the work and once the work was done we were back with equity. However, now the credit crunch has happened we've gone into neg equity.

It was a good idea at the time and if the housing market had stayed stable we'd have been ok.