On the Money: Mortgage puts mortality on the dotted line

The day it was finally approved, I felt triumphant. Looked at later, however, in the cold light of day, two of the figures in the loan offer added up to a formula for financial disaster.
Gary Clement for The National
Gary Clement for The National

I suppose it was the spectacular view from the balcony, looking out over a classic English riverscape, that hooked me. That, and an increasingly urgent sense that time was running out and I really ought to be clambering back on the housing ladder, before I was too frail to make it on to the first rung.

Then the games began. Securing a mortgage in the UK while living and working in the UAE proved a major challenge - so much so that after a while I lost sight of my real objective. By the end, simply getting a mortgage - any kind of mortgage - had become an end in itself.

The day it was finally approved, I felt triumphant. Looked at later, however, in the cold light of day, two of the figures in the loan offer added up to a formula for financial disaster.

The interest rate was a whopping 6.29 per cent, fixed for five years - not great, but pretty much all that had been on offer - and the period of the loan was just 17 years.

This bald, actuarially informed measure of my future halted me in my tracks. Didn't they know I planned to live for ever? It hadn't even occurred to me that there was an upper age limit on mortgage life, but there was and it turned out to be 70. I was 53, which meant my loan had to be paid back over 17 years; as a result, the monthly payments would be a lot higher than the same loan taken out over a longer period.

Realising I was just 17 years away from my 70th birthday came as a bit of a shock, but still served as more of a distraction than a warning; although I redoubled my narcissistic efforts in the gym, I still failed to exercise my brain.

My plan was to rent out the property until I returned to the UK. This, I assumed, would be a piece of cake; the apartment occupied the top two floors of an imaginatively-converted riverside maltings in a village that, while delightfully rural, was also within easy commuting distance of the capital. There was a station right outside the back door, with fast trains taking just over an hour to reach Liverpool Street in London.

Finding tenants proved easy enough. The shock came when the agency told me how much rent I could expect to get - less than £600 (Dh3,628) a month, about half the cost of the monthly mortgage payment.

But by then I was committed and bit the bullet. It would probably be only for a year, I told myself, and then I'd go home and live in it.

Then a year turned to two, and then to three, as it has a habit of doing out here. Far too late - after a conversation with my accountant that I should have had three years earlier - I started doing the maths and, as I did, it started to sink in that I might have been better off simply stashing the cash.

By that stage I had already subsidised the mortgage to the tune of about £25,000, including the monthly service charge, not to mention the £50,000 deposit I had put down in the first place.

For that amount of money, my neglected calculator told me, I could rent the same property for 10 years.

But owning property was an investment, right? In 17 years, when the mortgage was finally paid off, I'd have somewhere to live, rent-free, for the rest of my life, so it would all be worth it in the end.

Or would it? Once you start doing the sums, I find, it's quite difficult to stop.

First, I read further into my original loan offer. I had borrowed about £158,000 and now I discovered that over the 17 years I would be paying back a total of £241,928.12 - or, if you prefer, £1.53 for every £1 I had borrowed.

Now, is it just me, or is there some kind of disconnect between the 6.29 per cent interest rate I thought I had signed up to, and the 50 per cent I was actually paying?

No matter. On with the morbid maths.

According to the life expectancy tables produced by the UK Government Actuary's Department (not, it has to be said, recommended reading for depressives), I could expect to stagger on until I was about 80 years old.

So: in 17 years' time, taking into account service charges of £20,000 (plus who-knows-what for repairs, etc.), I would be the proud owner of a charming riverside apartment at a total cost of £260,000. Assuming I would live in it for the following ten years before popping my clogs on actuarial cue (and, I found myself wondering, if it was such a struggle getting a sofa into the lift, would it really be big enough for a coffin?), with an additional £12,000 in service charges I would have spent a total of £272,000.

On the other hand, renting the same place at £600 a month for 27 years would have cost me just £194,400 - leaving me with £77,600 to fritter away on a Saga cruise or two, a top-of-the-range Stannah Stairlift and a really impressive funeral.

Property; go figure. If only I had.


Published: August 27, 2011 04:00 AM


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