FOOL'S EYE VIEW
The Curse Of Wealthy Neighbours

By Jane Mack (TMFJane)
August 24, 2004

Over the weekend, The Sunday Times carried a rather interesting report on the problems that arise from living next door to wealthier neighbours. Apparently, it makes you envious and unhappy.

The 'importance' of keeping up with the Joneses is not such a fallacy after all, it seems.

The Sunday Times report was based on a two-year study called Neighbours as Negatives, which has just been published by the National Bureau of Economic Research in America. It claims that: "...higher earnings of neighbors [sic] are associated with lower levels of self-reported happiness."

The thing is, of course, unless your neighbours are willing to spell out the state of their finances, you're unlikely to know how much they earn, how big their mortgage is and whether that shiny new car sitting in their driveway was bought on credit. Any 'neighbour envy' you might feel is likely to be based on assumption and illusion and they're probably up to their eyeballs in debt or not saving enough for the future. Sooner or later, they'll pay for it.

That's what I tell myself anyway! However, I must admit to having had a flash of envy myself last week when someone writing on our discussion boards said that he'd just managed to pay off his mortgage. It gave him a huge amount of satisfaction to mention it to his colleagues at work because he'd frequently been the butt of their jokes about how 'tight' he supposedly was with his money.

I can't wait for the day when my husband and I no longer have a mortgage and that prospect alone provides us with the motivation not to spend money willy-nilly on new cars and expensive holidays.

Instead we reassess our mortgage on a regular basis - usually about once a year - to make sure we're still happy with the rate of interest we're paying. On the two occasions in the last five years when I've thought we could do better, I've telephoned my mortgage lender to ask if they can give me a better deal. Both times they have said yes - no doubt because I have also mentioned that I might take my business elsewhere.

I think this is a pretty good tactic to use if you're not happy with your current deal. Mortgage lenders don't like to lose customers to their rivals. But, if your lender won't pay ball, switch to one that will if it's cost-effective to do so. There are usually some costs involved with switching a mortgage - legal and valuation fees for example - and you need to take these into account.

Note that lenders are beginning to re-introduce the unpopular extended redemption penalty in an effort to keep customers but, for the moment, mortgage holders are still in a good position to shop around. According to a recent survey of homeowners by market analysts, Datamonitor, 28% of those who have remortgaged have done so more than once within the last 5 years so it clearly pays to check out the latest deals on a regular basis.

We also overpay our mortgage. At the moment we're paying about £200 a month more than we need to, which should knock two years off our mortgage-free date. (Only five and half years to go - Hurrah!)

This also will save us a fair bit of interest. According to mortgage brokers, London & Country, a borrower with a typical £100,000 mortgage on an interest rate of 4.75% could save £11,396 over the life of the loan by making overpayments of just £50 a month. The term of the mortgage would fall from 25 to 21 years and 6 months. So if you've got the money to spare, overpay.

Looking out of my sitting room window this morning, I noted that, of all the cars I could see in the surrounding driveways, my husband and I have the oldest bangers on the block. Do I feel bad about that? Because, according to the Sunday Times report, I should.

The thing is, I don't - I'm looking forward to my mortgage-free day instead. So put that in your pipe and smoke it, Mr Jones!

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