Good reads from around the Web.
I don’t easily back down in what I’ll pompously call ‘intellectual debates’ (which I have all the time with everyone, to everyone’s annoyance).
But I will change my mind, if persuaded.
For example I was far more left-wing at University – having been “to the right of Genghis Khan” as a schoolboy, as my dad once quipped.
Today I’m pretty centrist (though libertarian if not an outright anarchist on personal freedoms and so on).
Traveling from Left to Right with age is not an unusual journey, but I do think it demonstrates the flexibility to change my mind.
Being wrong the right way
This is relevant to our discussions here, because if I was to pick one thing that’s most changed my active investing after more than a decade at the coal face, it’s probably that I’ve cultivated an ability to more quickly decide I’m wrong.
And then to sell, sell, sell.
This is not as easy as it sounds.
As the on-point Morgan Housel recently noted in a Motley Fool article:
One of the hardest parts of investing is finding the balance between:
- Riding out periods temporarily unfavorable to your views.
- Realizing your views are wrong and moving on.
It’s the difference between patience and stubbornness, and can separate the ruined from the rich.
Sell your lagging value shares too readily, and you’ll cultivate a Buy High, Sell Low strategy that’s bound to end in tears.
Or on the growth investing angle, be to quick to dump winners because you now see they’re possibly overvalued, and you’ll probably never enjoy big gains from the handful of hot shares that generate most returns in bull markets.
Obvious corollary alert: This challenge is exactly why most people will be best off not trying to pick stocks or to time markets, and to invest passively instead.
(Maybe me too! Time will tell.)
One career ruining call
For instance, Barry Ritholz reminded us this week at Bloomberg about the fall of the once-famed market timer Joseph Granville.
Granville moved markets. He made millions of dollars a year from his newsletter business, and when he urged his subscribers to sell everything on 7 January 1981 he apparently sent the US Dow index down 2.4%, on then-record volume.
What power!
Sadly, though, he was wrong. In fact America was just on the cusp of its greatest ever bull market.
Worse was his inflexibility. Ritholz notes that:
Granville, who died in 2013, never managed to admit his error or reverse himself; he ended up being consigned to the dustbin of history, his track record in tatters.
Mark Hulbert, who tracks the performance of investment newsletters, noted in 2005 that Granville’s letter was at the bottom of the “rankings for performance over the past 25 years – having produced average losses of more than 20% per year on an annualized basis.”
To be an active investor, you need to take a different view from the market. It demands a certain arrogance to take a contrary view to the world’s best guess.
But to believe the world is wrong and you are right for three decades! That’s hubris on a par with the great Greek myths.
Certainly, admitting you are wrong can get harder with time. But it’s doable.
It took me about a decade to finally concede I was wrong not to buy a London flat in 2004, for instance. (And who knows, perhaps in 2025 I’ll see I am wrong not to buy one now…)
Staying humble and reminding yourself daily of your limits is I think essential – whether you’re an active investor, or a sensible passive investor whose strategy is built from day one on understanding the difficulties of all this decision making.
Foxy forecasting
We might ask why we find it so hard to intelligently prevaricate?
I suspect it’s to do with incentives.
In investing – and in much of the rest of life – people prefer you to be bold and wrong than to be undecided.
As a result, you’ll hear an active fund manager say “I don’t know” about as often as you’ll hear them say: “Yes, let’s see what we can do about the fees on that.”
As John Kay wrote this week:
In Expert Political Judgment
, Philip Tetlock demonstrated to little surprise that forecasters were not very good.
More surprising was his identification of the characteristics of good and bad forecasters.
Tetlock employs a distinction, credited to the Greek poet, Archilochus, but popularised by the philosopher, Isaiah Berlin, between hedgehogs and foxes.
Hedgehogs know one big thing; they have an all-encompassing world view and discover facts that confirm what they already know to be true. Foxes know many little things; they are eclectic in their sources of information and nuanced in their judgments.
Hedgehogs command more public attention but foxes make better forecasters.
Harry Truman, the former US president, (perhaps apocryphally) sought a one-handed economist who would not say “on the one hand” and “on the other”.
The two-handed approach corresponds to the reality of most complex issues. Yet modern business people, politicians and media seek the Truman type and find it in hedgehogs.
To grab attention and build a reputation, it is more important to be unequivocal than to be right.
So let’s all resolve to be less sure of ourselves in 2016.
Happy New Year everyone!
From the blogs
Making good use of the things that we find…
Passive investing
- Investment lessons from Genghis Khan – Anthony Isola
- 10 bear market truths – A Wealth of Common Sense
- An annual review of a portfolio going passive – diy investor (UK)
Active investing
- Has the new bear market begun? – The Reformed Broker
- Cloning Buffett beat 98% of funds [Scroll down] – Meb Faber
- Stop reading and start investing – Oddball Stocks
- Forecasting UK midcap share returns for 2016 – UK Value Investor
- Do disruptive companies really win? – The Value Perspective
- Reasons to avoid despair at a potential bear market – Scott Grannis
Other articles
- You must unlearn what you have learned – The Escape Artist
- Billions: If you can’t join the 1%, watch them – Abnormal Returns
- Lessons learned from having my bike stolen – Mr Money Mustache
- Can a hardcore frugalist return to the middle classes? – S.L.I.S.
- Annual forecasting follies – Above The Market
Product of the week: The cost of the very popular Santander 1-2-3 account goes up to £5 a month from Monday. The Telegraph runs the numbers to see who it still works best for.
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1
Passive investing
- Vanguard sees record deposits as investors embrace indexing – Seattle Times
Active investing
- A deep dive into the dark waters of active fund selection – Morningstar
- Patient investors can cash in on commodities – iii/Money Observer
- Merryn Somerset-Webb: Golden opportunity? [Search result] – FT
- Asian investment trusts look cheap, Europe & smaller cap expensive – iii
- 11 interesting UK small caps tipped, and why – iii
A word from the brokers
- Is this really 2008 all over again? – Hargreaves Lansdown
- Who is tipping what stocks for 2016 – TD Direct Investing
Other stuff worth reading
- Don’t panic! How to file your tax return – The Guardian
- Six Lottery numbers that made me a mug for 21 years – ThisIsMoney
- Most retirees are fully cashing out their pensions – The Guardian
- Can you really commute to London from Wales? – ThisIsMoney
- How financial advisers lie to themselves – Wall Street Journal
- Why it’s now winner-takes-all in Silicon Valley – The New Yorker
Book of the week: While I prevaricate over starting my first book and my co-blogger The Accumulator begins a second year on Monevator: The Dead Tree Edition (working title), blogger and investment manager Meb Faber keeps knocking out hits like Motown in its heyday. His latest – Invest With The House
Like these links? Subscribe to get them every week!
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]
Not to worry mate. Real estate is probably going to go through a multi year correction starting now. Be prepared to buy in 2019!
I’m also a slightly right wing (through not as far to the right as the Labour party were!) libertarian. The only person that Political Compass put close to me was Adam Smith, which works for me.
House Price Crash forum has been predicting a severe property crash for nearly one and a half decades. There are still people on that forum who remain convinced that they’ve been right all along and that they are still right.
The P/B of gold miners is under 1. Cheap. Good. Value. Bargain.
https://www.msci.com/documents/10199/0376453e-c12a-4d42-9fb8-fe428527fa87
“How to Beat 98% of all Mutual Funds”
how to retroactively beat 98% of funds in the past using hindsight? this headline is very misleading. meb faber, not my favourite. obviously buying berkshire hathaway decades ago would have beaten the market up to now, same as buying Apple or some other stock you can retroactively look at, but the future is unknown as ever.
Invest With The House. Or simple “steal” stocks to beat the smart ETFs:
http://www.marketwatch.com/story/how-to-beat-etfs-2014-06-26/print?guid=355B2658-FD36-11E3-B93C-00212803FAD6
@GadgetMind – But that forum never had someone of my prediction prowess making a prediction! I am on the ground checking out open houses, talking to people, and running a sensitive business everyday. It’s coming!
@FS – well, you have made a testable prediction, 1) that the correction will start now (so further price rises from here will mean prediction wrong), and 2) that the dip (unspecified size!) will last until 2019, so no real increase above current levels for three years.
Of course, there is still that “probably”. 🙂
@Gadgetmind – London, NYC, SF etc will be down 5-15% by 2019!
Save aggressively for the next 3 years and buy！bc if you don’t buy then, it will be too late bc we’ll be too old to enjoy any rewards.
And if u don’t believe my predictions, just check out FS and my previous predictions. I haven’t been wrong in 7 years, and I’ve been bugging The Investor to buy for 7 years 🙂
Sam
@FS – ah, so extra clauses are now being added specify locations, and the “by 2019” needs interpreting against your “starting now”, but at least we’re seeing figures for size of dip. However, I’m now not sure if your prediction fails if London prices go up by (say) 3% next year.
We bought our “forever” house in 1994, and not in That London, so I’m fairly chilled regards house prices but would like them to be more affordable to young people.
We just helped daughter buy her first house (she had deposit and renovation budget as I invested some money for her and “20 bagged” it!) and we’ve lent her the rest on commercial terms. Again, not in London, so 3-bed semi on corner plot with lots of off-road parking still very affordable.
I like’d the wealth of common sense article despite it being a ‘liststicle’. Especially point 1 on bear markets – They happen. Very good.
Have you read ‘Adapt’ by Tim Harford? I’m halfway through it, and it’s proving interesting. There is a section in there similar to your quote from John Kay…the public generally dislike politicians changing their minds…but in a job that demands the running of multiple complex systems that is quite often the right thing to do.
“It took me about a decade to finally concede I was wrong not to buy a London flat in 2004, for instance”
I still don’t think you were wrong. You know all about luck vs skill, so “wrong” means making the wrong decision based on the facts at the time and a reasonable guess at the future, not whether the outcome was good or not.
In purely financial terms you are wrong to buy a lottery ticket because the expected value is less than the price of a ticket. Whether you win or not is irrelevant.
In 2004 London property was massively overvalued and the economy was doing well. The reasonable thing to expect was house price mean reversion, and the BoE interest rate reverting up from its then all-time lows of 3% (or whatever it was).
It was not reasonable to expect a massive financial crisis, zero interest rates, huge propping up of the banking system and now unbelievably poor capital allocation from the government as it attempts to prop up the housing market.
So I think your decision not to buy was probably right, given the facts at the time. You just had an unexpected set of events come together to give you a bad outcome (London house prices going from expensive, to insane, to ludicrous), but that does not mean the decision (or the process upon which you based the decision) was wrong.
A great resolution, being less sure of oneself which I seem to find myself embracing by default. Not necessarily a negative thing, it’s just an openness to all possibilities which certainly encourages a bit of humility and preparedness.
Thanks for the great links. Tony Isola’s spelling of Genghis Khan’s name is questionable, but Genghis Khan couldn’t even read or write, so no big lesson there. I think a big lesson from GK though, was the famous story from his mother when stopping a fight between little GK and his best friend. She showed them a single stick and asked them to snap it, which they did easily. She then took a few sticks bound tightly together and then asked them to break it. They couldn’t. Her lesson which he apparently never forgot: there is strength in unity and loyalty. Not sure how that particular lesson could be translated into investment guidance!
@FinancialSamurai was indeed urging me to buy property by 2009, if I remember correctly. I’d like to think I was making similar public service announcements about value in the stock market, though I wasn’t promising anything to do with the timing, of course. And I know from his blog he’s forgotten more about property than I’ll ever know. 🙂
The only thing slight caveat is if I remember correct @FS you’re exclusively a West Coast US investor, or at least not an investor in London? Not to say you’re not plugged into the appropriate networks or correct in your view, just for context for others. :0
@John — I hear and understand what you’re saying, but while I don’t think my thought process was wrong, given the information at the time, I think it was the wrong decision. As I say, learning to state that has really helped my investing. I see people all the time waffle on for years about how this and that conspired against them with shares, let alone property. Of course I agree with all your very well-made points, but a better decision would have been less fragile in their happening.
For example, given how paranoid/fearful I was of the debt load / mortgage burden that had nationally pumped up the property boom, I should have realised it wouldn’t be burst without a big political fight. (Not that the government/BOE could necessarily prevent it — we saw big falls in the US, after all).
My flexibility did enable me to make decent investments in house builders a few years ago, despite being skeptical of the fundamentals. But it was only an few percent of net worth, at least initially, so couldn’t make up for the price of this house I’m sitting in near-doubling since 2008.
Other alternatives — I might have hedged by buying a small buy-to-let somewhere. Or perhaps I should have bought a two-bed in a very cheap part of London, rented a room out, and at least benefited from some of the excellent tax breaks.
I think anyone who owns their own home in the South East and has for 20 years really should sit down and understand deeply the financial difference it’s made to their life. I don’t think people do this, but I do and it underlines the ramifications of my mistake.
Cumulatively, as I’ve said before, I’m down at least £500,000 from my earliest days of not buying in London, probably more but I can’t stand to type it. Maybe knock off £100,000-150,000 for costs and lifestyle consequences over and above rent — but equally remember this would have been generated at gearing of at least 4x (i.e. 20% deposit) so maybe a 15-20 bagger return on an initial £20-40K investment.
And all tax-free!
I’m a good active investor, but I can’t compete with tax-free returns on that magnitude. Total debacle.
But as I say, I try to learn from it. (My whole interest in investing stems from deciding to give up on buying and to put the money into the stock market, after all).
p.s. Actually, from my earliest days (mid-late 1990s) it’s more like down £700,00 before any additional costs, thinking about it. My £500K is more from the turn of the century…
Who was it that said ‘the market can stay wrong longer than you can stay solvent’
@TI
I classify individual people of both genders and all ages who I know, meet, see or hear, into one of two groups, they are either a winner or a whiner; with the former being anyone who is not the latter.
Nil desperandum, if your “But as I say, I try to learn from it …..” translates into a genuinely philosophical smile, then a “winner” you will always be.
Don’t look backwards, because you’re not going in that direction 🙂
@Topman Top words to shake off the January blues, thanks!
“Who was it that said ‘the market can stay wrong longer than you can stay solvent’” PC
Presumably a rhetorical question?
But generally safe to say in such instances, JMK or Mark Twain!!!
The house buying is so tricky. A recent argument I read was of the intangible benefits and comforts of having your own home, suggesting that this should override the valuation aspect. But John is right – no one could have foreseen what’s happened in London.
The Merryn article on gold made me laugh when she mentions Marc Faber advocating it. A year ago on Bloomberg he stated with great confidence that gold would go up by 20-30% in 2015! I say this as someone who believes in gold, but not in forecasting and market timing.
@Minikins – my understanding the bundle of sticks fable pre-dates Genghis/Jenghis etc. and has a chequered history also as a symbol for fascist Italy!
Following may not be viewed in a favourable light :-
One unintended consequence of the abolition of the capital gains tax inflation indexation allowance, (some twelve or fifteen years ago?), is to lock landlords into appreciated properties to avoid paying the accrued capital gains tax. This cannot be good for Generation Rent hoping to buy. If inflation indexation were reintroduced, more starter homes might well be released by landlords onto the market. The increase in supply would benefit the young in terms of availability and pricing.
Probably a forlorn hope that prices might weaken in the present unbalanced situation between supply and demand. House building running somewhere near 140,000 starts per year versus 400,000 in the 60s. Figures are from memory so error may have crept in.
The reintroduction of CGT inflation indexation might also help those with large potential CGT gains on stocks!!! The abolition of indexation allowance, turned inflation into an extra tax.
I’ve a few big losers over the past year or two that I’m desperate to get rid off (oil and commodity, a couple of tech types). Losses would be more than 80%.
Too late to do anything now except wait them out a bit. Don’t need the money now although the opportunity cost is annoying.
Paying more attention, critical of tips, thinking, and being more foxy is good advice; but overall I really see the index/passive as they way to avoid this stuff.
Thanks “John from UK Value Investor” – saves me typing all that!
The Investor: I live in the SE have owned a house since the ’80’s. I made a similar decision to you, for the same reason, but in my case the decision was not to get into BTL or upsize to something even bigger than I had. So I can make a similar calculation of ‘lost gains’.
Actually, the inflated house price has made zero difference to me, as I never plan to sell. Maybe make a difference to my children, eventually.
@The Investor – I went to London twice.. in 2005 and 2014. I went flat hunting each time. I wish I bought in 2005, but what a PITA it would be to buy there and live in SF. As a result, I bought my second property in SF, a single family house to live in and rented my first flat out in SF that I bought in 2003.
I’m sure if I bought in 2005 London, I would have done much better. That said, I enjoyed the wonderful memories of my house for 9.5 years until I rented it out in 2014 after buying another house in Golden Gate Heights, San Francisco.
Here are my thoughts about being on the other side of The Investor’s trade:
* It feels good to see an asset value increase, but unless sold, there is no crystallized value except for the rent I’m collecting. W/ rent, comes hassle. You have to internalize it as a part-time job being a landlord.
* The flat I bought in 2003 for $580,000 is supposedly worth $1.1-$1.2M. I paid off the remaining $100K mortgage last year 2015. The flat brings me no joy, just a little worry that I’ve got a lot tied up in there, and a fire might break out.
* The house I ended up buying in 2005 for $1.52M is supposedly valued at $2.9M online. Let’s call it $2.5M to be more conservative. It’s now being ransacked by tenants who don’t give a crap. At least I have a $17K security deposit.
* The ONLY thing that brings me joy is when I’m living in my primary residence. It’s all about the memories, parties, experiences of living in my own place. All the financial benefits/hassles do no provide any joy. I linked a fun post to this comment about my journey building a luxury master bathroom from a dinky bathroom. That was awesome.
In conclusion, take heart in knowing you probably had a lot of good memories in the place you lived/are living, are more liquid, and enjoyed some nice returns in the stock market as well.
With the markets turning, it’s good you DON’T have real estate now!
Sam
On London, I was a student there 2000-1 for my master’s. There was obviously an emerging buzz and optimism about the city that was for me a precursor of what that great city has now become. An open, cosmopolitan, culturally rich, urbane, and vibrant city. Leaving that to go back up North was heartbreaking at the time.
As I’ve watched the prices go up, it’s only maybe the last couple of years where I’ve started to think the price of buying there has become a bit too expensive. 250k for a one bed looked ok a few years ago; now it would probably be more like 350-400k.
Much as I would love to return, that type of money would just decimate my portfolio.
@Kraggash similar to you, bought our present house on the edge of London in the 80s and haven’t moved to anywhere larger or got involved in BTL because house prices always seemed too high. There are lost gains compared to what I could have done, but putting all our net worth in to property, especially leveraged, would worry me much more than having say half of it in equities. Property is not very liquid and nominal prices have fallen a couple of times while we have been in the present house.
My conclusion is to avoid having everything in one place or asset type, despite the theoretical forgone gains. Kind of like why all my equities are in indexed funds.
@FS — Nice extra (and candid) background, cheers, and congrats on your success. I am only ever really talking in my case about a foregone primary residence, so tenants wouldn’t have been an issue (I’d be the tenant and I’m quite house proud! 🙂 )
I am quite happy with the stock market/other assets that are more liquid for the rest of my investing. 🙂
@Kraggash — Cheers for your thoughts. You have set off one of my personal bugbears though when you say owning and enjoying perhaps huge tax free gains has made “zero difference” because you haven’t sold.
Respectfully, I disagree. 🙂
Firstly, your property is an asset. It is fungible — you could trade it for all sorts of things, even if you choose not to. That optionality has a value. 🙂
Meanwhile at the very least you derive comfort day to day from knowing your have this valuable asset to fall back on I would imagine, in the same way someone with a pension feels more secure than someone without one even though they have no plans to realise it for 30 years.
Secondly, if you didn’t own, then you would either have to find maybe several hundred thousand pounds more than you actually spent to buy now (i.e. you would be several hundred thousand pounds in the hole, like me, assuming you could buy the same property at today’s prices, which most of my longtime property owning friends could not) or you would be renting, perhaps happily, but again without the massive asset appreciation to your name — and like all renters at the mercy of the rental market, rising bills, insecurity etc.
This is what I mean when I say I wonder sometimes whether people who own and bought decades ago really understand the differences today.
Don’t mean any of this angrily or whatever, in case it’s not clear, and clearly I don’t know your specific circumstances, so the above are just general points. 🙂 And good for you for doing what I should have done. 🙂
Here’s more on why a home is an asset for those who want it:
http://monevator.com/why-house-is-an-investment-and-an-asset/
I have no idea where UK house prices will be in 2019. Taking a punt on them dropping and purposefully renting in the meantime has been a mug’s game for years now, and someone actually recommended I did that way back in 2002. I also knew a property developer who did the same thing and sold out to rent in 2001. Market timing at its worst.
But unless prices drop at least 20% or so you’re not going to be any better off unless you live with your mum or something. Because you will just lose the “saving” (house price drop) in rent paid to your landlord. In the meantime you could have been paying down capital on the mortgage.
The taxation system has rewarded UK prime residence ownership for a long time, and now even more so with the IHT changes and BTL changes that will favour having one larger value property that you live in.
With the BTL tax changes coming in primary residence properties with a let-able annex, separate barn, or land than can earn some kind of income are going to even more sought after now, especially in the £500k to 1 million bracket. In my opinion that isn’t going to change in my lifetime, its so ingrained in the mindset of our population. And things like the FTSE100 dropping below 6000 yet again, and more govt tinkering with pensions, will further cement the appeal of bricks (no pun intended honest 😉
@Investor
I knew that would get a vigorous response. I did not say it was not an asset. BUT from where I sit, whether the house was worth a half what it is or double, does not affect my life or investment decisions.
In fact, I wish it were worth a lot less, as it would be better for the country, and better for my children, but would not affect me.
Enjoyed the article about how one can commute to London from cheap house price areas like … Wales. Helpfully, the article shows seasons ticket prices for the train, so it’s quite easy to compute that 20ish years of handing money to the train operator is equivalent to 50-75% of the difference in house price. I suppose you could then account for the cost of “free time” as the ratio of sitting on a train an extra 2-3 hours a day versus a few grand a year. Of course one may not wish to commute into London, but that was the story angle.
When people talk about London as a global super-metropolis I’m reminded of a trip I made to Alexandria about a decade ago
In the early 20th century Alexandria, Buenos Aries and Shanghai were global metropolises pretty much mentioned in the same breath as London and New York
Now two of them are pretty, noisy, smelly crumbling ruins
In reality London is just a tax haven in a second rate European country
@Neverland – “….. a second rate European country”
How so?
@TI:
“Other alternatives — I might have hedged by buying a small buy-to-let somewhere. Or perhaps I should have bought a two-bed in a very cheap part of London, rented a room out, and at least benefited from some of the excellent tax breaks.”
Oh, come on, TI, you can still do those things! So why don’t you? And why the ‘could have done … should have done’ tone, as though your boat has now sailed? It’s very fatalistic and defeatist, and really most uncharacteristic of the gung-ho persona we’ve come to know and love.
It feels to me as though you need a visit from Kirstie and Phil so you can suffer one of Kirstie’s famous talking-tos about commitment phobia. (Of the property-buying kind, I mean. I cast no aspersions elsewhere.)
FWIW I don’t think we’re in for the next house price crash before 2019, though it wouldn’t surprise me if prices in London accelerate more slowly than they’ve done at this stage in previous cycles.
@Topman
All other European countries are second rate compared to Germany because they boss around everyone else in the EU
Hi Tyro. I can, but these days I am a committed capital allocator. I might eventually buy outside of London, but there is no ‘cheap’ part of London as far as I’m concerned now. As for the buy-to-let, that’s becoming less attractive with each new round of legislation, though to your point I did consider buying a two-bed in the provinces before the new 3% rule comes in March.
Basically, I want to play the hand in front of me as best I can. Not the way I should have played the hand a decade ago. If someone accidentally put a property in London that ‘should’ be valued at £750K on the market for £500K (crazy, but could happen perhaps in a mini-wobble) then I’d seriously consider it, because the ‘my home’ part of the buying part remains strong and, as I say, I’d like to have done the s*dding deed here after all these years. But I don’t see the cheap 2-bed and lodger as an attractive hedge any more (I’m getting on!). There’s perhaps some leverage in the BTL option (mainly because of that leverage!) and if the markets had gone up another 15% instead of down by that or more perhaps I’d be looking at it.
Of course, I am very fallible like we all are. This post sums up one potentially unhelpful aspect of my thinking:
http://monevator.com/what-i-learned-about-investing-from-a-cult-card-based-strategy-game/
p.s. Saturday’s post explains the “could have, should have” tone. I admit I make mistakes (eventually) and by that definition a mistake means I could and should have done something else. 🙂
@ TI #35
If you own no other residential property then you wouldn’t pay the 3% for a purchase post 5th April, even if you have no intention of living there. So you may as well delay until after the rush from people trying to beat the deadline as you might get a better deal.
A few pages into the government consultation there is a flow chart called “How to check if a purchase of a property by an individual is liable for the higher rates”:
https://www.gov.uk/government/consultations/consultation-on-higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties/higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties
As a “first time landlord” you would need to buy in cash unless you could find a lender willing to take you on as a non owner occupier. After six months, of course, you would be an “experienced landlord” so it would be much easier to take out a mortgage on the property.
@David — Interesting quirk that I haven’t seen discussed elsewhere (not that I’ve really done any research, it’s not a high probability event). Thanks for the heads up.
I don’t want to throw a spanner in the works here, but I read a blog post today entitled ‘It’s Financial Suicide To Own A House’! I know it’s not the sort of blog most here would go near but it’s a different perspective from across the pond.
http://www.jamesaltucher.com/2015/10/own-house/?utm_ad=28630&utm_placement=19&utm_medium=15
typical of James Altucher… and pretty US centric on some things. I agree home ownership is not always the right thing to do, but the London market is perhaps not typical.
With 20/20 hindsight my big mistake was selling my London flat in 1997 to take the 40% increase in value, as part of the deposit on my house in the SE outside London. If I had converted the mortgage to buy to let (at that time just starting to take off) and kept the flat it would now be worth at least 6 times what I paid for it. Of course I would have had the hassle and costs of being a landlord, and I am sitting on nice growth in my current home. Which is not where I expect to live in retirement …
Knowing that I could realise the equity in that house and move to an equally nice house in a different part of the country and probably have some cash to spend as well is a great comfort to me (although it will be easier to up sticks when the kids have left school)- I definitely agree that I am part of a lucky cohort.
Further thoughts: a deep price crash in London is possible if and when interest rates go up, but perhaps not that likely. There is a lot of investment from outside the UK not dependent on borrowing.
Also the UK government will probably intervene to keep demand and prices high, worried about the impact on people who bought recently and would be in negative equity. Smug middle aged homeowners who bought 20 years ago (I include myself) could wear a price crash as our equity would be reduced but not totally wiped out – but there would be a lot of squealing!
@JW – Ouch. 6x higher than 1997? That is nuts! What did you do with the proceeds?
Sam
FS: 6 x higher than what I paid in 1992. I paid £86k in 1992, sold for £120k in 1997 and the flat last changed hands in 2011 for £483k, so extrapolating to £516k today doesn’t seem unreasonable (in fact slightly larger but not dissimilar flats on the same road and a neighbouring road are on the market for £750k and £775k so perhaps I am understating the potential gain). Sadly it is a “might have been” so there were no actual proceeds…