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Budget 2017: Can building more homes be a shot in the arm for slow-growth Brexit Britain?

Budget 2017: Can building more homes be a shot in the arm for slow-growth Brexit Britain? post image

Rearranging the deckchairs on the Titanic. Fiddling while Rome burns. Or even – if you’re still somehow giddy with the possibilities – gilding the lily.

To say Brexit was the elephant in the room overshadowing the 2017 Budget is a bit like saying Harvey Weinstein has a weight problem.

As we continue to careen towards the cliff edge / sunny uplands, whatever is agreed in the Brexit trade talks – or lack of them – over the next 18 months will dwarf any tweaks Phillip Hammond made to the nation’s steering.

Long-suffering readers know I am not positive. Nor we now learn is the Independent Office of Budget Responsibility – Hammond informed us it has slashed growth expectations for the next five years.

As the BBC reports:

[The OBR] warned that public spending cuts and Brexit-related uncertainty would “weigh on the economy” while the “remarkable” struggle that the UK economy has endured in bouncing back from the 2008 financial crisis, in terms of lost productivity, would also have major dampening effect.

To put the figures into perspective, while there have been three recessions since the early 1980s there has not been a period since then when growth has been forecast to dip below 2% for more than three years in a row.

While Jeremy Corbyn promises a return to the 1970s, Brexit is already set to take us back to the 1980s.

Brexiteers will say these forecasts have been hopelessly wrong for so long, why take any notice of them now? Also, Britain had a productivity problem long before Brexit. And there’s some truth to that.

But you’d have to be very blinkered not to notice that Britain has gone from the top of the G7 table for economic growth to the near the bottom entirely in the wake of the Referendum result.

On theoretical grounds, short of ‘doing a Singapore’ I can’t see how Brexit can boost growth in the next decade. The question is to what extent any deal we get with the EU ameliorates the downsides.

I’m often reminded that it’s futile to hark on about what might have been. Still, imagine what might have been!

This could have been a Budget where our economy had been ticking higher at around near-2% GDP for years, trade was surging as Europe recovered, the national debt started falling, austerity was lessened, and the Government could turn its attention to dealing with some genuine problems.

Instead we have shot ourselves in the foot fighting largely imagined – or at least misidentified – ones, and the bleeding looks set to continue for years.

Budget 2017 roundup

The dramatic downgrade to our growth prospects aside, what else did the Budget have in it for you and me?

Bigger sites have covered the detail. Below I’ll link to those Budget tidbits with the most relevance to Monevator, and then give my super-quick personal verdict.

  • £44bn package to boost house building to 300,000 homes a year – I think Hammond picked the right hot button problem, and using existing channels to get the money into the market makes sense. But given the distraction of Brexit, it’s a nuanced attack on a bunch of intractable problems that I doubt they’ll be able to deliver to the level required to reach 300,000 homes. Building homes via a new state homebuilder may ultimately be required (with all the downsides that entails).
  • Stamp duty cut to zero for first-time buyers on the first £300,000 of homes costing up to £500,000 – Bad news for me; I’m a first-time buyer who has saved and invested his way to above the £500,000 cut-off point, and my imminent purchase will attract nearly £30,000 of stamp duty! (That gets me a two bedroom flat in a nice but not swanky part of London). Stamp duty is a hard tax to like, as it just clogs up transactions, so a cut is good. But Hammond’s targeted move will probably simply push up the price of first-time buyer properties, introduce new artificial boundaries around the £300K and £500K points, and it does nothing to get those higher up the chain moving.
  • Driver-less cars on the roads by 2021 – Seems ambitious, but I am all for it. I think you’ll probably need some exemption to be driving a vehicle in 20 years time.
  • Higher taxes on diesel cars and fuel duty freeze – After trumpeting his push towards self-driving cars and clean energy, Hammond flipped and went on to brag he was freezing the fuel duty escalator yet again. This has cumulatively cost the exchequer tens of billions in lost revenues, and is made dirty carbon-rich transport more affordable than it would have been, reducing the incentive to cutback or switch towards cleaner fuels. Past support for diesel cars looks like a mistake given what we now know about pollution, so I welcome that reversal.
  • VCT and EIS tweaks – I’d like to see the costs of VCTs come down somehow, perhaps through mergers that enabled more expense saving. As things stand it’s hard to recommend them to the average person. But I am increasingly chancing my arm with small EIS investments into start-ups, where the tax incentives are very real. Increasing the limits for both individuals and certain kinds of companies raising money will fly over 99.9% of most people’s radars. But if it gets more money into innovative new companies that would otherwise have been gummed up in State spending, that’s good.
  • National Living Wage rising from April 2018 by 4.4% to £7.83 – All for it. The lesson that minimum wages do not suppress job growth has been one of the least discussed economic discoveries of the past few years. I want to see the lower-paid earn more, and I think the best-paid can take standing still for a while to narrow the gap.
  • Winners and losers from the personal allowance rising to £11,850 and the 40% income tax threhold rising from £45,000 to £46,500 – While in nominal terms this wasn’t a new austerity Budget, the winners are definitely more higher earners than those relying on benefits. While I wouldn’t dispute some of the latter face real hardship, the boom in employment since the Conservatives went on the attack against the excess largesse of the welfare state does seem to support this recent direction of travel. We must make sure the truly vulnerable get the support they need, of course.

Update: Analysis from think tanks

The Institute for Fiscal Studies has now released a multi-part response to the Budget, and it underlines my gloom about the years of low growth ahead:

“[Forecasts] now suggest that GDP per capita will be 3.5% smaller in 2021 than forecast less than two years ago in March 2016. That’s a loss of £65 billion to the economy. Average earnings look like they will be nearly £1,400 a year lower than forecast back then, still below their 2008 level.

We are in danger of losing not just one but getting on for two decades of earnings growth.”

The Resolution Foundation focuses on the impact of the downgrade on the low paid:

“Productivity isn’t the only determinant of pay growth. But it is a key one. In the OBR’s model, there’s a direct feed-through from today’s grimmer picture to pay. And if typical wages are rising more slowly than previously forecast, then so to will the National Living Wage.

Putting those figures into pounds and pence, our analysis using today’s figures show that the pre-tax pay of a National Living Wage earner working full-time will be over £1,400 a year lower in 2020 than originally forecast when it was announced in 2015.”

What did you think about the Budget and the economy? Let us know – politely please – in the comments below!

{ 61 comments… add one }
  • 1 The Rhino November 23, 2017, 2:39 pm

    That’s a good wedge for a two bedder.

    Get it bought so we can call the top of the market at long last.

    I can then benefit from the inevitable collapse in house prices in a year or two when I upsize.

    It’s a selfless act TI. Much appreciated.

  • 2 The Equalizer November 23, 2017, 2:54 pm

    The only thing stifling UK growth currently is the uncertainty surrounding Brexit, not Brexit itself.
    Britain isn’t an Italy or a Greece or a Spain. We’re an economic powerhouse, albeit one taking a short mid-afternoon siesta before getting back to some real work.
    There are immeasurable individuals and institutions with their wealth inextricably linked to the fortunes of the UK for it to fade and whimper any time soon.
    Keep calm and keep on carrying on.

  • 3 Fremantle November 23, 2017, 3:27 pm

    Whilst this is likely to transfer some of the stamp duty to existing owners, it may also tempt existing owner’s to sell and take advantage of the depressed prices above the threshold. An increase in supply tends to depress prices.

  • 4 The Investor November 23, 2017, 3:39 pm

    @The Rhino — I have a fairly serious investor friend who stands ready to short a bunch of UK domestic stocks, who I have sworn to text message the moment I get complete. (I literally tell agents I am factoring in a likely fall of 10-20%. It is a LONG story. 🙂 )

    @The Equalizer — Sure, but that’s a given. People (not you, particularly, I don’t know you from Adam 🙂 ) don’t understand how economic tides shift around small out-turns.

    Most things will keep on keeping on. They need to just for us to stand still! If economic growth drops by 1.5% (not 30%, or 10%, or 5%, or even 2%) we’re in recession.

    Is it possible to see 1.5% taken out of GDP with some Brexit induced combination of (potentially) (a) many EU Nationals going home (b) more complicated supply chains into/out of Europe (c) finance firms saying “hang it” and setting up EU-based arms instead of concentrating all firepower in City of London (d) lower inward investment due to above (e) higher interest rates curbing growth if pound weakens due to above, etc etc?

    I’d suggest very possible, in the absence of a deal that gives us pretty much what we have already got. (That is probably priced into the market currently, I’d estimate).

    It might be possible to offset some/most of a hard Brexit by “doing a Singapore”, which I define to be cutting corporation and income taxes heavily, and probably capital gains taxes too, and also by likely offsetting lower EU inward migration with higher ex-EU migration.

    But that isn’t what many Leave voted for.

    Longer-term (10 years+) is possible we may get some patchwork of trade deals that can replace or even surpass our current arrangements, though I am not holding my breath. But we’d be starting behind the pack if growth does come in at 1.5% instead of 2% for a decade.

  • 5 The Investor November 23, 2017, 3:52 pm

    @Fremantle — Indeed, could be all sorts of swings and roundabouts. I’d love to see the OBR’s model. (I suspect the Chancellor’s model is “Will this get me some good headlines”. To be fair the bigger (alleged) £44bn multi-pronged housing strategy does seem more of an sustainable attack on some of the real issues.)

  • 6 Tony Edgecombe November 23, 2017, 5:07 pm

    “Building homes via a new state homebuilder may ultimately be required (with all the downsides that entails).”

    I’ve thought for a long time this is the only real solution. I live in rural Oxfordshire and there are houses going up everywhere but they are all for the top end of the market. You can’t really blame builders for that but it doesn’t solve the problem.

  • 7 bob November 23, 2017, 5:47 pm

    I was glad to see the usual fluff around the cutting of the annual pension allowance turned out to be just that. Three certainties in life: death, taxes and some wally from Hargreaves talking their book pre-budget about the imminent reduction in personal allowance.

    Also I was relieved to see that the pre-budget chatter about further restrictions on limited company contractors didn’t come to pass.

  • 8 John B November 23, 2017, 6:23 pm

    I expect the budget was dull because Hammond had so little money to give away, and no political capital to grab more to redistribute. Which as a Have is always a relief.

    Is their a formula for relating economic growth to equity portfolio growth, ie 1% less growth is 1.5% in a portfolio?

    I wish they’d allow someone to Build More Bloody Houses ™ though

  • 9 UK Value Investor November 23, 2017, 6:43 pm

    £500k, 2 bedrooms. Blimey. When I was a wee lad in 1995 my 4-bed flat in London cost £40k. How times have changed, and not for the better.

    The stamp duty cut reminds me of the Madoff film where he’s desperately trying to find new investors to keep his ponzi scheme afloat.

  • 10 The Rhino November 23, 2017, 7:22 pm

    @UKVI – I think your reverse engineering of the stamp duty is 300k out. It’s 800k.

    I’ve got a mate who spanked 900k on a one bedder. Dickens lived there once though so prob worth it. I had great expectations when I went to visit, unfortunately he since fallen on hard times paying the mortgage.

    PS excellent humble bragging technique dropping the stamp duty but not the price. Bravo!

  • 11 The Investor November 23, 2017, 7:22 pm

    @UKVI — I agree. I’m set to pay much more than £500K though. It’s madness. But I’m getting old, can afford it, have been wrong for a decade, and am capitulating with my eyes wide open. (I have some mitigating thoughts which I’ll eventually explain in a post.)

  • 12 The Investor November 23, 2017, 7:24 pm

    @John B — Strange though it may sound, a country’s economic growth is either poorly or not at all correlated to the performance of its stock market in any given few years (depending on who exactly you read). The reasons are partly to do with the valuations on markets (E.g. Everyone knows that the US economy is doing well now, and have bid up its stocks accordingly) and partly to do with a lot of esoterica about the relationship between strong GDP growth and how much filters through to investors. (E.g. In some emerging markets, governments or workers rather than investors capture a much larger share of the gains than in mature Western economies.)

  • 13 FI Warrior November 23, 2017, 7:55 pm

    As a kid, I remember colonel blimp types blustering about how the Germans would never best the UK car industry, because British engineering is the best in the world blah blah blah. How’d that work out? Areas of the industrially devastated and ignored north are now reduced to grovelling for the opportunity to assemble foreign marques. Then even while dogwhistling in the media to scapegoat foreigners for their political distractions, the elite have no compunction against selling off what is left of the state silver, even sensitive entities like power supply or crucial transport infrastructure.

    Doing my masters, I knew a Singaporean guy and was immediately impressed by his total dedication, but that has to be helped by the motivation derived from knowing you have a good job (for life, no less, remember them?) waiting for you on your return, even when newly qualified. Singapore decided way back then that given their limited resources, they would go all-in on being a knowledge economy and so bet on what they thought were winners to drive the future. They are now a serious contender in the biotech sector too, where my buddy was headed according to the long-term plan. That is why things work there, they plan generations ahead, for the good of their people, vs short-termist, smash-and-grab, neoliberal, disaster capitalism.

    There is an unwritten compact between state and citizens whereby in exchange for dropping the ‘western’ pretense of real democracy, you’ll be taken care of. If I remember correctly, an example of this is that even middle-class Singaporeans can buy investment properties in London, while foreigners can’t do the same in Singapore; so as to avoid pushing up the price more for locals there.

  • 14 Marked November 23, 2017, 8:17 pm

    Regarding the housebuilding – what a waste of time. It’s throwing money into an inelastic demand problem when the issue is on the supply side.

    On a separate datapoint I read Apprenticeships are down 59% – you know, those refilling the pipeline of the trades that are retiring. Although to be honest most builders don’t want the hassle and absolute red tape of the apprenticeship scheme.

    We don’t need more money on the purchase side – we need investment in the supply side. Investment in people, technology and a planning system that delivers. There are a number of other countries where they are “land constrained” and they don’t have the planning system we have. By the way I actually like the French method (although take the point they are not land constrained, but their planning system is refreshing compared with ours) where the Local Authority makes municipal planning decisions and designs for a piece of land to keep consistency and style rather than weird looking incongruous Poole frontages we see. No planning battles, proper infrastructure planning (read schools, doctors, etc). It’s called “Master Urban Planning”. God we need some of it rather than the hold ups our current planning system delivers, but yet again it’s kicked into the long grass and all that will happen is prices will increase further.

    @The Investor

    I noted you pointed to the Guardian about how much cowabunga “higher earners” will get with the £45K to £46.5K hike. What do you define as a higher earner? I certainly don’t think £46.5K is a higher earner in reality.

    Also remember the people I consider to be higher earners (greater than £100K) have their personal allowance stripped away making a marginal rate of tax of 62% and when the personal allowance band was accelerated due to the LibDem / Tory pact the 40% tax rate was reduced to compensate for it so 40% tax payers didn’t benefit from it. That had the effect of double taxing my definition of higher earners as the personal allowance was also stripped away the more north of £100K you went as well as the 40% band being lowered.

    Moral of the story? You’ll never be wealthy as an employee and being your own boss (or both) is the only way to make it.

  • 15 Adrian November 23, 2017, 8:18 pm

    “It might be possible to offset some/most of a hard Brexit by “doing a Singapore”, which I define to be cutting corporation and income taxes heavily, and probably capital gains taxes too, and also by likely offsetting lower EU inward migration with higher ex-EU migration.”

    Your forgot abandoning democracy and introducing national service.

  • 16 Grislybear November 23, 2017, 8:56 pm

    I reckon we are in for ten years of bouncing around in a boat in a storm going nowhere who knows what will happen after that. There are loads of problems ahead, border with Ireland, Scottish Independence, negotiating trade deals without any experience or expertise, trade deal with the EU that is nowhere near what we got now etc etc. Not forgetting the cost we haven’t left the EU yet and the latest on the exit bill is 40bn and 3bn set aside in the budget. Mind you that will be small compared to the real costs of all the personnel and hardware involved in the infrastructure required to action exports and imports. For lots of reasons I dont see the Singapore option taking off. There is also a very high possibility of Jeremy winning the next election

  • 17 The Investor November 23, 2017, 9:09 pm

    @Marked — Many people don’t think £46,500 is a high income, and as someone paying what I am for a two-bed flat in London I understand why. However statistically it is — at that point you’re perhaps into the top 5% of single-person households according to the IFS, for instance: https://www.ifs.org.uk/wheredoyoufitin/

    If the word “higher earner” is to mean anything, then earning more than 95% of the population would seem to fit the definition. 🙂

    @Grisleybear — Indeed, I think Corbyn is far more likely to be elected than Tory right-wingers are to push through a Singapore-style reworking of the economy. I just keep mentioning it because technically it is a way out of the growth trap once we’re out in the seas on our own, albeit with a ton of downsides that will hit hardest the poorer provincial segment of the Leave cohort. (As you know I start from the position that Brexit is a stupid damaging White Elephant. But trying to remain open-minded as to how and how deep the damage runs.)

    @Adrian — Can’t write an essay every time! 🙂 Alluded to it in a comment on the last post here.

  • 18 Retirement Investing Today November 23, 2017, 9:20 pm

    £800k for a 2 bed flat…

    Why not head to Spain before Brexit? Buy a 3 bed villa with sea views for EUR300k or so. Register immediately to ensure you keep most of the EU rights you have today. Live happily ever after.

  • 19 Barn Owl November 23, 2017, 9:42 pm

    @Marked – do you know if the point where you start to lose personal allowance stayed at £100K in the budget? I can’t find any reference to it changing. If not I guess that’s a real terms tax rise for “high” earners. Not very motivating to those employees. If you are offered a second job to work evenings / weekends in addition to a full time job – would you do it knowing that you pay 62% tax (67% incl employers NI) and then earn the opportunity to buy things with a further 20% VAT. You have the really love your fellow citizens to do that.

  • 20 FI Warrior November 23, 2017, 9:49 pm

    I read recently something really interesting with relevance to the so-called intractable housing and affordability shortage in the UK. In places that get things done, a field on the edge of a town for example is re-classified to building land and then the (usually) massive markup in price is simply used by the local authority to directly fund the erection of affordable homes. In the UK rentier economy by comparison, the unearned land-price increase bonanza is creamed off by the landowner, so the houses are still expensive.

    This is why the ruling elite have barely changed since the Norman invasion, if you were a lucky inheritor of the wholesale land theft back then, the onus is now on you to lose it because as long as you retain ownership, (think the perversion of leasehold) it’s literally the gift that keeps giving. This is merely one symptom of the handicap of the economy Adam Smith railed against and has everything to do with the supposed mystery of the productivity lag vs thriving countries. I watched a utility company fill a hole outside my office window today and thought of the ‘productivity gap’ when I noted 3 guys standing around while the 4th used a machine to refill earth. In the time it took, those 3 observers could have done it themselves, (they even had shovels that were used to lean on) with no pollution, hire costs, fuel etc., so you have double the costs because you still have the 3 guys needing to be paid whom the machinery was supposed to replace. That’s not a flat-lining of productivity, it’s actually a reversal, since you’re paying twice for the resources.

    Until a majority of the electorate understand enough about these socio-economic mechanisms to vote to change them, (or care enough to alleviate their pain) the planning laws will keep swathes of the population as second-class citizens. Given the default in human nature is apathy, we’ll probably see the winter olympics held in hell first though.

  • 21 AncientI November 23, 2017, 10:19 pm

    I agree with UKVI that the UK housing market is a ponzi and the government is trying its best to keep house prices inflated, probably to please the core tory voters. If your 30 or under and dont come from a wealthy family youve got no chance of owning a home.

    I think landlords and buy to let people should be taxed very heavily as they are not contributing to the economy in anyway they are just living off others backs.

  • 22 Neverland November 23, 2017, 10:45 pm

    Monevator on house prices 10 years ago:

    http://monevator.com/low-rental-yields-mean-house-prices-should-fall/

    “I pay £2000 a month rent. Assuming that £700,000 sale price, a £100,000 deposit and a currently competitive five-year 5.99% fix, a buyer would pay:

    – £2995/month on an interest only mortgage (Buy To Let Interest Only mortgage)
    – £3907/month for a repayment mortgage (Repayment mortgage)

    Before we even consider the cost of maintenance, void periods when the flat is empty and so on, a new landlord would have to subside the mortgage by £995 a month, which means my flat looks between 40-50% overvalued by the price-to-rent measure.”

    I bet the only thing that has changed substantially in the last ten years is the interest on the mortgage.

    UK incomes are stagnant in real terms since about 2005 and will continue to be until at least 2020.

    Pay more to live in a poorer country.

  • 23 Neverland November 23, 2017, 10:55 pm

    @FI warrior

    Never underestimate the capacity for seismic change in the UK via the ballot box:

    https://en.wikipedia.org/wiki/People%27s_Budget

    https://en.wikipedia.org/wiki/Clement_Attlee#1945_election

    The neo-liberal UK economic experiment is broken. The Tories have no ideas left and no votes from anyone under 40

    https://www.ft.com/content/fe5edeb0-cbb3-11e7-aa33-c63fdc9b8c6c

  • 24 The Investor November 23, 2017, 11:06 pm

    @Neverland — Yep, as I said above explicitly, I have capitulated.

    I am comfortable changing my course/my mind, eventually. I think it’s one reason for what success I’ve had as an active investor. (I haven’t changed my mind that London property prices are very excessive. I’ve changed my thinking on my best response.)

    Yes, the interest rate has fallen dramatically. But other things have changed, too. I am 10 years older. Time is running out, and in the long run we are all dead, as Keynes said. And my net worth has changed, too,

    Anyway, will write about all this in a proper post some time.

  • 25 Hospitaller November 23, 2017, 11:22 pm

    On Brexit, there was a wonderful cartoon in the Times. It had May, with a starter gun and a British bull-dog on the leash. She shouts “Ready….Steady…”. In the second frame, she shouts “Go!” and blows the bull-dog’s brains out. There it is.

  • 26 FI Warrior November 23, 2017, 11:40 pm

    @ Neverland,

    I want to believe that, but the young hardly vote vs the old dragging themselves out even if they need fleets of mobility scooters in snow in order to protect their privileges for the last few months of their lives. This disparity in determination is what has led to the last-ditch crusade to recreate the era when Britain waived the rules over a good percentage of the globe. I have members of my own family I despair of, who are blind in this respect, who sincerely believe a good thrashing with the birch solves most problems in life, whilst steadfastly never acknowledging their own totally random good fortune one iota.

    Systemic injustices that tilt the playing field towards the have-yachts also compound the probabilities towards the status quo, such as mobile youth not having stable addresses to vote from, due to constantly chasing sh*t jobs. Those over a certain age who voted overwhelmingly to retain the unearned economic advantage they lucked into through accident of birth, are determined to pursue their dreams of exceptionalism; the resultant sacrifice of other people’s children being one they’re prepared to make for ego’s sake.

    New media has allowed the young to bypass to an extent establishment brainwashing, counciling them to accept their fate as inevitable, but even so, I still worry that the deliberate degradation of contemporary education doesn’t enable them to think for themselves past all the sophisticated propaganda they face. I really hope that I’m wrong and they take back their future, because one of the saddest things in life is seeing the hope dying in people’s eyes over time.

  • 27 hosimpson November 24, 2017, 12:41 am

    @Neverland – that’s only if you look at a purchase of your primary residence as an investment in residential property. I view it as a (very) long term annuity that will pay my notional rent for the rest of my natural life. I ran my numbers recently, and although (indisputably) I am guilty of a sin of purchasing more bricks than I needed, on the discounted cash flow calc. the numbers still kinda sorta stack up.
    I don’t know much about @TI, but assuming 60 years of remaining life and £24k p.a. inflation adjusted rent, £800k is justifiable at 2.2% real interest rate. Ok, so, the rate does seem a bit low for him…

  • 28 Learner November 24, 2017, 3:03 am

    Looking forward to that post, TI. Markets can remain irrational etc

  • 29 Neverland November 24, 2017, 7:29 am

    @Investor

    Three obvious points but always worth making:

    1. Leverage magnifies capital losses – e.g. a 10% loss at a 75% loan to value wipes out 40% of your equity

    2. Interest rates are at the lowest levels since records began

    3. 3-4% gross yields on residential properties in London are about an attractive investment proposition as a cup of cold sick

  • 30 Neverland November 24, 2017, 7:34 am

    @FI warrior

    I disagree natch

    The Tories are a minority government at war with itself propped up by the political arm of an extremist religious sect

    The idea that the government will survive its whole term seems unlikely to me

    Every year tens of thousands Daily Mail readers die and tens of thousands of young people graduate with tens of thousands of debt to get **** jobs

    Why vote for the status quo when it ***** you?

    15% of under 30s voted conservative in the 2016 general election

  • 31 Mike Rawson November 24, 2017, 9:37 am

    Congrats on the £800K flat.
    Whereabouts in London are you buying? I’m going to guess Clapham (but only because I know the area).
    Mike

  • 32 The Rhino November 24, 2017, 10:06 am

    Look forward to TIs post on the flat purchase.

    @NL it was the actual benefit of hindsight yields that did for me. I ended up getting mid 2% ish. Sod that. I’m out. Have sold up on the BTL. Never enjoyed it anyway. Capital gain was poxy as well. Averaged less than 2% year. I did time it badly getting in in 2007 though. Although it’s been proven wrong before I *really* can’t see much capital gain going forward now. No one’s got any money and interest rates can’t go any lower. But long long term I agree with HS analysis above. It’s a nice bit of de risking for your future self. Question is do you take a mortgage or buy cash? That’s a tricky one. On the one hand money’s never been cheaper and there’s a good chance you could make more in the markets than you’re paying in interest, but on the flip side, as NL points out, you can amplify your losses. Hopefully all will be revealed in the upcoming post.

  • 33 The Investor November 24, 2017, 10:46 am

    @Mike and others — Thanks. What and where I buy is not confirmed yet, have had two fall through at different stages in the past four months. (Buying a property is even more ridiculous than I expected! 😐 )

    Will save all/any details for more that future post.

  • 34 The Rhino November 24, 2017, 12:03 pm

    @TI – roger that, both buying and selling is routinely horrific with *nothing* being certain until someones paid an exchange deposit. I’ve even had experience of things going wrong *after* that point!

    A more horrendously illiquid asset than residential property I have yet to come across..

    Wishing you a hefty dose of good luck with any upcoming transactions

  • 35 Gm November 24, 2017, 12:15 pm

    A truly exceptional site this.
    Small mistake with minimum wage rate next year.
    Should be £7.83.
    Keep up the good work and thank you

  • 36 Faustus November 24, 2017, 12:22 pm

    @TI

    Buying a property is indeed a ludicrous, expensive and needlessly stressful experience in England. It is the reason I made a rule that one has to want to live somewhere for at least 5 years (and ideally more) to make the whole money-sapping charade worthwhile.

    Good luck and hope you come out the other side without too many scars!

    On the ‘higher rate’ tax question, Marked has a point. The IFS calculator is adjusted by household – whilst a salary of £47k might put you in the top 5% of single person households, for a family with 2 young children, and £1800 of council tax to pay, you would barely scrape into the top 35%. HMRC now say that almost 15% of taxpayers overall are in the 40% tax band; in London and SE England I suspect it is much higher.

    Not perhaps the majority, but very far from a tiny elite, which how the Guardian and Mr McDonnell present it.

  • 37 The Investor November 24, 2017, 12:28 pm

    @Gm — Ack! Thanks. Pesky transpose error. (Also glad you’re enjoying the site!)

  • 38 AAJ November 24, 2017, 12:30 pm

    The Equalizer:

    We had low growth before Brexit. We had low productivity before Brexit. We had a massive trade deficit before Brexit

    “Keep calm and keep on carrying on.”

    This is the problem. Either ignore the issues or blame them on Brexit. Neither will help of course. Will people be balming Brexit for the rest of their live? Yes and they will always make themselves part of the problem.

  • 39 Neverland November 24, 2017, 12:33 pm

    @Mike

    I left London a few years ago but I believe you have to pay more then GBP 0.8m/USD 1.0m for a good 2 bed flat in the nice part of Clapham now

    No doubt someone will post some 1.5 bed flat in a council block near Brixton which is a “bargain” at GBP 0.4m/USD 0.5m…

  • 40 Mike Rawson November 24, 2017, 12:41 pm

    @ Neverland

    I live in the nice part of Clapham. Prices have come off a bit since last year.

    I couldn’t find a 2-bed on my street (mostly houses) but flats nearby range from £500K in slightly dodgy mansion blocks to £1.4M for a penthouse in a new conversion.

    The traditional Victorian 2-bed flats seem to be in the £700K to £875K range, so I thought that was close enough.

  • 41 The Rhino November 24, 2017, 1:00 pm

    @Mike – wow! That’s one complicated looking website – looks like I need a whole lot of stuff..

  • 42 Mike Rawson November 24, 2017, 1:08 pm

    @ The Rhino

    We cover a lot of ground. Also, it works as a filter – the content is not suitable for everyone.

    Most people do need a lot of stuff, though not necessarily people who have been reading Monevator for a few years.

  • 43 The Rhino November 24, 2017, 1:20 pm

    @MR for sure, that does look like a very effective filter..

  • 44 Mike Rawson November 24, 2017, 1:22 pm

    @ The Rhino

    No point giving people the impression that things are simple when they are not …

  • 45 The Equalizer November 24, 2017, 1:32 pm

    @Grislybear ” …negotiating trade deals without any experience or expertise…”

    Oh I wouldn’t say that; I think as an island nation we’ve demonstrated quite a flair for international trade* over the centuries, and generated a huge amount of wealth.

    How long has it taken the EU to draft a trade agreement with India so far? 9+ years? 10 years to define the meaning of “Chocolate”? Post-Brexit we’ll no longer need the operator when it comes to our trade deals as we’ll have the direct line, this in itself will be a huge advantage.

    *Yes there have been exceptions from a moral point of view!

  • 46 david m November 24, 2017, 1:36 pm

    The IFS calculator works on net pay. £46,500 gross pay falls to about £34,750 as net pay. Allowing for £1,905 of council tax, where you fit in is above 88% of the population, i.e. just inside the top 12%, as a single person household. You would need about £70,000 as gross pay to be in the top 5%.

    https://www.ifs.org.uk/wheredoyoufitin/

  • 47 The Investor November 24, 2017, 2:09 pm

    @david m — Good spot, mea culpa! Still, I would argue top 12% is still a “higher earner”. (In fact I’d argue that top 25% is). As I said at the start though, I understand why this doesn’t feel like a lot of money… I’m living it. Especially with property it’s an expensive world. Also agree that what was a higher rate tax paid by a few has hugely broadened.

  • 48 Neverland November 24, 2017, 2:17 pm

    @The Equalizer

    In actual fact the British Empire operated a huge tariff and monopoly web of imperial preferences to force its colonies to buy manufactured goods from the UK

    Free trade ceased to exist within the British Empire in the 1700s

    When this web was gradually dismantled under American pressure after WWII most of the commonwealth gradually migrated to import from elsewhere

    This deterioration in Britain’s industrial exports was one of the causes of Britain’s relative economic underperformance from the 1950s to the 1970s…

    …which led directly to the UK joining the EU

    But don’t let the facts get in the way of your rhetoric

  • 49 Rishi November 24, 2017, 2:36 pm

    @The Equalizer: Stop viewing the world through your rose tinted glasses. Sure, the pioneer merchants did go out to the far east (and indeed west) and traded in spice to begin with, but the ‘international trade’ that you talk about that bought real wealth in to Britain was based on superior military might (viz the machine gun!) that helped to do trade at gun point in India, China and SA and indeed in slave labour WI. I do not see any possibility of India ever letting Britain grow opium to sell to China, nor do I expect China to sell stuff in exchange for Opium. Both those countries have nuclear weapons, so I dont see any possiblity of trade deals with favourable terms for Britain, especially when between them they have access to more than 25% of worlds consumers.
    Dont get me wrong, my comments above in no way are meant to paint a negative picture of Britain today. I have lived here for close to 15 years and can swear that 99.9% people are kind good hearted human beings who just want to get on with their lives. It is a fair and tolerant society.
    I would however, not make any assumptions about a favourable trade deals in future based on past trade deals (most done 100-200 years ago!) as the conditions today do not even remotely resemble those from 1750-1800s where there was a huge technological imbalance when it came to military technology.

    Regards,
    Rishi

  • 50 tom November 24, 2017, 2:59 pm

    Interesting to see you’re putting a bit of money into EIS’s (cue a thousand Passive investors fainting!). It would be fascinating to have a post on how you look at them and any sort of introduction into how you evaluate them. I’ve always found it most tricky.

    I suppose one of the only ways is to support management teams who have done it successfully before and, ideally, you’ve had previous dealings with, so you feel you can trust them.

    Incidentally, it’s fascinating to see the continued decline of Woodford’s Patient Capital IT. Maybe it’ll all come good eventually to those holders who are… etc. etc. But it does make me think – if it doesn’t work, then if He can’t do it (with his experience and team/resources), then I really probably shouldn’t try.

  • 51 Neverland November 24, 2017, 4:10 pm

    @Mike Raven

    *Only* GBP 800,000 for 800 square feet of heaven in South West London, where can I sign to get one??? Second thoughts, lets buy two!

  • 52 A Different Richard November 24, 2017, 4:28 pm

    Talking of buying two…

    https://www.hspc.co.uk/Detached-Villa-For-Sale-3-Yairs-Rise-Charleston-North-Kessock-IV1-3YJ

    My part of the world.

    Fancy something a little more traditional? Try:

    https://www.hspc.co.uk/Detached-Villa-For-Sale-Dunraven-Lodge-Golf-Course-Road-Strathpeffer-IV14-9AS

    Hell, if you stretch your budget you COULD have both.

    You London folk really are living in a different world (and I don’t just mean about Brexit!)

    The search facility on that property website allows you to search by price. The highest band is “above £300k”.

    The trip home’s lovely too. 10 minutes on open roads across the Black Isle. No sniffing strangers’ armpits on the tube…

  • 53 The Rhino November 24, 2017, 5:01 pm

    And as for RITs two pence. I’ll pay attention when he eats his own dog food. I’d be bored out of my brains within 5 mins of going down that rabbit hole.

    To be fair though, that is assuming the foreign property purchase is accompanied by a hard brexit cliff edge style early retirement (is that what RIT advocates?)

  • 54 Mike Rawson November 24, 2017, 5:15 pm

    @ Neverland

    I like my new name.

    It is nice here, but I didn’t say I was a buyer at that price. I’ve been here a long time.

    Mike

  • 55 UK Value Investor November 25, 2017, 9:27 am

    @The Rhino – Thanks for the correction. £800k not £500k for 2 bedrooms. Wowza.

    As for humble bragging technique of mentioning stamp duty rather than the price, no, the full sticker price of my 4-bed suburban London flat was indeed £40k in 1995. I had to save up a massive £2k deposit and the mortgage was about £300 per month.

    Oh happy days.

    And on retiring abroad as RIT may at some point do, it works for some people. My father in-law got squished in a motorbike crash and the insurance payout funded early retirement and a move to Spain (the warmer weather is kinder to his many metal joints). As far as I can tell he’s happy sitting around building short-wave radios and other electronic gadgets, or stripping off-roaders into their component parts (not sure why he does that, but he seems to enjoy it).

  • 56 The Rhino November 25, 2017, 10:13 am

    @UKVI – my humble brag jibe was directed at TI. I understood you paid 40k for the flat. Great bargain with benefit of hindsight.

    You’re absolutely right about the retirement thing. Everyone is different, no one size fits all. I watch with interest what RIT does next. I doubt TI will take his advice.

    I’d quite like to move somewhere laid back with a big shed so I could tinker with things. I can see the attraction. I too have just been squished in a nasty cycling accident. Maybe my new titanium exo skeleton will respond better to sunnier climates?

  • 57 Gadgetmind November 25, 2017, 11:10 am

    I was surprised to see no further attacks on DC pensions, particularly as the post-referendum sterling crash has seen me exceed LTA, and a performance bonus has seen me (unexpectedly!) hit full tapered annual allowance, which I’ve already exceeded. Quality problems maybe, but I certainly didn’t need another blast of tax.

    As for Brexit, yes it’s clearly knocked us into the slow lane, and HMG’s negotiators could walk into DFS and come out with a full price sofa, so I’m deeply pessimistic about the UK’s future.

  • 58 The Investor November 25, 2017, 11:12 am

    I mentioned my stamp duty (as a first time buyer) because we were discussing first time buyer stamp duty!

    Believe me, for someone of my persuasion the word ‘brag’ and the sentiment “I am buying a flat when prices are still near to all time highs relative to earnings and after sitting out the market* for tactical reasons for more than a decade” is about as far from a brag as I can imagine. 🙂

    *Reality slightly more complicated.

  • 59 Grumpy November 25, 2017, 11:17 am

    “I can’t see how Brexit can boost growth in the next decade.”

    With all due respect that’s why you are not chancellor, however saying that I don’t think the current one is worth keeping, he is just as negative

  • 60 The Investor November 25, 2017, 12:34 pm

    @grumpy — What, we are back to deferring to experts again? 🙂 Well in that case well over 90% of economists and the majority of business people have stated Brexit will be a negative. 🙂

    I say “within a decade” because it will take at least that long for any alleged benefits from new trade deals etc to outweigh up front negatives, IMHO.

    Of course a chancellor could boost growth tomorrow by increasing state spending or cutting taxes or some other things. But that is not *because of Brexit*. They could have done that anyway.

  • 61 The Rhino November 25, 2017, 1:00 pm

    Haha. Fair enough. But then again that is the very essence of the quality humble brag. They must be slipped in covertly using as much subterfuge and distraction as the authors ingenuity can muster.

    TEA brought another one to my attention that I’m on the lookout for these days. Virtue signalling. Fascinating stuff!

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