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Weekend reading: Does saving still pay?

Weekend reading

Good reads from around the Web.

I have half-written several posts over the years about how ordinary savers have been shafted by the aftermath of the financial crisis, while the reckless were rescued.

While we still hear angry complaints that the bankers were bailed out by the Government1, the big winners were the millions of middle-class consumers who over-stretched to buy houses they couldn’t afford in the boom and then saw interest rates fall to near-zero levels – and who have since enjoyed bubble-like returns from property in London and the South East.

Many Monevator readers are homeowners who got lucky on interest rates. But before you get too indignant I’m not castigating everyone as fortunate chancers.

It’s those at the extreme end – who would have got their comeuppance in a typical recessionary purge – that should be glad things got so bad it saved their bacon.

Similarly, it’s not cavalier risk-tolerant active investors like me who’ve suffered from low interest rates.

It’s more normal successful young people who earn say £30,000 a year and who have saved what would have once been considered a heroic £2,000 to £3,000 a year towards a house deposit, but whose savings have (relatively speaking) gone nowhere while prices – at least in the South East – have gone into orbit.

The new normal

A young couple who bought a two-bed flat in Tooting in 2007 when prices were already high, using a £25,000 deposit from his grandmother and a four-times multiple of her salary, because they had to start somewhere, they wanted children in five years, and they needed to get on with their life – they were pragmatic, not reckless, as I see it.

In contrast, the 10th decile who paid 6-10x their income for their properties, who employed self-certification to make up their income anyway, those who created deposits from credit card advances, and those who had their parents remortgage the family home to enable them to buy a ritzy flat in Fulham where they couldn’t afford a bicycle shed – they are the ones for whom the financial crisis was like a windfall Monopoly card that reversed the normal run of recessions.

  • Those who had bought a second or third buy-to-let property at the peak of the bubble.
  • Those who had paid a year’s salary for a brand new BMW, on credit.
  • Those who acquired a holiday flat in Paris by re-upping their mortgage in Westminster.

All saved by a situation so dire that interest rates went to 300-year lows.

Now, I can already hear some of you loosening your fingers to bash out an angry defense of these buccaneering go-getters…

  • Perhaps I’m just seeing through my own circumstances?
  • Hasn’t the stock market or even bonds been fine for investors – bad luck for those dumb enough to stay in cash?
  • Was the Bank of England supposed to sink the economy for the sake of moral hazard?
  • And so on.

True, these points all have some reality behind them. The older I get, the more I realise there are three sides to every argument – my view, your view, and the truth – and the less tolerant I am of those who believe they have a monopoly on two of them.

Alas, the Venn diagram of those who believe they are always right and those who comment on blogs is very large, too – even among our readers, who are in general about the smartest and most sensible in this sphere that I’ve encountered.

And to be fair, perhaps the overlap is large among those who write blogs, too.

“The first principle is that you must not fool yourself – and you are the easiest person to fool.”
Richard Feynman

The result is I’ve avoided too much crusading about all this over the years.

But maybe that was a mistake, given the magnitude of these shifts.

Sinking the marshmallow test

While I muse on whether it was wisdom or cowardice that has so far prevented me climbing more frequently into the bully pulpit, I will point instead to an article on the virtues of saving by Gaby Hinsliff in The Guardian of all places.

Despite writing for a paper that has never seen a consumer that doesn’t deserve compensation or a family that isn’t hard-pressed, hard-working, and yet let down by Government, Hinsliff has written eloquently on the dangers of not rewarding those who get by under their own steam:

Saving teaches self-discipline, impulse control, the ability to forgo instant gratification in exchange for future reward – all the things famously measured by the Stanford marshmallow test, in which four-year-olds were offered the choice of one marshmallow now or two if they could bear to wait 15 minutes.

What makes the experiment so famous is that those few kids who resisted temptation didn’t just grow up to get higher exam scores, but were also still leading more successful lives four decades later.

But what if it had all been a con, and there hadn’t been a second marshmallow?

What happens when you save and save for a whole lot less reward than expected?

For eight years I’ve written a blog based on the belief that a second, and a third – and fifty more – marshmallows will come to those who do the right thing.

We’ll see.

Is this the best we can do?

Now, perhaps you’re alright, Jack. (As I am, as it happens). You bought your flat in 1997 and didn’t go on holiday in that year, and anyone who says the current system is distorted is a hopeless whiner.

But even if you believe that, if you’re reading this blog presumably you believe in the power of incentives?

And to that end, don’t we want to see more marshmallows instead of:

  • Homes located where people want or need to live looking permanently out-of-reach to everyday successful young people?
  • Kids lumping around great tranches of debt acquired from often pointless university degrees instead of starting to save for the future?
  • Saving and investment to pay better than borrowing and betting?

As for the expected upcoming changes to pension tax reliefs (featured in two links below, and I could have included another half-a-dozen) I appreciate this is a tricky issue for various reasons we all understand.

But should we too readily swap a level playing field for one that looks set to be made massively less generous to those responsible middle-class higher earners who save for an increasingly uncertain future, compared to the perks enjoyed by previous generations?

We’ll pay for this

We had a financial crisis driven by debt – yet so far those with debts have won the day.

In fact the single best financial move of the past 20 years was to skip university, scrape together all the money you could from rich relatives, lie about how much you earned to get a dodgy mortgage, and then take a massive punt on the biggest house you could buy in the priciest part of the country and cross your fingers.

When even a Guardian columnist understands we have a motivational problem when it comes to striving to do better for yourself, you know we’re in trouble.

Note: It seems the new tracking tool we highlighted on Tuesday might not be as great as it first appeared – please see The Accumulator’s latest thoughts in light of his further findings (aided by you guys!)

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: Paying 3.2% on money locked away for five years makes Milestone Savings a table-topper, according to ThisIsMoney. But there’s a catch – the rate is ‘expected profit’, not interest, and it may vary.

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.2

Passive investing

  • Where’s the payoff for active investing? – Morningstar
  • US investors can pretty much own the market cost-free – Morningstar
  • Beware of Wall Street’s proprietary indices – Bloomberg

Active investing

  • We’ll never see another Warren Buffett or George Soros – Marketwatch
  • FTSE fallout ‘hurts’ UK investment trusts [Search result]FT
  • Why I’m hanging on to resource stocks [Search result]FT
  • Tech’s “frightful five” will continue to dominate – New York Times
  • The golden age of private equity wasn’t so golden – Bloomberg

A word from a broker

Other stuff worth reading

  • Morgan Housel: Why does pessimism sound so smart? – Motley Fool US
  • Protect your pension before March Budget – ThisIsMoney & Telegraph
  • Merryn: 5 reasons London house prices will crash [Search result]FT
  • The 3% stamp duty surcharge might apply to overseas homes – Telegraph
  • Stories from the UK’s 20-year-old house price boom – Guardian
  • 25% of alcohol sold goes to the 5% who drink too much – Guardian
  • How Denmark’s Odense city cycled its way to success – Guardian

Book of the week: I watched Into The Wild last night. It’s a movie about a young man who turned his back on consumerism and walked into the woods of Alaska to live off the land. As I watched it, I found several echoes of the early retirement movement, albeit expressed in a more adolescent context perhaps – which is worrying, considering (spoiler!) the very bleak ending. Apparently the book it’s based on – Into the Wild – is a US bestseller and popular set text in schools. Surprising.

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  1. Tell that to long-term Northern Rock, HBOS, RBS and even Lloyds shareholders. []
  2. 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”. []

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{ 88 comments… add one }
  • 51 theRhino January 24, 2016, 12:29 pm

    @UKVI – they will, the tipping point just not quite reached yet

  • 52 Peter January 24, 2016, 12:44 pm

    What surprises me is that those who are most hurt by the high cost of housing (young people) haven’t affected the political landscape; i.e. voted, in huge numbers, for whichever party promises to build the most houses (and decent sized houses, not these stupid proposed “affordable homes” rubbish).

    @John from UK Value Investor: I tried, but I can’t recall any party really being in favour of that level of house building. I don’t get how apathetic my generation is when it comes to political noise – it’s hugely disappointing and one person can’t do much on their own.

  • 53 Grand January 24, 2016, 1:21 pm

    Great article and a fantastic set of links. I was having a discussion with mu gf this morning after looking at the price of a home on the street I live on. The price read £1,399.999 for a four bedroom family house in zone 3. Streatham, London. Currently I live in the family home as I’m saving for my own. My argument was how do we as a couple manage to afford to raise a family in the future in a similar home as to what we grew up in? Her response was, well you don’t. Forget about owning your own how things are now… this is the new normal; given theres unlikely to be a reversion to the mean for property prices especially in London given how many vested interests their are globally, I think she’s right.

  • 54 Tyro January 24, 2016, 1:45 pm

    @Richard
    “I look at my parents generation for example with their DB pensions they paid 5% into” …. well, your parents might have been lucky enough to pay only 5% but you can’t extrapolate from that to a whole generation! In my DB schcme the minimum employee contribution is 7.5% and at that rate it’d take near on 40 years to earn a reasonable pension, so my contribution is actually around 20%. Funny what you can do when you don’t have loads of gadgets, or a mobile phone contract, or TV subscriptions, or daily coffee from an outlet, etc etc ….. if we are going to trade intergenerational generalisations (and I blame David Willetts for fomenting the myth that my generation had it good, as well as much else there is to blame him for) there’s no doubt plenty that members of your parents’ generation could say about the spendthrift instincts of your generation.

    And as for housing in London, ’twas ever thus. I bought my flat in the late ’80s not long before the height of the boom – and subsequent crash – and at mortgage rates up in the stratosphere and rising every month – and only managed to do so through a combination of (a) having a full-time job) plus (b) having a part-time job at the same time plus (c) taking in a lodger plus (d) having no holidays at all for about 5 years plus (e) of course I didn’t have the gadgets, contracts, coffee and meals bought outside the home, and all the other spendy-spend items that anyone under 30 nowadays seems to regard as necessities (okay, some of these things didn’t exist then anyway, but if they had existed I’d have had to go without them).

    I’m not going to have anybody tell me I had it easier than younger people nowadays. So there.

  • 55 Martyn January 24, 2016, 7:08 pm

    @John from UK Value Investor – I quite agree, but huilding more houses doesn’t look to me to be the answer, demand far outrips supply and we can’t build enough to materially alter this. Itb would simply suck in more immigrants.

    If you are young and harbour any abitions about owning your own home in this country you need to vote to exit the EU, so control of immigration can be regained and the demand can be made to plummet. If demand falls so will prices.

    In a nutshell, membership of the EU allows unfetterd growth in demand, no amount of house building – assuming the economy performs will work. It ioacts wages as well, but thats a different topic.

  • 56 Mathmo January 24, 2016, 7:38 pm

    Thanks Minikins — it was a bit of a late night ramble, but made sense to me at the time!

  • 57 Learner January 24, 2016, 7:48 pm

    @Tyro, the younger generation gets a television subscription, mobile phone, daily coffee. Their parents’ generation got a private car, fixed phone line and daily cigarettes. It’s not so different.

  • 58 david January 24, 2016, 8:45 pm

    Krugman on raising rates:
    “Now Lars Svensson points us to an evaluation of Swedish monetary policy by Marvin Goodfriend and Mervyn King (!) which argues that the Riksbank had some justification for raising rates in a still-depressed economy because GDP was growing moderately fast.

    So, do we think the Fed should have been tightening policy in 1934? I mean, the economy was growing at a blistering pace:

    But it was growing at that pace after a catastrophic slump, and unemployment was still immense.

    I thought everyone understood this point, which is after all very easy. But nooooo …
    http://krugman.blogs.nytimes.com/2016/01/23/levels-rates-and-sweden/

  • 59 Planting Acorns January 24, 2016, 8:56 pm

    @Tyro … I’m older than 30 but I think you may have missed the point of the piece… Irresponsible risk takers have not suffered the way they might have normally… I’m writing this poolside in cancun, on my iphone, whilst my sky subscription and Virgin Active membership sit unused for ten days… This has everything to do with buying a flat in London at silly income multiples (and a loan) in 2007 and being rescued by low rates…fixing my mortgage for ten years at sub 3pc and taking a lodger in who pays me a weeks wages every month

    Id work just as hard and be impoverished if mortgages were high and rents low… I do feel for the youngsters and don’t begrudge them a coffee on the way to work ;0)

  • 60 Jim McG January 24, 2016, 9:18 pm

    Hope you enjoy The Big Short, it’s an entertaining snapshot of what happens when people seem to believe that property can’t fail as an investment. As in the book though, trying to portray the guys who shorted the market as not being in it for their own personal gain (with one exception) was a bit of a joke. And thanks for the mention in the links BTW, always boosts my traffic!

  • 61 Tim G January 24, 2016, 9:22 pm

    I agree with the general thrust of this, but I wonder if the following is taking it a bit far?

    “But should we too readily swap a level playing field for one that looks set to be made massively less generous to those responsible middle-class higher earners who save for an increasingly uncertain future, compared to the perks enjoyed by previous generations?”

    I guess it’s a question of perspectives. What looks like a “level playing field” to anyone paying 40/45% tax probably looks rather like an unjustified perk to those paying basic rate or less.

  • 62 Survivor January 24, 2016, 9:28 pm

    Hi TI & all. Thank you for such an interesting debate – I think the reason the subject of home-owning is always guaranteed sell-out attention/passion is that it is so important to life in the UK.

    I believe that this is because if you don’t own your own home here, you are a second-class citizen compared to Europe for example, where it doesn’t mark you out as an almost certain economic loser. This is generally largely due to more protection there for tenants & better quality as well as cheaper housing …..more adequate choices too.

    As long as you buy a house to live in for the long term here the fluctuations in price wont matter – particularly if it’s in a desirable area – so if you have to leave for a while, renting it out in the interim will cover the mortgage cost. Owning another/more places as an investment (again with the caveat of a desirable location like London) should also be safe as long as you haven’t over-indebted yourself to do so. This is because governments of whatever nominal stripe will never do anything that endangers the rise of house-prices since it underpins the UK economy – such as building adequate/affordable housing. Additionally, there will always be hoards of desperate renters forced to take even poor conditions because jobs are kept predominantly in London by policy, maintaining that demand.

    I have an acquaintance who’s profession is to ascertain the risk of business-owners seeking loans & in his case these have to be backed by collateral for better rates. It’s very illuminating that from every imaginable, obscure segment of the economy, invariably at least a part of the collateral proffered is equity in property, even if it’s the owner’s only/own home on the line.

    Given this, it becomes clear that anything endangering even at the very least the stability of property prices, will crash the economy …..& for those in power, the temptation to inflate this bubble for cheap/illusory growth must be overwhelming. If I recall correctly, ~40% of the current lineup at the taxpayer’s trough just happens to be a landlord – ”There must be a message in there somewhere.” [Homer – from the Simpsons show unfortunately, not classical Greek literature]

  • 63 The Investor January 24, 2016, 10:32 pm

    I wish I could reply to all these comments, but alas time! Thanks for the useful and constructive input everyone.

    A quick clarification to Tim G, who writes:

    I guess it’s a question of perspectives. What looks like a “level playing field” to anyone paying 40/45% tax probably looks rather like an unjustified perk to those paying basic rate or less.

    I wasn’t clear I guess — I mean a level playing field with previous generations, not with others at the same time today.

    i.e. To younger higher-rate taxpayers, it’s going to again look like the drawbridge being pulled up by the older generation (see defined benefits pensions, multi-bagging house price gains, etc etc).

    That view might be right or wrong, but anyway that’s what I meant by level playing field (and as I said in the piece, I think there’s pros and cons to the argument).

    (I have other things to say about what’s “fair” across the tax spectrum, but that’s for another day…)

    p.s. Some people are reporting problems moving back to see previous comments. There are actually 62 here in theory! Possibly there’s a bug. Am investigating.

  • 64 Chris January 24, 2016, 10:34 pm

    “A ritzy flat in Fulham”
    I am an old enough Londoner to find this funny. Last time I checked, and maybe things move faster than I thought, Fulham was boring bankers in 1880s artisans cottages with dodgy family portraits over the fireplace. Ritzy it was (and I suspect is) not – but I do understand that sometimes you have to sacrifice a bit of truth to alliteration.

  • 65 The Investor January 24, 2016, 10:45 pm

    @Chris — On the contrary, I initially put in something like Chelsea or Notting Hill (don’t remember which) but then deleted it because it was patently ridiculous as an example — only the multi-millionaire set are buying kids flats there now. A two-bed in Fulham would be something like £600-800K, in the nice end. (It’s far from my favourite bit of town, either, incidentally).

    It’s truly amazing how things are changing, but you have to know young people to know it.

    e.g. I was at a late-20-something friends birthday party in Dalston (Hackney) a year or two ago, and was talking to some of her friends… I thought for a few sentences we were talking about the same thing (being pushed out of Islington / “nice Hackney” towards places like Homerton) but no, they were lamenting that they’d *love* to live in Homerton, which I always knew as the murder mile — but they were having to move to places like Leytonstone. (Where? Exactly).

    These were young media/fashion professionals doing well who certainly don’t earn City money but who would have been Fulham/Stoke Newington/Clapham North fodder a decade or so ago.

  • 66 OldPro January 25, 2016, 3:25 am

    Regarding Ben’s passport/Monevator photo… I have imagined before Howard Hughes…

  • 67 Brendan January 25, 2016, 12:32 pm

    @The Investor: “But what’s happened is what was arguably a boom in property has turned into what’s more or less beyond doubt a bubble in London…”

    Such confidence! I don’t think we can possibly know this is a bubble. I suspect at this point, it is not. At one point – within the last 100 years – vast swathes of the population lived with multiple families to a house, and sometimes multiple workers to a bed.

    People are quite capable of living in conditions we consider horrible, and we are a long way from such conditions. London prices are quite capable of going up a long way, with the vast majority of the population sharing apartments. It might not be long before room sharing becomes as common as flat sharing.

  • 68 The Investor January 25, 2016, 1:46 pm

    @Brendan — Yes, perhaps “beyond doubt” is a bit strong. I have in general been humbled by London property and am far less confident in reading it these days. Perhaps the coffee and the deadline was getting to me on Saturday morning! 🙂

    All that said, compared to all existing metrics except affordability via a mortgage (due to low interest rates) houses prices in London are off the charts (e.g. prices to earnings, prices to ex-London, prices to rent) so for now it looks like a bubble.

    It’s hard to see a world where interest rates get lower while prices hold up (i.e. I can imagine lower rates in a prolonged Japanese style deflationary scenario but that’s probably diabolical for house prices) so I do think it’s just a matter of time for affordability, too.

    But as you say, things can happen…

  • 69 Brendan January 25, 2016, 3:37 pm

    Don’t misunderstand me – I’m in complete agreement that house prices are divorced substantially from historical norms. Part of that is what happens when you set interest rates to 0.5% for 7 years, and it’s hard to see them going lower.

    But the housing market seems to have ignored historical norms for quite a while now. It could be a bubble that lasts our lifetimes. On a personal note, I don’t really know what to do about it except to get as far away from it as possible…

  • 70 Mumble January 25, 2016, 6:05 pm

    “What happens when you save and save for a whole lot less reward than expected?”

    In answer to that:
    https://en.wikipedia.org/wiki/Delayed_gratification#Reliability_of_gratification
    “Children who had learned that the researcher’s promise was unreliable quickly succumbed to eating the marshmallow, waiting only an average of 3 minutes. Conversely, children who had learned that the researcher was reliable were able to wait an average of 12 minutes, with many of them waiting the full 15 minutes for the researcher to return in order to double the reward to two marshmallows.”

    This paints a bleak picture for the government with respect to the future of retirement savings. The experimenter, in this case the government, has shown themselves to be unreliable time and time again. The obvious result is that a generation of potential retirement savers will not save for retirement, believing — possibly entirely accurately — that it is futile.

  • 71 Planting Acorns January 25, 2016, 6:09 pm

    @Brendan… Wholeheartedly agree.

    I found myself at the flat the younger brother of one of my best friends was renting over the summer in Camden. I’ve known him since he was a little boy and he was keen to show it off…he slept, no lie, on a bed in the open plan kitchen / living room, whilst a couple shared one of the bedrooms and another lad the a box bedroom. He rationalised this as not being all bad because ‘I get to watch sky overnight’.

    I lived in similarly cramped conditions when I first moved up…difference being I was 21, he’s 26… How long before people are doing this into their 30’s and gulp …beyond

  • 72 Richard January 25, 2016, 9:26 pm

    @mumble

    When the government nerf pensions (again) where will the reasonably well off put their money? Property, a safe bet through troubled waters.
    The sky’s the limit, prices never coming down!

  • 73 Brendan January 26, 2016, 10:42 am

    @Planting Acorns:

    I think it’s already pretty normal for people to share flats in their 30s in London and the expensive South East (Oxford, Cambridge, parts of the London commuter belt). It’s also very normal for none of those places to have living rooms – they have been long converted into another bedroom.

    The next stage is when people in their 20s start sharing rooms (in a non-intimate sort of way).

  • 74 Survivor January 26, 2016, 11:41 am

    @Brendan,

    last week I had to survey a small 2-bed flat on the zone 2/3 boundary & at midday, was met by a sleepy tenant at the door. While tiptoeing around trying not to wake anyone up, I saw 4 other guys in their mid-late 20’s sleeping. He shared a double bed with his brother in the one room & two unrelated [in any way] guys were asleep in the other, with a couchsurfer flat-out on the sofa.

    They all apparently work sh*tty, low-wage, nightshift jobs & so were knocked out, they slept through us talking for an hour, even with the loud traffic noise outside too. When I was that age I moved to London & started off in dives too, but at least always had my own cell – the next step down is sleeping in shifts around the clock in the same bed like back in the early industrial revolution.

    I did feel queasy all day after that, realising I had just witnessed the miracle of the UK’s economic growth …..& that whenever you think it can’t get worse, you see it with your own eyes.

  • 75 Brendan January 26, 2016, 1:31 pm

    @Survivor: “…the next step down is sleeping in shifts around the clock in the same bed like back in the early industrial revolution.”

    Ah, yes. Back to scenes from The Road to Wigan Pier. Except this time the squalor and deprivation is in the south, not the north.

    I’d feel ill about it too, because yes, that is the miracle of Britain’s rising GDP (and its falling productivity and GDP per capita). It’s also the miracle of Britain’s rising rents and house prices.

    But at least they weren’t in their mid-30s, or have kids, in such conditions. Yet.

  • 76 Naeclue January 26, 2016, 3:09 pm

    When I started working in London I lived in a £20 per week bedsit near Clapham North. What happened to bedsits? Have they been regulated out of existence? My bedsit was very dodgy and I am sure would fail all modern H&S regulations. It even had one of those open gas boilers in the bathroom which were known to poison people with CO when they went wrong. When running the bath it regularly used to give a bang and shoot out a jet of flame, so you had to be careful where you stood.

    For many years I thought that there was not a bubble in London house prices as I can always remember them being expensive, even in the grotty areas, but have recently changed my mind.

    I am no expert, but to me the London housing market looks very reminiscent of the late 80s, when there were loads of new build docklands properties being sold off plan at silly prices and speculators piling in with small deposits.

    There is a massive amount of house (ok flat) building going on in London at the moment, but this time, if the press is to believed, the new properties seem to be largely being snapped up by foreign investors/speculators. The bubble may burst when some of the speculators are unwilling (or unable) to pay for the flats and default, which is what happened in the 80s. Prices could then crash. Hopefully they will and this will result in a lot of the new/recent build properties becoming available to London residents. No doubt this will mean a fair number of people being caught in negative equity again, which is dire if it happens to you, but this may not be as big a problem as before if much of the new build stock starts off in foreign hands.

  • 77 Planting Acorns January 26, 2016, 3:24 pm

    @Naeclue… When talking about the home you live in , surely anyone buying a flat to live in on the Isle of Dogs in the 1980s would be quids in now? If only because they’d have to pay rent elsewhere ?

    Has there ever been a time when buying in London (to live in) that over the 25 (30) year mortgage period things haven’t come good ?

  • 78 Naeclue January 26, 2016, 3:43 pm

    @Planting Acorns, yes the crashed property prices eventually recovered and anyone who bought at the wrong time, but was happy to live in the same place and able to keep paying the mortgage would have been fine.

    However, many people caught in negative equity had a miserable time. Some ended up in tiny flats and could not buy bigger ones when they got married/had kids, etc. Other people bought with friends, partners etc. and became stuck even though they wanted to move on.

    Worst of all were the instances of relationship breakups. Imagine what it would be like to own a small flat with an ex-partner worth 60% of what you owe to the building society.

  • 79 Naeclue January 26, 2016, 4:10 pm

    One thing I should add is that those caught up in the 80s property crash were bailed out relatively quickly by wage inflation, which was high at the time. This meant that people could reduce debts and house prices recovered fairly quickly. If prices drop by 50% or more now, those caught in negative equity might not be so lucky. It might take a generation for some property prices to recover.

  • 80 Brendan January 26, 2016, 5:11 pm

    @Naeclue: Studios do still exist. But they are very valuable now – they are usually bought, done up to a high standard (for a tiny fraction of the cost of the place), and sold on at large profits. They’re a lot more expensive than a room in a house share, before you account for shared bills/council tax savings.

  • 81 Planting Acorns January 26, 2016, 5:31 pm

    @ Naeclue, ah yes, I understand, thanks. Never a good time to break up I suppose, but a forced sale situation would be abysmal. That said, I’d buy if I hadn’t already

  • 82 Naeclue January 26, 2016, 7:55 pm

    @Brendan, I don’t mean studios. A studio will come with it’s own bathroom – “Luxury!”. A bedsit came furnished with a bed, a cooker, a washbasin, possibly a desk/table and somewhere to store your clothes. Swanky ones came with a fridge. My did not, but I splashed out on a second hand one. Bathrooms were shared and there was not usually a kitchen. Typically the landlord/landlady would do or sort out the cleaning of the communal areas and all property maintenance for free. My landlady provided me with clean sheets every week and hoovered my room. Launderettes were used for laundry and you could often pay for a service wash for less than £1! Well worth doing, as it not only saved time, but got a better result because the people who did the service washes hogged the decent washing machines.

    I get the impression that bedsits have vanished, to be replaced with HMOs in which the kitchen is now shared. Probably a better arrangement provided the sharers get on.

    The accommodation that @Survivor describes strikes me as being illegal. If the local council heard about it I would expect them to fine the owner of the property and force them to stop the overcrowding.

  • 83 John B January 27, 2016, 12:38 am

    Are there any graphs plotting the total value of UK housing stock against FTSE All share capitalisation over time? I assume that currently nearly all the private wealth in the country is in its housing stock, and many BTL people only have their money in housing, but has that always been the case?.

    I’ve found one data point, at the moment housing stock is £6 trillion, 2.7 times GDP http://www.themovechannel.com/news/stories/uk-housing-stock-value-passes-6-trillion-359/, FTSE All Share is about £2 trillion. (https://en.wikipedia.org/wiki/FTSE_100_Index and fudging as the 1.9t quoted there is 80% of the market, but was before the recent falls)

  • 84 Learner January 27, 2016, 9:53 am

    Property Guardians are along those lines, unless that’s what you meant by HMO – I gather the companies providing such properties don’t want to be classified that way. A friend of mine was living in one some years ago after her relationship ended and it wasn’t so bad though the idea seems to have been rinsed out by now if this is anything to go by http://gu.com/p/4fbej/sbl

  • 85 Brendan January 27, 2016, 11:25 am

    @Naeclue, Yes, almost certainly you’re right that these have been replaced by HMOs. I think particularly with the massive rise in student numbers, an HMO is a much more versatile investment requiring less maintenance (or none at all, judging from ones I’ve lived in).

  • 86 The Investor January 27, 2016, 12:16 pm

    @John B — I have a half-finished post from years ago where I was looking to plot London house prices (as I see those as being the more convincingly overpriced, in my mind) against the likes of UK market capitalization, the gold price, inflation, average earnings, and so on. Perhaps I’ll be able to revisit it in the next few weeks.

  • 87 Mathmo January 28, 2016, 9:26 pm

    TI — if you’re going to plot the house prices then you need to compare with bonds as they are bondalikes (they are a capital investment that throws off rent or the need not to pay rent) — and in that sense they are inflation-linked bonds since rent is typically wage-linked. They are long-dated bonds, given annual repair/maintenance costs are low compared with capital cost.

    Given London’s international city status you need to compare them with a mixed basket of internationally denominated bonds, rather than just sterling.

    But for simplicity, how about the sterling price of perpetual US inflation-linked bonds as a fair comparison?

    No — I don’t know where to get the data going back 30 years either. PIMCO bond fund prices?

  • 88 The Investor January 28, 2016, 10:59 pm

    @mathmo — I’d want to compare them with all sorts, and you’re right that some sort of bond comparison is worthwhile. Possibly rental yields versus 30 year yields or Consol? (until George killed it!)

    But I don’t think bonds are the only valid comparison, if that is what we’re discussing. 🙂

    I think all these comparisons would be just to give a flavour of valuation ranges and how out of whack — or not — they might be. And of course they could say as much about what’s being compared with housing (eg gold or oil) on that score.

    I can think of many reasons for instance why a house is nothing like a bond — houses fall down if not repaired, limited to no legal redress if it doesn’t deliver what you expected on purchase, a variable ‘pseudo-coupon’… or on the positive side residual value stretching far into the future independent of those factors but hugely uncertain hence need for massive discounting. (E.g. Much (all?) of the very long term (100 years+) value of a house in Chelsea is surely the land it stands on… unless the Thames permanently floods and we all decamp to the Chilterns or there’s a dirty bomb etc etc…)

    (Phew! Wishing I’d saved this reply until I was home not typing with a thumb! 🙂 )

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