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Weekend reading: Be young, be foolish, be poorer than your parents

Weekend reading: Be young, be foolish, be poorer than your parents post image

Good reads from around the Web.

Back before we argued about Brexit, we used to debate whether young people were being shafted by the oldies. Perhaps in the years since you’ve become an oldie yourself?

For my part, I read articles about middle-aged men having a mid-life crisis and desperately hope the author will have thoughtlessly jotted down an age that’s somehow a couple of years older than my own. Clearly this is evidence that I actually am having a mid-life crisis, but let’s leave that for another day…

I’m still down with the kids, of course. Not only because I still have all my hair (touchwood), I’m prone to pretentious hipster-style urban foibles (discuss), nor even because my serial monogamy has left me washed up in the Tinder-era like Charlton Heston stumbling awake in The Planet of the Apes.

No, my calling card of solidarity is I never bought a property.

That’s my own stupid fault, as I’m old enough to have done better. But as I’ve said many times, it’s almost impossible to overstate what an issue it now is for 20-somethings in the South East without sufficiently wealthy and generous parents or City salaries. I still believe many older people who long ago made the leap simply don’t understand the gulf.

I was at an office recently where the Spice Girls came on the radio, and I lamented to the room in general that I remembered being in an office just like that one when I first heard the song playing some 20 years ago. (You’ve got to love the creative industries, in case you’re wondering why there’s a jukebox in every office I’m at…)

A passing Millennial shot back that she was three-years old when the song first came out, which made us all feel so ancient we could barely retort. After a few snarky comments from the others about her inexperience at life, I reminded my peers that she’d likely have 20 years after we were cold in the ground to get that fixed.

“True,” she conceded. “But at least you had the chance to buy a house.”

What a telling comment. Can you imagine a woman in her early 20s engaging in banter based around home ownership even a decade ago?

She didn’t riff on her expansive romantic possibilities, her health and youthful looks, or her freewheeling lifestyle compared to the shackled 40-somethings shambling around her.

Not sex, drugs, and rock and roll. Property ownership.

Just a little comment, but I think a revealing one.

The numbers of the beast

The good (bad) news is we don’t have to rely on anecdotes from 60-year olds about how when they first bought a house they had to sell a kidney and eat their dinner sitting on packing crates – and that yes, the three-times salary multiple on their mortgage then for a three-bedder in a nice part of town is somehow directly comparable to your ten-times salary multiple for a bedsit – because the numbers are proving the inter-generational divide is real.

Sticking with property, an article in The Telegraph this week cites LSE research that found:

Homeowners in their 40s and above who hold on to former homes and rent them out are largely to blame for Britain’s crisis in housing affordability, an academic report has found.

Research by the London School of Economics found that older people are keeping previous homes when they move on, leading to a lack of availability at the bottom of the housing market.

…which has long seemed obvious to anyone watching the market.

I do understand why this buy-to-let phenomenon happened – and I certainly don’t think landlords are individually greedy parasites or worse, as the extreme rhetoric runs – but I do think housing is a special case asset, given that there’s a fixed supply of it and that, rounding up, everyone would like to own their bit of it.

Governments should I think therefore favour owner-occupiers over cultivating a landlord class (already numbering two million as of 2014, and owning on average 2.5 rented properties each, on top of their own homes).

Happily there’s been some movement on this since I gave my own ideas on fixing the housing market in February 2015, including higher stamp duty and a change in the rules for tax relief.

But I wonder if the new chancellor Phillip Hammond will bottle it in the face of Brexit in the upcoming Autumn statement, and reverse George Osborne’s buy-to-let tax changes? Changes that were long overdue, in my view, but that are much reviled by those affected.

Fantasy land house prices are the biggest bugbear of the under-35s, but you also hear them complain about the impossibility of saving a pension. I’ve less sympathy here, given how little research the ones I’ve talked to have done into what’s possible. But new numbers from the Institute for Fiscal Studies (IFS) suggests there is some truth to this lament, too.

Indeed The Guardian reports:

The IFS said that less than 10% of private sector employees born in the early 1980s were active members of a defined benefit scheme, compared with more than 15% of those born in the 1970s and nearly 40% of those born in the 1960s.

Recent changes have seen workers automatically enrolled into defined contribution schemes, which has meant younger cohorts have higher membership of pension schemes than their predecessors, but on less generous terms.

And adding it all up, the IFS has put figures on the gap in wealth accumulation:

People in their early 30s had average net household wealth of £27,000 from equity in their homes, the value of their pensions and other financial investments.

The thinktank said that those who were born in the early 1970s had accumulated household wealth of £53,000 by similar stage.

It added that children of the 70s were themselves notably less wealthy than those born in the early 1960s.

All somewhat depressing given our society’s presumption that we should be getting richer through the generations. With higher education fees making university unaffordable even as the triple-lock makes pensioners richer, I can’t help thinking more levers need adjusting. Brexit could be the tip of the angry iceberg, otherwise.1

Of course, I’d happily trade my entire portfolio to be 20 again. So if you’re young and miserable reading all this, please remember you’re already rich.

The game is trying to stay that way, by building up your financial and other assets as time slowly takes its toll.

Good luck!

From the blogs

Making good use of the things that we find…

Passive investing

  • Diversification versus delivering alpha – Longboard Funds
  • How do ETFs work? – Vanguard
  • On international exposure [US but relevant]Wade Pfau
  • The quality factor [Canadian. Just skip the ETF specifics]Canadian Couch Potato
  • In defense of bonds [Old-ish, but debate recently re-flared in our comments…]MD

Active investing

Other articles

Product of the week: Interest rates on savings continue to fall. ThisIsMoney reports that a Best Buy three-year bond from Principality Building Society now pays 1.44% (though the Principality site claims 1.45%) whereas to 12 months ago you could get 2.5% for such a long lock-up. Regular savings accounts – loathed by some as a faff, but still useful if you’ve small amounts of cash to sock away – are seeing rates fall, too. The Telegraph notes that M&S Bank has just cut its regular savings rate from 6% to 5%. You can still get 6% from First Direct on up to £300 a month, if you’re prepared to jump through the hoops.

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

  • ETFs are the new way to be a dumb investor – Marketwatch
  • Why you shouldn’t just buy Buffett for your US exposure – MutualFunds.com
  • Perhaps you shouldn’t swap your 60/40 mix for an Ivy League portfolio – Bloomberg

Active investing

  • Asset managers are finally worrying about their future – Institutional Investor
  • Hunt for elusive income turns to niche investments [Search result]FT
  • Robert Shiller likes UK stocks – Morningstar
  • Manchester Building Society cancels interest payments on PIBS – Telegraph
  • Could one of these six mid caps be the next Fever-Tree? – Telegraph
  • The US heavy truck sales recession indicator is flashing – Bloomberg
  • Being like Buffett: Easy to say, hard to do – Morningstar

A word from a broker

Other stuff worth reading

  • Millions in the UK have less than £100 in savings – BBC
  • £10K in equities earned £90K more than cash over three decades – ThisIsMoney
  • Be wary of a very equity-heavy retirement portfolio – CityWire USA
  • How to do a midlife financial health check – The Guardian
  • How Vancouver is tackling its high house prices with taxes – The Guardian
  • Brexit jobs exodus ‘has begun’ – ThisIsMoney
  • The new global superstar companies [Special report, menu top-right]Economist
  • The economics of America’s $250,000 speech circuit – Priceonomics
  • Algorithms can tell how employees are feeling – The Atlantic
  • The link between carbon emissions and GDP growth may be breaking down – Quartz

Book of the week: Is it time to read J.K. Galbraith’s The Great Crash 1929 again? It’s been a while…

Like these links? Subscribe to get them every week!

  1. Yes, I understand you voted for Brexit for right-minded constitutional reasons. But I don’t believe the majority of the 52% did. []
  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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{ 84 comments… add one }
  • 51 SurreyBoy October 2, 2016, 11:58 am

    I suppose one of the downsides of globalization is that the wealth of the world can inflate London house prices and by extension the SE. I like the idea of investors (domestic and foreign) being clobbered with taxes that cool the market. I speak as an owner of a BTL by the way. It cant happen at the moment with Brexit mania – i can see the headlines about more anti foreigner sentiment etc etc, but Vancouver has done it to great effect.

    I do wonder where the idea has crept in that everyone has an entitlement to buy a reasonably priced house. This is contentious I know. I obviously get why people want one, but I dont quite see how the moral or social entitlement arises. If the argument is people feel they should be able to buy a cheap house because their parents did, im not sure they would want the rest of their parents existence back in the 70s and 80s. Just a thought. The 25 year olds that love London because its so cosmopolitan and hip and groovy and wonderful etc, could reflect on the fact that 30 years ago it was a run down, grey and depressing place. Perhaps there was a link with houses being affordable.

    And another thing (….victor meldrew), what is the endless fixation on living in London and the SE? If i was starting out today Id either emigrate or buy a home outside the SE where a degree of house price sanity prevails.

  • 52 Gregory October 2, 2016, 1:22 pm

    “Staying put is a lot cheaper than moving around. For 20 years, I lived in the same, easily affordable house in New Jersey. Looking back, I realize that was crucial to my portfolio’s growth, because it allowed me to save gobs of money. “http://www.jonathanclements.com/home/2016/7/23/moving-and-shaking

  • 53 Gregory October 2, 2016, 3:15 pm

    An authentic thought about happiness. “What would you rather be? Happy or rich? You know, unless you’re a sociopath, you’d rather be happy.” http://www.cnbc.com/2016/09/29/sam-adams-founder-unless-youre-a-sociopath-being-happy-is-better-than-being-rich.html

  • 54 Naeclue October 2, 2016, 4:43 pm

    I don’t really understand why BTLers are blamed for the housing shortage. From personal experience I would say that rented property is far more efficiently utilised than owner occupied property. Anecdotally I know plenty of people who own more property than they need, me included. Spare rooms as the children have moved out and under-utilised second homes. Of the people I know who rent, I cannot think of anyone who rents more property than they actually need.

    What is needed is more carrots/sticks to encourage owner occupiers to downsize and/or sell off second homes. Perhaps a land tax of some sort might help.

    Punitive taxation of the undeveloped land that housebuilders are sitting on might incentivise building as well.

    I am not on the BTL bandwagon by the way. I would rather push pins in my eyes than deal with the hassles of being a landlord.

  • 55 Naeclue October 2, 2016, 4:56 pm

    @SurreyBoy, you make a good point about London. I moved here in the early 80s – I “Got on my bike” to find work as some politician got into trouble for saying at the time, and London was a very different place then. Quality of most of the housing, rented and owner occupied, was poor but still expensive. As for the coffee and standard of take-aways back then…

  • 56 David October 2, 2016, 5:10 pm

    Excellent point by @ Naeclue about property being more “efficiently utilised” within the rental sector. Many of the nice family homes which my parents could have afforded to buy have been turned into houses of multiple occupancy shared by 4 to 6 or even more individuals. If the owners of those properties were forced to sell them to wannabe owner occupiers then we’d have a few more lucky home owners, but at the cost of a far greater number of highly mobile young workers unable to find anywhere to rent. This the reality of massively expanding the UK’s population without building enough new homes. No point in blaming landlords or suggesting we treat residential property as a special case. You could make the same arguments for water, gas, electricity, food, etc, but the experiences of nationalising and trying to fix the prices of those things have generally ended badly.

  • 57 Fremantle October 2, 2016, 6:23 pm

    This is an interesting perspective on American housing:


    I’m not sold on the policy of increased owner-occupier home ownership, particularly amongst lower socioeconomic households.

    Ownership ties people to place, unfortunately capital and employment are not so immobile. Consider coal miners or textile workers, or right to buyers stuck in Liverpool or Hull or Dundee. Is home ownership working for them?

    In London, if you increase home ownership at the lower end of the market, it necessarily reduces available rentals at that end. Making it easier for teachers, nurses and police officers to buy in London, makes it more difficult for cleaners and postmen to rent.

    Further, reducing available rentals in London would likely damage the ability of London to attract mobile talented workers, which would lead to less employment for said teachers, nurses, police, cleaners and postmen.

    Legislating to pursue populist housing policy is fraught with danger.

  • 58 FI Warrior October 2, 2016, 7:08 pm

    Almost everyone who can’t understand the negative side of renting in the UK can’t have done it, or has enough money to be treated with respect. For most renters the reality is being at the mercy of venal, greedy, barely-regulated letting agents, landlords who do minimal maintenance and massive, massive insecurity. You are not fully an adult in that having too many friends over, putting up a picture or having a pet may not be allowed, while you live in fear of arbitrary eviction when the owner wants to sell or jack up the rent.

    Constant moving is not only obviously stressful, time-consuming and expensive, but it makes aspects of normal life harder, like keeping kids in the same schools for example. You have less general rights than homeowners, as society judges renters as losers in the property racket, which in the UK is really the only game of consequence in town.

    One of my current income streams is managing the maintenance aspect of rental properties, so I see it directly, it’s a horribly wasteful industry. Tenants for the most part are understandably resentful at having to spend almost all their income on the unavoidable expense of a roof over their head, but can never win. When they demand a new item of furniture for damage that homeowners would ignore, the rent goes up to compensate. Electricals are thrown out and replaced with new if it’s said they’re not working because the repairs costs are the same as a new machine, perfectly fine furniture can be chucked out at the end of tenancies. But this unsustainably disposable style of living impoverishes us all sooner or later.

  • 59 Al October 2, 2016, 8:22 pm

    @Naeclue — yes, I agree that one major benefit of property being rented rather than owner-occupied is that it’s more efficiently used. I know of a couple who are leaving their house empty for two years while they go abroad (they don’t want the hassle of letting it out, risk of damage to their possessions, etc.); if they had been renting I’m sure they’d have given up the house, thus allowing someone else to live in it. And I very much doubt that my parents would still be rattling around in a four-bedroom house if they were paying full market rent on it every month (rather than having paid off their mortgage).

    There’s also probably an economic benefit to having a workforce which isn’t tied down by home ownership.

  • 60 NZ Muse October 2, 2016, 9:09 pm

    Tend to agree with FI Warrior. It’s even worse in NZ. Instability is stressful, inconvenient and expensive. Rental viewings are only ever within business hours, so when you have to move, you need to be able to take time off work to go see places and compete with many many other people. Rentals are cold and damp (studies show they are overall in worse condition than owned homes) which have serious health effects. And rents just keep on rising infinitely.

  • 61 FI Warrior October 2, 2016, 9:38 pm

    Some important context that I missed may give a wrong impression that I’m against all landlords, I have met decent ones who just want a secure income for a pension they don’t trust the govt. to not steal. They get screwed by the agencies as well as the tenants, the difference being that for the tenants it’s a guarantee, while sharper landlords can hold their ground and the criminal ones wouldn’t waste a fraction of their profit on agents anyway.

    I have a buddy in Germany who’s raised kids in a rental property over the last 2 decades and would never buy (he’s wealthy by the way) because the laws there protecting tenants give them the best of both worlds, security and flexibility. You can’t be booted out on a whim at a few days notice, but can leave with relatively little hassle if you want to move for whatever reason. The legal protection/emphasis is on looking after human beings rather than salami-slicing ever more profit you can for powerful corporations who don’t pay taxes or serve any useful function to society.

    So yes, a rental sector is necessary, but it has to be healthy, not parasitical and predatory. This is childishly easy to set up, if it’s not there, then that is deliberate. Follow the money.

  • 62 Mathmo October 2, 2016, 11:32 pm

    @JonWB — your maths are wrong. If you include Employer NI in the tax then you must include it on top of the gross (ie the denominator). Taxes rates are defined in your instance by the ratio of what you get over what it cost the employer. About 48%. I am — by the way — a big fan of surfacing the NI costs. Although you ought probably to net off the equivalent for the effect of the increased state pension (you’ll have to make a a lot of assumptions, but you’ll get a better answer than the 0 you’re currently using).

    @TI — I continue to not get these housing arguments on two points:-
    — the public good is accommodation not house ownership. The critical thing is rental prices, not purchase prices. We live in an 85bp world right now , so no surprise that prices are sky high — although rents are really quite reasonable. I think we agree that the only thing that sustainably reduces rental prices is increased supply of houses — regardless of whether owned or rented, but as long as they aren’t empty. I don’t get the belief that we’ll build more houses if we make prices lower and make it harder for one class of buyers to buy them. That seems to fly in the face of sense. You might argue that –like 30-year careers — we should be like our parent’s generation and aim to have the millstone of property around our necks and careers. I might retort that plentiful rental accommodation is vital to a highly functioning job market and social mobility.

    — Which brings me to point two — what’s the other factor at play here ? Is it lack of easily available credit? Is it reluctance to commit to a single large asset / location? There’s clearly more than just cold economics going on here — and I do not want to be taken as in any way denegrating to you — but you clearly know what the facts are, you observe the lack of construction and you can figure out that means rising prices on a phenomenal scale but you don’t buy. You’re clever about this stuff and you make money out of the housebuilders who are exposed to house prices. That suggests there’s more going on here — and I don’t think anyone who has ever bought a house would disagree that there’s a lot of stuff going on in ones head when you purchase such a large asset, over and above the numbers.

  • 63 Learner October 3, 2016, 5:26 am

    The “just buy, ffs” argument is a little hard to stomach. If prices keep increasing, and wages keep NOT increasing, then before long the current (absurdly high) 10x ratio of price to income will become 20x then 30x. What would society even look like when a house would take 120 years to pay off at rate of 30% of paycheque? Just Buy assumes wage growth – and associated inequality – reverts to 20th century norms. That’s a pretty bold bet given the trends emerging so far this c.

  • 64 Richard October 3, 2016, 7:47 am

    One issue I see with renting over buying in the long term is the payment commitment. Once the morgatage is paid off in say 25 years, there are no more payments (except maintenance). With long term renting you have to be saving the equivalent capital along side to service the rent forever more (or never stop working). The owners morgatage payments decrease as a percentage of salary as wages increase (I know we haven’t seen a lot of this recently) and eventually vanish while the rents are likely to stay similar as a percentage.

    Now the renter can set themselves up so this is never a problem (saving the difference in rents and morgatage payments) and benefit from being able to move around but it takes some planning/thinking up front. This is the advantage of owning, you are forced to save with little thought beyond initial affordability. Pretty sure there are plenty of articles talking about how owners have a lot more capital/assets than renters. What is going to happen to these renters in 30 years times, esp with pensions likely to be much smaller than they were? Will we see three or four generations renting a house together?

  • 65 FI Warrior October 3, 2016, 8:02 am

    @Mathmo, I think we agree for the most part. When you see the speed budget changes can occur at, like when pensions were recently radically freed up, it proves that if the political will is there, the system does allow rapid and significant change. What I am saying is that being a tenant could be made a pleasant experience with just a few tweaks to the current legislation in comparison. This will only happen once renters start voting as some kind of block that the politicos pollsters recognise.

    As for other variables influencing homeownership vs renting, rental and house prices etc., yes, there are many and it’s not so simple, my point on simplicity was that it is not hard and therefore a choice on the part of our rulers that things are as they are since some European countries set the balance right.

    One aspect I’ve noticed is the inflexibility through slow pace of change of the established lenders to recognising fundamental shifts in society. People are living longer, more likely to be self-employed or an older renter through divorce say, yet the mortgage providers are slow to respond to these trends, continuing to see them as more risky despite that fact that it’s not necessarily true and they are too numerous now to discount. There are signs of improvement, some building societies extending ‘mortgagable’ ages into the older end of the spectrum, but a meaningful difference will probably only happen when disruptors jump into the opportunity created by that vacuum.

  • 66 The Investor October 3, 2016, 8:37 am

    Just quickly (busy busy Monday! 🙂 ) this isn’t my own inherent bias-driven theory about rising landlord numbers being a factor behind rising prices (though I certainly sympathise with the perspective), it’s the finding of LSE research. Sure it could be flawed research but it’s presumably not been plucked out of the air. 🙂

    Perhaps I should ask for a copy of the research: http://www.lse.ac.uk/newsAndMedia/news/archives/2016/09/First-time-buyers-priced-out-by-the-accidental-landlord,-says-new-LSE-research.aspx

    Also, similar to the debates we have about asset allocation (where the arguments have an ‘either/or’ tenor more than they should) surely all the various factors people are putting forward are in the mix. It’s fun to cheer for our own underdog theory, but I’m sure there’s a Lollapalooza effect.

    Finally, re: biases etc, no doubt at all I have them, like everyone. But I grew tired a long time ago of owner occupiers (and often BTL landlords at the same time) lecturing me about how great it is to rent. 🙂

    Yes, I agree we need a rental sector of some size. But the newspapers haven’t been full of ever greater numbers of shut-out young people for 5-10 years because renting is hard and buying is as it always was. Literally quite the opposite!

    Denying people even the aspirational feelings to achieve what previous generations could aspire to (and achieve) seems to me to add insult to injury. 🙂

  • 67 John B October 3, 2016, 8:37 am

    With housing in short supply, most people are at the limits of affordability. As most housing is bought on credit, people just look at the monthly payments, not the vast absolute numbers. This is true when base interest rates were 10% or 0.5%, so its credit that determines prices. The prudent borrower/lender might run the numbers if rates were to rise by 2%. This is a relatively small change when you were paying 11%, and a very large one if you are paying 1.5% What is completely impossible is to handle the transition from 1.5% to 12% So people just don’t consider the scenario, there is no point.

    So house prices are defined by credit, and very small changes to it. The key question is whether that trust in ultra-low interest rates forever is justified. and how to prick a credit bubble so it deflates without it ripping, as the economy could not survive the vast defaults of not the baby boomers, who have paid off their housing, but Generation X, and even worse the incredibly stretched millennials we want to help.

    My first mortgage was at 14.5% I’d never sign a mortgage now at high LTV as that figure would haunt me. But of course having ridden the boom and exited it, I would now buy for cash, and its the %age of net worth that I consider, much as it does buying a car, and the numbers sound so different.

  • 68 The Investor October 3, 2016, 8:41 am

    @Richard — Indeed, this is why so many did well with housing in the old times. (Now, in the South East at least, it’s also because they won the asset price lottery with a leveraged investment…)

    See this article: http://monevator.com/10-why-houses-are-a-better-investment-than-shares/

  • 69 The Rhino October 3, 2016, 9:43 am

    @TI sounds like you need a bottle of wonka-vite – but don’t take too many, you don’t want to turn into a minus.

  • 70 Moose October 3, 2016, 10:34 am

    Long time Monevator reader and lurker come to chime in:

    I consider myself as being positioned right in the middle of the aggrieved bracket of millenials being discussed: a 25 year old with a good degree renting in London with a moderately well paid job.

    From my peer group there are only two individuals who have managed to get on the housing ladder (or have any hope to in the next decade): A banker on a 6 figure salary who lived at home for two years upon graduating to save for a deposit, and a management consultant also on a 6 figure salary.

    I’m in the fortunate position to have also been able to live at home for two years upon graduating and save enough for a deposit on a London flat, however the ability to save is not the real issue here (I am still able to save a reasonable amount while renting in London by being sensible with my money). The issue is the absolute price of housing. Even on my not-too-bad salary I would only be able to get a mortgage that would cover a parking space. I would need to somehow stump up a 60% deposit to be able to buy a typical one bed flat in a not particularly central location.

    As a result, I forsee all of my savings going into my equity tracker for at least the next 15 years and hoping for the best.

  • 71 JonWB October 3, 2016, 11:20 am

    @Mathmo – Yes you are right, re: my numbers are wrong, but the gist is right and I agree, not many seem to realise the impact of employer NI or how it has risen massively since the 90’s and how for most, this has been at a direct cost to increased wages.

    @Learner – In Sweden they do have multi-generational mortgages – the average mortgage term, if not interest only, is actually 140 years.

    See: http://www.fi.se/upload/43_Utredningar/20_Rapporter/2013/bolan_2013eng_2.pdf

    “In the sample of new loans only four out of ten households with a loan-to-value ratio of less than 75 per cent (bottom loan) amortise. In addition, the average actual repayment period for bottom loans that are being amortised is very long (more than 140 years).”

  • 72 Brendan October 3, 2016, 1:05 pm

    I’ve always wondered why the massive increase in university participation is never associated with BTL and the housing shortage. You essentially have a huge demographic now living in share-houses in university towns, funded by the tax-payer, whereas before they’d probably stay at home and work locally until they could afford a place of their own.

    I’m not saying what we have is worse or better. Just that I’m surprised the effect on house prices and the growth in BTL is never discussed.

    Anyway, with regards to risk and London/SE, with prices this high it becomes very hard to justify. I could afford a mortgage on a small property here in the SE, just, but the bank won’t let me enough to cover the purchase! It doesn’t take much of a move for these sorts of prices to wipe out any and all gains I’ve made since starting work. That’s terrifying. In a low-interest environment, these financial choices are never going to get wiped out by inflation. I think the prudent choice is to rent (ideally below one’s means), save hard, and then move somewhere house prices are not six or seven times local earnings.

  • 73 The Investor October 3, 2016, 2:48 pm

    @Brendan — Hi. 🙂 You write:

    That’s terrifying. In a low-interest environment, these financial choices are never going to get wiped out by inflation. I think the prudent choice is to rent (ideally below one’s means), save hard, and then move somewhere house prices are not six or seven times local earnings.

    I’d agree, but that means moving abroad (which is only likely about to become harder, thanks to Brexit).

    By 2014 house prices were already 8.8x average earnings. The really crazy figures in London are places like Westminster, where prices in 2014 were 24x local earnings. See: http://visual.ons.gov.uk/affordability-housing/

    Regarding the growth in student numbers, it’s perhaps a factor, but rather than being “funded by the taxpayer” I’d see more the explosion of student debt as a key factor. Average £44,000 per graduating student according to this source quoted by the BBC: http://www.bbc.co.uk/news/education-36150276

    Even in sane times for house prices it will be hard to save for a deposit when you start in a £44K hole.

  • 74 Learner October 3, 2016, 2:58 pm

    @JonWB I was vaguely aware long (lifetime+) mortgages do exist. I’m curious how they work in practice, specifically in retirement. Are pensions in such countries generous enough to service the debt? What happens if the children – should they exist – want none of it.

  • 75 Brendan October 3, 2016, 5:39 pm

    @The Investor: I think there are still plenty of places in the UK where house prices are much cheaper. But there are very few jobs! It’s a rough strategy, but a ‘career downsize’ moving north, after a decade or two in the south to amass some capital and experience, might be the one I end up implementing. I had originally certainly considered moving to Europe but… well. Enough said on that.

    The explosion of student debt is only slightly related to accommodation expenses. Still, it’s not hard to work out some rough sums. In Oxford, there are roughly ~50,000 students across the various universities, adding an additional 25% to the population. Assuming 5 to a house at 500pcm each, you quickly get into very large numbers – fueled by student debt, however you want to allocate that – being ploughed into the housing market every year.

  • 76 JonWB October 3, 2016, 5:44 pm

    @Learner – I think the problem in Sweden with 140 year mortgages is no-one really knows, since at that level of amortisation they are really just interest only when looked at over say 10-20 years and it isn’t as if the mortgages are running to term having been issued 140 years ago. I assume the plan is for descendents to take the asset and the liability, but some will surely sell and then any surplus is inherited and any defecit is, I would presume, written off by the bank (but the bank will say that is unthinkable, over a long timeframe, for the asset to depreciate). In the Netherlands mortgage interest was deductible against income tax, so everyone had sky high LTVs for that reason alone – they are looking or have reformed it.

  • 77 Planting Acorns October 3, 2016, 6:15 pm


    Perhaps this will help…5bn doesn’t sound like a huge program given we’ll spend £60bn on foreign aid during the same period but changes in govt policy are slow, hopefully this signals a change in direction

    Not many comments about student debt…My friend’s younger brother joined us at the pub on Sunday…lovely lad, just started this year as a “teach first” secondary school teacher, much like us at 24…except he’s almost 30k of student debt and houses now are twice the price they were when I was 24 (wages are NOT!)

    … That goes beyond being unfair, it’s wrong

  • 78 Martyn October 3, 2016, 11:03 pm

    (assuming a hard Brexit doesn’t lead to massive population loss, which nobody seems to predict currently).

    Maybe it will? We can’t really predict Government policy here, but going forward that decision is in London not Brussels…

    I would also point out those paid by the tax payer to do predicting have so far not exactly been very accurate. I’m not paid by anyone and so far I have a better track record than say Carney for example.

  • 79 Mathmo October 4, 2016, 8:30 am

    I don’t we can have it both ways on student debt as commenters: it can’t be both a tax (JonWB) and a debt (Acorns).

    It’s clearly an income tax: it is triggered by earnings and you cannot be bankrupted by it (and indeed don’t have to pay it back at all).

    I’m grateful of course that my education was broadly free at the point of delivery (you get what you pay for, perhaps), but then I’ve given back more than students pay now to alumni organisations. I wonder if they suffer as a result of ‘student debt/tax’.

  • 80 Learner October 4, 2016, 3:21 pm

    @Planting Acorns, love the breathless Telegraph article! 40k new homes by 2020, when the shortfall is more like 200k per year. “£5b find [sic] to solve the housing crisis” good grief.

  • 81 RentedEnough October 5, 2016, 11:49 am

    I thought I’d chime in as this is a good conversation. I’m 32 and incredibly lucky that by working in the ‘creative industries’ I’ve managed to save £10-20k/year after rent to put towards a house. I had great plans when 22, but unfortunately it’s not been enough to keep up with house price inflation, and low interest rates make it even worse.

    My own stupid fault for not buying a house a decade ago, due mainly to not wanting to tie myself to one location (and a misplaced assumption that prices must correct themselves).

    Another issue not discussed is that as people buy homes later in life, they need more than a ‘starter home’. We’ve got to plan for 2-3 children (and a reduction to one salary for a while) which changes the type of house we’re after.

    @FI Warrior is spot on in his comments about renting. It’s not a home, it’s a (cold) house you’re permitted to use. The lack of security is stressful, as is ensuring I get the full deposit back (a point of honour: I took a week off work in August to clean/garden before we moved. Not economic, but I will not be screwed unfairly).

    As to “cheaper regions” of the UK being a simple answer… we moved west of Bristol this summer, thinking we’d buy as the house prices are so reasonable. Aside from the housing market being stagnant (“Price reduction” is the new “Sold”) it’s becoming apparent why people choose the south-east: wages here are very low (while rents aren’t much cheaper), driving 30min-1hr is normal, and culture/people are different to in more surburban areas.

    A painful trade-off: we could have a decent house and a life of hillwalking here, or a small house, no beautiful hills, and theatres/universities near by. Currently v thankful our purchases fell through.

  • 82 Richard October 5, 2016, 9:56 pm

    @rentedenough – yes, the issue is when in your 30s you want the family home, not the starter home. But in the SE at least people are stuck with the starter home. The next move is that much harder as the family home is still a lot more expensive (and as prices go up typically the more expensive house goes up more than the starter home). And maybe you paid stamp duty for the starter home which is money not going towards the family home. I just don’t understand how people not getting good pay increases ever escape the starter home.
    Maybe by turning the starter home into a BTL and using that to get the money they need to make the move?

  • 83 D October 7, 2016, 11:52 am

    Therein lies the contradiction for the Remain side. We know for a fact that being part of the EU has led more people, both in and outside the EU, coming to the UK, buying and investing in property in London, driving up prices and making it harder for ‘native’ young Brits. And good luck with building houses every couple of minutes to match demand.
    Londoners overwhelmingly voted to stay in the EU. Did the young and poorer Londoners have a clear view of what they were voting for, because, in contrast, richer (smug) liberals had an easier choice – keep things sweet with the status quo.
    As for Brexit, we will have to wait and see if things get better or worse. My view is that until a politician with vision (no, not you Mrs May) understands how to balance the nation state with globalisation we won’t make much progress. I would like more people paying attention to how Denmark balances a socially cohesive and competitive economy, while Sweden embarks on an ideological social experiment, best observed rather copied.

  • 84 Alistair October 9, 2016, 4:58 am

    @TI, just to add my thanks for another interesting (and definitely not boring, albeit very depressing) article. Very much liked your take on the typical Brexiter’s “isn’t it obvious?” condescending tone – maybe remainers are deluding themselves about the nature of the country we live in, but brexiters are also often deluding themselves by perceiving what’s unfolding as being perfectly clear. As if we’re now just witnessing the step by step enactment of a detailed manifesto set at the outset, as opposed to politicians now fervently trying to work everything out as they go along because no-one really thought it would ever come to this.

    To be fair to them (the politicians), it’s one hell of a challenge. How to unite a country where 66% of people are angry/depressed/apathetic, and 34% mostly seem to think they’re getting what they want, but are in fact splintered into groups expecting drastically different things which can’t possibly all be satisfied, and will in any case likely still be very disappointed due to the more pressing matter of an inevitable decline of living standards.

    What a bl***y mess.

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