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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.

Like these links? Subscribe to get them every week!

  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”. []
{ 88 comments… add one }
  • 1 Felice_Pazzo January 23, 2016, 1:51 pm

    Well reasoned, Monevator. Don’t let the trolls stifle your right to tell it as you see.

  • 2 Ben January 23, 2016, 2:01 pm

    The UK doesn’t work, it’s a system for wealth creation extraction in exchange for unredeemable banker tokens.

    Just look at yourself. Go back to your blogs from a few years back to this.

    My advice: get a qualification that’s in demand in other countries and actively pursue emigration.

  • 3 Retirement Investing Today January 23, 2016, 2:17 pm

    100% behind you TI. An absolutely fantastic post, possibly your best ever!

  • 4 Neverland January 23, 2016, 2:19 pm

    Well reasoned rant. I couldn’t agree more with the analysis of the root causes

    The only sustainable way to stimulate growth is to make structural changes to improve growth

    However that involves taking on vested interest groups

    In Spain and Portugal two right wing governments took selected vested interest groups (their opponents natch)

    They both lost office (or about to in Spain)

    Prognosis: prospect for change is bleak

    Eg we can’t even agree in a third runway for Heathrow

  • 5 The Investor January 23, 2016, 2:21 pm

    @Ben — I’d argue that a few years ago house prices looks to be moving back into balance and everyone – even the most bearish – believed zero interest rates would not last. 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, and interest rates have been at emergency all-time lows for seven years.

    As someone much smarter than me said: “When the facts change I change my mind. What do you do?”

  • 6 Gregory January 23, 2016, 2:24 pm

    @ Has factor-based investing stopped working? [Nerdy] – Predictive Alpha “Why are traditional equity factor models not producing alpha to the same degree as the period 2000-2009? ” The writer of the article should study the history because there were very long periods (20 or more years) when factors like value underperformed. The 2000-2009 period is nothing.

  • 7 Matthew January 23, 2016, 2:46 pm
  • 8 Ben January 23, 2016, 2:48 pm

    Yes I’d agree it’s worth changing your mind. I just think that it’s not possible to rationalise it, that’s all. We are all at the whim of central planners. Will they do QE? Go for shares. Will they raise rates? Sell to rent. Will they extend help2buy? Buy land.

    What will their next move be? Not possible to say. All you can be sure of is your labour will be taken. The UK is reduced to a game where you try to get between the state and the worker to siphon off some labour yourself. Right now the way to do this is via land.

    Do I want to have a nicer car and join in this exploitation chain? No I do not. I’ll retrench. I’ll spend less, work less etc.

    Or of course one can emigrate.

    The rest to me feels pretty disgusting. I realise that will be hard for most in the UK to fathom as it’s morally bankrupt well before it becomes actually bankrupt.

  • 9 Ben January 23, 2016, 2:51 pm

    Sorry forgot to add: that’s not to have a go at you – you are clearly a hard worker and as much a victim as I. It’s just to point out the contrast between when you started this blog to now. I feel like this is a good post from someone who’s very disillusioned with the system.

    My quote now 🙂

    “you can’t change the system but you can change the system you are in”

    It took me a while to realise this, being an idealist, but I’m glad I did.

  • 10 The Investor January 23, 2016, 3:09 pm

    @Ben — Since we’re having a rare moment of detente ( 😉 ) in our relationship, I shall ask the next logical question.

    What country did you move to? And can really you be sure that the forces that you believe you have identified here will not take route there?

    I am not persuaded yet that the UK situation is anything like as bleak as you suggest (or at least that it’s got massively bleaker than it was — I suspect from your writing you wouldn’t have liked the 80s or 90s much, either) but I will concede that either through policy or unintended consequences it has been traveling in the direction of your scenario for the past few years.

  • 11 Ben January 23, 2016, 3:18 pm

    Canada, Quebec. The forces are here, but weaker. Because they decay with distance. The absolute centre of world evil being “The City” in London.

    Let’s hope the US raise rates sufficiently to finish the UK off, then this might generate the political will for an uprising in the UK. However I won’t hold my breath, hence getting on with life elsewhere.

    Off ice-skating now.

    ps great to see Liverpool are ahead as it’s upsetting Ed Balls which can only ever be a good thing, with apologies to Norwich fans.

    pps crush the rentier and long live Henry George (even though he’s dead!)

  • 12 Ben January 23, 2016, 3:20 pm

    And just again to re-iterate: playing the system by joining the rentiers is to have died already. Consume less instead. Do not join them in their game of land exploitation.

  • 13 The Investor January 23, 2016, 3:26 pm

    @ben — I visited Montreal a couple of times in the late 90s and loved it. A very creative mix. I hope that’s survived!

  • 14 The Investor January 23, 2016, 3:46 pm

    Hmm, I missed the p.s. Obviously I don’t agree with all this rentier stuff you always come out with. But moreover it just seems rude and deliberately disruptive to keep posting it here. Once, perhaps, fair enough. But clearly it’s antithecal to the overall message and subject of this blog, which would appear to hold no interest for someone with your views. Therefore it seems to me it is just trying to cause arguments.

  • 15 Jumper January 23, 2016, 3:50 pm
  • 16 Peter January 23, 2016, 4:09 pm

    Having saved hard for 10 years, we are planning to buy our first house this spring. I get the feeling I will yet again buy just before the crash…

    At least having saved for 10 years we will have a very small mortgage. It wasn’t the sensible route (uni friends who bought 10-15 years ago are laughing to the bank), but I don’t like risk.

  • 17 Topman January 23, 2016, 4:09 pm

    Absolutely nothing personal TI but I detect more than a hint of Londonitis in y0ur post. As for emigration, hurrah; winners stay, losers leave!

  • 18 Neverland January 23, 2016, 4:41 pm

    @ Topman

    Actually it’s more my experience that luck and risk appetite more than hard work generates positive outcomes

    In the UK we have a preponderance to tax hard work more than luck; we also quite content to bail out people who take outsize risks, usually with future taxpayers money

  • 19 The Investor January 23, 2016, 4:50 pm

    @Topman — Hi, think it was your who previously challenged me to go a month without talking about London? I might be wrong… 🙂

    The fact is I live here, a whopping 40% of Monevator readers do too, incidentally, according to Google Analytics, it’s our capital city and one of the handful of world cities, and finally what happens here hugely influences the rest of the country. If anything I probably under-discuss it!

    Not citing you here, but in general there’s often a “Twas always thus” tone to discussions about London. But I believe there’s been an order of magnitude change in the various issues compared to say 15-20 years ago.

  • 20 Minikins January 23, 2016, 4:57 pm

    Fantastic post TI and one that I think will probably be referenced frequently in future times.

    It does conjure up the image of a stoic, lone and embattled investor standing (still) amidst the debris of fallen investments and rising tax bills thinking “Is this it?” (perhaps with that Strokes tune in the background) whilst in the distance people who never really gave too much thought to their futures cheerfully put another log on the fire in their homes. But maybe that’s just my imagination doing gymnastics again..

    I completely agree though. Any old fool could have bought a house in 1997 (1995 in my case) but it could easily have gone either way. I remember my mother’s 15% mortgage rate. But ignorance is very forward, as my grandmother used to say and on this occasion fortune has favoured that. The problem is that that fortune is now misunderstood to have come from wise foresight boldly acted upon. I could be more cynical and interpret the turn of events as a political pacifying the masses. But we none of us know the so called “unknown unknowns”. Speak with the many but think with the few..

    In the early noughties I had plans to emigrate to Vancouver and went there to take some further professional exams so I could practice there. I passed and was all set but the political and economic situation changed quite suddenly so I didn’t pursue it further.

    I am surprised you didn’t go to see The Big Short, maybe that’s for later. No spoilers from me, but on the whole I liked it for its endeavours to explain what led to the 2008 crash using some great back stories in the characters which I would have liked to have been more detailed. The characters played by Brad Pitt and Christian Bale (Ben Rickert and Dr Burry) were particularly interesting but all four lead characters were bursting with their own stories that were swallowed by the overall plot. I found it almost word for word similar to the superb explanation on the This American Life podcast on the housing crisis. Just goes to show how difficult it is to see the truth sometimes. Best quote from the film: ‘The truth is like poetry..And most people f***ing hate poetry”

  • 21 Planting Acorns January 23, 2016, 5:17 pm

    @Peter … I bought in inner London in September 2007… felt a right Wally in 2009/2010 after my neighbour stopped paying the rent and her flat was sat on the market for 20 k less than I paid for mine for 11 months…

    Worked out alright in the end though. And whilst the prices might dip, we need to live somewhere…

    @TI and others… I most certainly don’t think its acceptable for people not to be able to buy homes. But I disagree London is in a bubble… people need somewhere to live. Whilst there are jobs to come to, people will live four to a room if they have to. We need to build more homes, or prices will continue to rise. To my mind, it matters little what happens to house prices, I intend to spend the proceeds of the sale of my home on another home when the time comes, I’m just pointing out prices of homes can’t fall whilst there are so many people needing roofs over their heads.

    @TI … I was ‘rescued’ from myself by ultra low interest rates and high rents (I take a lodger in) …BUT I only used debt to buy my own home. So many of my friends have taken out their increased equity to put doen deposits on BTL or in one case two golf course apartments in Spain (and a Rolex)…It’ll end in tears, but whether its the tears of the borrowers or the tears of the poor workers who rent their whole lives remain to be seen

  • 22 Financial Samurai January 23, 2016, 5:18 pm

    300 year lows… That’s a great stat.

    Mate, not sure 2,000-3,000 pounds a year in savings is heroic! That’s just standard for the masses!

  • 23 The Investor January 23, 2016, 5:36 pm

    @Minikins — Cheers, and I love the way your imagination works… (I’ll have to explain how I mentally envisage my active portfolio sometime… That should scare off a few sensible readers! 😉 )

    Can’t wait to see The Big Short. Will go as usual when the cinema is completely empty! Maybe 3pm on a Wednesday… Me and Michael Burry…

    @Planting Acorns — You may well be right, certainly I have been wrong about London property prices for so long anyone would be foolish to bet on me. 🙂 However I don’t buy your theory at all I’m afraid. 🙂 People have forgotten London prices crashed by 20 to 30% in the early 90s, and more in real inflation-adjusted terms. Prices crashed in the US. Prices crashed in Japan. People still need to live in all these places. That said, I will grant you that relentless immigration and absolutely no extra housebuilding in response has supported/bumped up London prices to-date.

    @Sam — Hi! Average savings ratio in UK is 4.4% of net household income, so about £1,000 for the person on £30K, assuming they live alone, off top of my head. In reality I would say still more heroic than 2-3x average because at 30K every day costs are a big chunk of your outgoings, especially in the south-east in the UK, and I presume the wealthy skew the figures. To further complicate things, if I recall correctly mortgage repayments count as savings too. 🙂


  • 24 magneto January 23, 2016, 5:53 pm

    We like all other UK citizens take an unhealthy interest in house prices.
    One way to look at house prices is to compare with RPI as per the following sampling of Halifax House Price Index and RPI adjusted relationship to long term real price average :-

    Dec 1986 £42,262 31% below average
    Dec 1988 £65,442 about average
    Dec 1995 £61,544 33% below average
    Dec 2007 £197,244 52% above average
    Dec 2012 £163,845 8% above average
    Dec 2013 £173,467 11% above average
    Dec 2014 £188,858 19% above average
    Dec 2015 £208,286 30% above average

    and those figures are for UK wide not the rampant South East!
    Think Merryn may be right at last. Something has to give and maybe soon. Merryn must surely be right eventually?

    “Hasn’t the stock market or even bonds been fine for investors – bad luck for those dumb enough to stay in cash?”

    Yes whoever passes such remarks seems unaware (forgive this repeat) that the FTSE100 is still below the giddy levels (6930) of 1999!
    And again (forgive the repeat) that means 40% plus below 1999 in inflation adjusted/purchasing power terms. Only rebalancing and dividends would have kept a UK only investor ahead.

    It’s a difficult world out there and for those of you working hard to make ends meet, the deepest and sincerest sympathies. Perhaps emigration or “piracy is the answer”.

    Good Luck to us All

  • 25 Planting Acorns January 23, 2016, 6:29 pm

    @TI … I expect we’ll both prove ourselves right, depending on the timescale we use as measurement ;0)

    The government have ‘doubled down’ on the tax attractiveness of residential properties by singling it out for a Inheritance Tax break…whilst it looks set to hammer BTL and pensions out of existence… Why would any higher rate taxpayer contribute to a DC pension if relief is at 25pc?? The higher rate threshold has been more or less static since 2010…at this rate we’ll all be higher rate taxpayers in retirement !! They’ll be after our ISAs next.

  • 26 The Investor January 23, 2016, 6:52 pm

    @P.A. — Hah. 🙂 As I said last week though, I already consider that I got London property wrong, so I’ve definitely been wrong once. Now I’m just doubling down on wrongness!

    Interesting point re: the relative attractiveness of assets in the presumed new pension tax relief era.

    @Magento — Interesting, though if I recall correctly RPI includes a measure of housing costs within itself, so that might skew things. I think this came up when the BOE switched to CPI, but I forgot the detail, it’s a long while since I felt the need to finesse my point of view with respect to London property! 😉

  • 27 Richard January 23, 2016, 8:11 pm

    Why are second and third BTL owners singled out? Surely anyone who has bought a speculative investment on credit at the top of the market deserve to feel the impact of a ressesion – even those with a single BTL.

    Leveraged investments always comes with risks, never more so than during a downturn. BTL is not really any different.

  • 28 Jed January 23, 2016, 8:11 pm

    Well we all know that London property is in bubble territory whether to buy or not is a personal choice. I bought at the top of the market in 1990 and suffered the consequences. However on a brighter note as a basic rate tax payer it looks like i will benefit from the new flat rate gov. pension contribution. Nice one George

  • 29 Planting Acorns January 23, 2016, 8:50 pm


    I don’t agree London house prices are in a bubble but as I’m not currently buying I don’t have to put my money where my mouth is ;0)

    But let’s say they are, and they are set to fall by 30pc over the next five years. If someone buys today… Would that really be so much of a disaster ? Banks won’t lend in falling markets so they’d otherwise be paying rent for those five years…and a five year fixed rate mortgage can currently be had for less than 2pc !

    If the property has a spare room, it is possible to rent the room out for a good part of the interest cost of the credit…

    I don’t see there’s any way of timing the property market any more than the stock market and whilst I don’t want to buy a second place, I wouldn’t be put off buying a home in London

  • 30 The Investor January 23, 2016, 9:05 pm

    @Richard — Because as I say, I’m not concerned with pointing fingers at everyone who bought a house and saying they ‘deserve’ to feel the impact, especially as I’m mindful of my own biases. I am saying that those who took (for the sake of argument) the *biggest* risks would normally have felt the consequences, and didn’t, and I think that writ large has distorted the incentives.

    Related: We only know the top of the market years after the event. I took part in spirited debates on bulletin boards full of very clever people well over a decade ago speculating on how the dominoes would fall now we’d surely seen the top of the London property market. Well, prices doubled and perhaps even tripled. We weren’t all dumb then and clever now. Some humility is in order.

    In short, I think there’s a middle ground of reasonableness.

  • 31 Learner January 23, 2016, 9:14 pm

    If we all knew it was a bubble, it wouldn’t be a bubble. (Unless “we” refers to enthusiasts such as those commenting!)

  • 32 theRhino January 23, 2016, 9:22 pm

    Good stuff

    It does seem like theres little justice in the winners and losers of the last 2 decades

    but on the other hand it reminds me when sometimes my lads say ‘its not fair’

    and I usually say ‘the worlds not fair’ (I’m a real laugh-a-minute parent)

    probably unwise to expect anything different, but at the same time we should all probably ponder ‘thank god it isnt’ as well if you know what i mean

    not that I’m religious or anything

    on a tangent, a tolerance of descenting commenters does deliver a more lively and robust debate – Its good that you keep it up as it must be tiring, just deleting everything but the sycophants would be easier but probably not better..

  • 33 Richard January 23, 2016, 9:47 pm


    I agree with regards to top of the market, I was referring to the point you made in the article. Really what I am saying is leveraging to buy an investment is risky. Most people would say you would be mad to do this on shares and would have limited sympathy if you lost it all (even though this done in an index tracker may be a great investment). Unless those with one BTL have a model that can absorb market downturns that those with more than one cant. The only thing I can see is size of leveraging, which I think is the point in your response.

    It just read to me as if single BTL owners were not ‘saved’ by dropping interest rates (they would be fine regardless), which I find hard to believe. So in a sense I felt you were unfairly pointing the finger at those with more than one buy to let (though they may shoulder more blame, but then regarding sentiment, what % of BTL owners have one property and what % have more than one?)

    Note I am not suggesting BTL is a bad investment, but it is a leveraged investment usually which comes with risk (that most will have no memory of).

  • 34 Jaygti January 23, 2016, 10:40 pm

    Savings ratio includes mortgage payments!

    That’s made my evening. Mines gone from a measly 19% to a much more pleasing 42%.

    By the way, any married man earning £30k, with a wife who doesn’t work, and couple of children, would be doing very well to save anything at all.

  • 35 Planting Acorns January 24, 2016, 12:15 am


    Funny isn’t it, all parents retort ‘life’s not fair’, but when you join the adult world you have to learn it all over again !

  • 36 Meglinson January 24, 2016, 12:22 am

    I can’t help thinking that if Ben had ‘cracked’ it in Canada he wouldn’t bother ranting on here. You give yourself away.
    Great blog post Monevator.

  • 37 The Investor January 24, 2016, 12:30 am

    Retorting to any questioning of the status quo by saying “life’s not fair” and pointing out kids do the same only gets you so far, and to me isn’t wildly convincing. To go all reductio ad absurdum on yo ass, as Tarintino might put it, according to that logic we might as never well have bothered with the magna carta or universal sufferage because “hey life is not fair, as any kid has to find out.”

    Our social fabric is best held in balance by nudges in one direction and then nudges back in the other, in my view — otherwise we tend to get something altogether worse when it becomes untenable! 🙁

    @Richard — Not sure whether we’re really disagreeing, but anyway I think a fair proportion of buy-to-letters owning one home didn’t need rates to drop to near-zero, no. The rental population stayed up and from memory there was no widespread collapse in the cost of renting (I think it dropped a little). So most BTL-ers with one property and a good slug of equity built up would have been fine, I’d wager. On the other hand, those who’d repeatedly withdrawn equity and levered up to buy a few properties right up to the wire…

    But anyway we’re talking hypotheticals. If the article made it sound like I was giving any sort of specific parameters for who precisely would and wouldn’t have survived, then that’s unfortunate. I think most of us can agree there’s a spectrum of risk, reward, and recklessness. What I am saying is even those borrowers on the far right hand side of the bell curve — the most reckless — didn’t really suffer in supposedly the biggest financial crisis since WW2. To me, that strongly suggests capitalism wasn’t able to do what it does best to its booms in the subsequent bust. We don’t need every BTL-er, every homeowner, etc — or even half of them — to be stretched for that. It’s the excesses that needed to be exposed and corrected, and largely weren’t, in my view.

    Heck, even PPI compensation has been another big handout to homeowners who didn’t pay enough attention.

    @TheRhino — I dissent about dissenters, to some extent. This blog is blessed by good commentators, partly because I think we write long waffle-y articles that attract a certain sort, but partly also I think because I *do* delete. Like most normal people, I simply cannot read the comment sections on mainstream sites any more, since they’re a cesspit of bile and nastiness of the most cowardly and un-constructive sort. It might lead to a livelier conversation the first few times, but soon the whole site is dead.

    That said I happily don’t have to delete comments much (discounting racist/sexist/nasty stuff, I only delete a very few per week, if that) and I agree debate can be great, when it’s polite and going somewhere.

  • 38 The Investor January 24, 2016, 1:11 am

    @therhino — Actually, not sure we really disagree about comments anyway. And cheers for noticing the effort! 🙂

  • 39 Martyn January 24, 2016, 1:12 am

    My view has always been a house is not an investment unless you have two. I didn’t buy for investment reasons, even if I had known I would lose money I would still have bought.

    I needed somewhere to live. If I rented I would always be 6 momnths away from having to find new digs. I want to keep pets, my call. Rent only seems to rise, I would have been gambling on it not rising faster than my salary. Rent is also a cost that connot be easily projected into retirement. A mortgage though can (it’s paid off). Anyone who looks at buying a house solely from an a accountancy perspective falls into the old trap of knowing the price of everything and the value of nothing.

    Moreover I love my house, I have no intention of selling no matter what the price does. I suspect I am rather typical. The laws of supply and demand are therefore not truly manifest in the housing market. Looking at them in the same way as one looks at shares is in my view a mistake.

  • 40 Learner January 24, 2016, 1:45 am

    @Martyn, that’s my thinking too. I’d like to buy simply to avoid renting. I have a fantasy spreadsheet that doesn’t make any assumptions about rising values and that’s just fine. I despair every time I read another article that talks a housing “ladder”.

  • 41 Mathmo January 24, 2016, 1:50 am

    Thanks TI for a great round-up and in a week when it might be all to tempting to focus on market mayhem, actually a lot of thoughtful articles in the weeklies and a jolly good rant on top of them, and some thoughtful comments below.

    That said, of the articles, AWOCS is well worth the time to read — his thesis that risk is not an intellectual exercise, but that thumping in your chest when the screen goes red for days on end. You have to live through it to understand your appetite for it. I must say that my response to hearing that we’d dropped 20% this week was one of surprise — it’s so very hard to hit the top of the market, that it doesn’t seem to exist for me. My lizard brain thinks the FTSE was around 6,500 for most of last year, so to see it at 5,900 feels like a 10% drop. Of course, the real numbers are different, but the lizard is the one who panics and I’m not telling it the real numbers. I’ve tried to drive discipline into my allocations by running it all through a spreadsheet, complete with cells that turn red when my rebalance thresholds are hit. Be disciplined when others are greedy or fearful is my mantra. So it’s with some embarrassment that I have to report I lost control and shoved a load more in when 5,500 was breached on Weds. While that looks good today, the loss of discipline isn’t. Augustinian prayer to the rescue: give me investing discipline, but not yet, oh Lord.

    TEA is firing on all cylinders this week. It won’t surprise you to learn I love his numerical approach and the numbers are indeed relentless. Save early, cut fees and reduce expenses. It’s too late for us to wind the clock back, but those of us dragging another generation behind us can at least have our genes do better next time. Jnr had his SIPP set-up before his 1st birthday. And TEBI joins the chorus against the fees of the City. These voices are a throng, but the power of this juggernaut to roll on is incredible — the pensions solution that the Treasury has come up with is a timely reminder that the industry is shaping the future, not the government or the people — the move to pensions ISAs would cut their fee-base at a stroke and you can see the effect of their lobbying engine in full force. I do wonder what all that money flooding into pensions before the Budget will do to the market. A little rally before March, do we think? Is the amount big enough? Still if anyone needs a little schedenfreude, one of my gloomy the-world’s-going-to-end City chums was gloomier than usual on Friday (as the markets rallied). Apparently he’d lost rather a lot of money when it didn’t. Never mind, I consoled him, most of it wasn’t yours.

    The Reformed Broker this week had a real insight that failed to land a punch. His idea that we all turn into price junkies in a panic is a great insight, but so what? I caught myself saying that I thought 5,500 wasn’t the bottom unless it went back over 6,200 in reponse to an assertion it would go down to 4,400. Are we all chartists now? What else is there to cling to? Discipline would seem even more important.

    I enjoy a good rant as much as the next commentor. And I think 2016 is the year of the commentator: Merryn starts the year with two posts on gold and one on house prices — she must be trying to set some kind of January record for comments with subject like that. Guaranteed comment-fodder. And now TIs moderation policy is revealed (some judicious pruning), I hope my thoughts will survive to the final cut.

    Is wealth a moral measure? I see no reason that it would be likely to be. So should we be surprised that people who choose what we perceive to be the “wrong” or “irresponsible” thing successfully outpace us? This is a little more than “life’s not fair” — it’s simply that money isn’t a measure of being good. If you’d like to console yourself, TI, how about considering another measure — that of happiness. Those who are sweating it out in over-leveraged London property will worry considerably more than Merryn may finally be right than you will. Or perhaps London property isn’t in a bubble after all — in USD terms it’s barely budged in price for years and if it is a truly global city, what right do we have to imagine that its property should be priced in our flimsy little currency?

    Finally Feynman is one of my heroes. That quote being about rigor in the scientific method — observing the facts and fitting the theory to those rather than fitting the facts. It cuts both ways. If you observe that those successful in investing are those who took advantage of the inevitable slide in interest rates and leveraged up, backed the government to do the things that it had to do and got rich in the process — who are we to say that we aren’t the reckless ones? Never bet against the central bank: our central bank will be deflating the Govts staggering debt burden by keeping interest rates low, printing cash and devaluing the currency. If you think the London house-buyers are reckless, take a look at the Big House in the middle. Perhaps owning property isn’t quite so silly after all.

    But life’s too short to argue about it — or so Paul Graham’s wonderful life-affirming article tells us. We’re all going to die. But not just yet. It’s the most optimistic thing I know.

  • 42 dearieme January 24, 2016, 2:00 am

    An owner-occupied house is an investment: the income stream is the rent you don’t need to pay.

    Bring back Schedule A.


  • 43 Learner January 24, 2016, 2:50 am

    Along the lines of ‘Tech’s “frightful five”’ in the NY Times, this performance by Prof. Scott Galloway from NYU is a wild ride:


    On Google, Facebook, Amazon and Apple’s market dominance and potential paths to a $1T market cap.

  • 44 theRhino January 24, 2016, 10:19 am

    @TI – well, whatever is going on behind the scenes, I think you are hitting a good balance on the comments – you get a good lot of pros and cons for the arguments presented in each article. The net effect is that it provides a level of scrutiny that gives the whole enterprise more credibility.

    No moderation and like you say – the signal is drowned by the (bile) noise. Too much and you just develop a cargo-cult or deliver a thinly veiled sales pitch if theres something you’re trying to flog off the back of the blog.

    talking about signal and noise, I’m currently ploughing through nate silvers book, not massively impressed so far but i think i’ll see it out to the end just in case there are some nuggets hiding. Tetlocks next on the list.

  • 45 Richard January 24, 2016, 10:25 am


    We are probably not disagreeing. I am probably just bitter that I don’t have a BTL and feel like to get in now is pretty risky with markets soaring, rules changing and economies teetering (and redundancies all around). So I won’t (I am somewhat risk averse), but it is difficult to watch all those making tidy sums of it, many of whom either had much better conditions when they started or should have been forced out during the crash. Then again, perhaps I am mad and should just jump in and do it…..

    The ‘bitterness’ is probably a generational thing, I look at my parents generation for example with their DB pensions they paid 5% into and look at what I have to pay in today to get the same. But so is life and we do the best we can :)!

  • 46 theRhino January 24, 2016, 11:13 am

    @Ben the Mountie – I wouldn’t be too down on the UK, its easy to forget how awesome it is. Notes from a Small Island by Bryson is a good reminder. Is that a picture of Dr. Strangelove as your avatar?

  • 47 John from UK Value Investor January 24, 2016, 11:37 am

    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).

    That’s what I did last time round, and I’m an old-ish codger.

  • 48 Kraggash January 24, 2016, 11:46 am

    A lot of complaining about the way the UK is, but are there any realistic near-term solutions? Interest rates looked set to rise but (currently) China will probably prevent that. Followed by the next crisis.

    @Investor: Just as a devils advocate: you have frequently said a well-diversified portfolio is the most certain/least risky way to FIRE. You have also said that you did not buy a house or invest in property because prises were too high (too risky to invest). And we know that taking higher risk can lead to higher rewards…. Perhaps you (we!) are not so risk-tolerant as you think.

  • 49 Minikins January 24, 2016, 11:51 am

    @Mathmo Great comments and insights, thanks for the Mathmo filter on the reads, very helpful when pushed for time. As for wealth and morality…intention is the crux, that and one’s ability to shake off guilt. St Augustine is a perfect example, Tolstoy too.

  • 50 Neverland January 24, 2016, 12:02 pm

    The noticeable thing is a post on house prices gets 50+ comments but a post on index investing gets less than 10…

    …all of the money Joe Public has that the government doesn’t nudge/snatch from them goes on residential property

  • 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

    “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 …

  • 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:
    “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


    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


    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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