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Weekend reading: inflation moves fast and breaks things

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What caught my eye this week.

I get the impression people are already tiring of the endless inflation talk. But I find it hard to look away.

The stats just keep coming!

This week UK inflation hit 7%. That’s a 30-year high and ahead of most economists’ predictions.

The old RPI measure of inflation is already at 9%. Some pundits think CPI could get close in just a month as energy rises kick in. Even the Office for Budgetary Responsibility forecast a peak of 8.7%, although not until the end of the year.

Unlike much of the financial shenanigans we market nerds get juiced on, high inflation is already hitting everyday life as much as it’s roiling the indices.

Most obviously as the Bank of England raises interest rates – extremely likely to rise to 1% next month and probably to double that by Christmas.

But also in once-benign backwaters, where we were lulled into a false sense of security by years of low inflation and near-zero rates.

Loan ranger

For example, The Institute for Fiscal Studies this week highlighted how high RPI will send interest rates on student loans soaring:

…the maximum interest rate, which is charged to current students and graduates earning more than £49,130, will rise from its current level of 4.5% to an eye-watering 12% for half a year unless policy changes (the interest rates for low earners will rise from 1.5% to 9%).

This means that with a typical loan balance of around £50,000, a high-earning recent graduate would incur around £3,000 in interest over six months – more than even someone earning three times the median salary for recent graduates would usually repay during that time.

The maximum interest rate will later plunge, then rise again. Inflation is measured with a lag and there are other delays before rate rises – and a maximum rate cap – kick in.

It’s pretty complicated, but according to the IFS it should shake out as follows (red line):

The blue line is the IFS’ alternative policy of when to apply a rate cap. It argues for a smoother implementation on the grounds that breathless talk of a loan rate rollercoaster could put kids off going to university. (Though not before it used the word rollercoaster in the title of its own report.)

The whole mechanism is fiendishly complex. And apparently rate rises won’t affect most graduates anyway, as they don’t earn enough to pay off their loans.

See the IFS report for the full details.

Cap in hand

Simon Lambert at ThisIsMoney makes a case for quick action on the cap, regardless of how many graduates will be hit.

Not least because it’s already bad enough we send young people into adult life saddled with huge debts. (I agree).

But a wider point is that none of this mattered too much in a 2-3% inflation and 0-5% interest rate world. With inflation heading to double-digits, the wheels start to come off.

You can readily understand how price and wage spirals get going as different groups call for special measures. I’m also surprised we haven’t heard about massive financial blow-ups yet, given the pace of developments.

Time will tell. For now, enjoy the Bank Holiday weekend perusing another bunch of great reads.

From Monevator

How Property Income Distributions are taxed – Monevator

High inflation and stock market performance – Monevator

From the archive-ator: How should you invest for your age? – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

Graduates to be hit by student loan interest rate rises of up to 12% – Guardian

Highest inflation in 30 years ups the ante on the Bank of England – Morningstar

London house prices rise at fastest rate since 2016… [Search result] FT

…while rent in London hits a record £794 a month for a room – Yahoo Finance

…and the price of a Freddo bar continues to climb – Essex Live via Twitter

Wealthiest Americans pay just 3.4% of income in taxes, study reveals – Guardian

Boris Johnson and Rishi Sunak fined for parties they told us didn’t happen – BBC

It’s been a looooong time coming, but value is having a moment – Factor Research

Products and services

Prepaid meter users feel early impact of the energy price hike – Guardian

Should you invest in the Royal Mail’s upcoming NFT range? – Which

Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor

Sky’s launches cut-price ‘social’ broadband tariff – ThisIsMoney

Car insurance premiums rise to £68: how to save – Which

Open an account with InvestEngine via our link and get £25 when you invest at least £100. Terms and conditions apply – InvestEngine

Farmland homes for sale, in pictures – Guardian

Job-swapping mini-special

To stay put in your job… – Morgan Housel

…or not to stay put in your job – Banker on Fire

Comment and opinion

Intelligent investing with Jason Zweig [Podcast]The Investor’s Podcast

The stock market as a Rorschach test – A Wealth of Common Sense

House prices to fall? Definitely. But not quite yet [Search result]FT

Harnessing volatility: the rebalancing bonus – Portfolio Charts

Hammered by volatility: the leveraged ETF episode – Elm Funds

How Bill Gross created the modern bond market [Podcast] – Motley Fool via Podchaser

The dangers of falling in love with a stock – Humble Dollar

The great emerging markets debate [Podcast]Bloomberg Trillions

The grass is greener fallacy – Abnormal Returns

Loss aversion across the ages – Klement on Investing

Common investing misconceptions [Podcast]Rational Reminder

Retirees who live on cruise ships [Fornight old]Conde Naste

Market timing mini-special

Why market timing is near-impossible – Peridot Capital

Mohamed El-Erian’s argument against market timing – Morningstar

Crypt o’ crypto

Explaining crypto’s billion-dollar bridge problem – The Verge

Bitcoin has never been more difficult to mine – Axios

Inside the world’s biggest crypto party in Miami – ThisIsMoney

Naughty corner: Active antics

Does Admiral deserve its 7.5% dividend yield? – UK Dividend Stocks

UK stock ideas for the inflationary era – ThisIsMoney

Why retail traders and investors should not over-diversify [Search result]FT

The case for owning US bonds when the Fed raises rates – Verdad

Well-off DIY investors beat managers but not the market – ThisIsMoney

Larry Swedroe: three reasons for value investors to be cheerful – TEBI

Kindle book bargains

Hillbilly Elegy by J.D. Vance – £0.99 on Kindle

Who Moved My Cheese? by Dr Spencer Johnson – £0.99 on Kindle

The Art of Gathering: How We Meet and Why It Matters by Priya Parker – £0.99 on Kindle

Why the Germans Do it Better by John Kampfner – £1.99 on Kindle

Environmental factors

Seed banks: the last defense against a threatening food crisis – Guardian

Mutations across animal species reveal clues to aging – BBC

‘Sustainable’ investment funds falling short of expectations – Which

Realpolitik mini-special

Trump, Putin, and the paradox of propaganda – Intelligencer

Three ways the Ukraine war could escalate and drag NATO in – BBC

No grand theory can explain the Ukranian crisis [Search result]FT

Boris Johnson and his “conveyor belt of lies” [Video] – Ian Dunt via Twitter

Off our beat

The managerial obsession with busywork – BBC

US cops play copyrighted music from squad car’s PA to keep videos off YouTube – Jalopnik

And finally…

“When you are 80-years old, and in a quiet moment of reflection narrating for only yourself the most personal version of your life story, the telling that will be most compact and meaningful will be the series of choices you have made. In the end, we are our choices.”
– Jeff Bezos via Brad Stone’s The Everything Store

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{ 47 comments… add one }
  • 1 Andrew April 16, 2022, 8:16 am

    I don’t want to be a broken record talking about housing, but it’s getting ridiculous now even for London.

    Went to see a mid-terrace house the other day that set a new street price *£100K* above the end-of-terrace next to it, and that one only sold in November. Exact same house internally. Same garden. Both in really good order. A builder bought the end of the terrace and is now building a new house next to it… so I was thinking even the price for that was inflated.

    The average house price inflation figures for London are being dragged down by flats, because houses have *more* than doubled in 5 years (that’s 15% annualized)

  • 2 Mr Pungus April 16, 2022, 9:34 am

    Inflation is making the freeze on the LTA bite a bit harder. Scratching my head about how to deal with that.

  • 3 Keith April 16, 2022, 9:57 am

    ‘And apparently rate rises won’t affect most graduates anyway, as they don’t earn enough to pay off their loans.’
    The problem is, interest starts being added to outstanding balances from day 1, while one is still a student, and accrues at an alarming rate. Most repayments from salary, once one reaches the threshold, reduce the accumulated interest. My guess is that a lot of recent graduates will be hit by these repayments in their best earning years, in their 40s and 50s, and will not be able to put away salary increases or pay off other debt.

  • 4 Boltt April 16, 2022, 10:36 am


    My daughter bought in Ipswich (2021) £240k for a solid 3 bed semi- train to London 60-72 minutes (direct).

    Recently there were 5000 commuters on the line daily – so it’s very doable (not pleasant though).

    I think you previously said you were top 1% earner – surely you have lots of options if you travel a little distance?


  • 5 ZXSpectrum48k April 16, 2022, 10:45 am

    The jury is still out on whether this inflation is actually sustained. It’s still mostly supply-side. Inflation expectations are starting to drift higher but some demand indicators are softening. The Fed probably wants to engineer a modest recession to help cap any risk of a wage price spiral. Sort of like 1989/90.

    Really though, with the US govt transfering trillions to US households over 20/21 and the UK govt doing the same, are we really surprised that we get a nasty bout of inflation? All those asset price rises we’ve benefitted from have to be paid for on the liability side and the options are always the same: currency depreciation, inflation or tax rises.

    So for that FIREee planning on spending £30k per annum; it’s now £33k. At 3% SWR that’s another £100k needed for the stash. So perhaps they aren’t quite as rich as they thought. Well it’s only fair. You can’t have big asset prices rises without big liability rises. At least we’ve participated in the asset price rises to pay for them. Many didn’t.

  • 6 Jim April 16, 2022, 10:47 am

    Forgive my ignorance but why is a policy change acceptable to reduce the rate on student loans. If you sign up for an index linked loan and it doesnt go your way so you expect policy change. How does this encourage responsibility?

  • 7 miner2049r April 16, 2022, 11:06 am

    Spot on with the £30k->£33k, Mrs miner and I were due to fire this summer with that exact figure, it’s now postponed to next summer at the earliest so we are still in the rat race, when hopefully things are settling back down a bit, Ukraine, inflation, etc etc next year then we will reasses 🙂

  • 8 far_wide April 16, 2022, 11:19 am

    As a relatively lean FIRE’ee, I’m certainly not looking away from inflation at the moment. The current market environment concerns me more than the COVID drop did. At least part of inflation is wages inflating, which of course is of little comfort if you don’t have one. I’m not expecting anyone to crack out the violins for me of course.
    I’m just looking at the portfolio charts heatmap tool* for the 1970’s and noting that one really needs to torture the asset allocation settings to achieve even a 0% real return in that period. Most people I suspect don’t really fancy holding a 20% allocation to gold on the hopes of it repeating its feats. Is it wise or too late to invest in commodities/farmland? My instinct tends to advise that buy when things are ragingly popular means you’ve missed the boat and should probably instead look over the next horizon.

    The only real conclusion I’ve reached so far is that low expectations for the next few years are probably the order of the day. That said, though the similarities with that period are mounting, we at least still don’t yet have the un/under employment aspect – yet!

    * https://portfoliocharts.com/portfolio/heat-map for anyone that is interested.

  • 9 far_wide April 16, 2022, 11:37 am

    My comment actually crossed with ZX + Miner’s points by the way so I hadn’t seen them. Both very relatable.
    In my case, with the equity boom I very much had mentally accounted for a forthcoming big drop in equities and kept on lowering my withdrawal rate as a result. In a way, this current situation is pretty similar in impact I suppose except I still have the nominal assets, but they’re just not what they once were. It’s just somehow more psychologically uncomfortable for me, I’ll get there I’m sure.
    Of course, in the worst scenario this is just the beginning. As TI alluded to, we haven’t really seen anything ‘break’ yet. Still, what else as investors are we to do apart from stick to the plan and brace for impact?

  • 10 miner2049r April 16, 2022, 12:12 pm

    Both of my “full-time(2.5days a week) “university offspring are now starting to mutter, “should of got an apprenticeship and or apprentice degree and got paid at the same time; student loans are going up mortgages and house prices are going it’s not fair”, this is bitter sweet as the advice I gave them them was go apprentice route with job at the end but 6th form college did an amazing job of feeding them into the local university system for which the college are proud to advertise and show that over 90% of students starting go to into university…..

    Might be worthwhile an article of the maths on the potential compounding effect of the delay entering the work force by 3 years.

  • 11 Rishi April 16, 2022, 1:50 pm

    @miner2049r (10)

    My son is 4 yrs old. But looking ahead, this is the very issue I am grappling with.

    Both Mrs and I did post graduation (PhDs) without any loans (no fees, part-time jobs for expenses). This meant that we started earning in our late 20s and as a result the compounding machine only kicked in when we were in our late 30s (10 yrs worth savings went in marriage + house and other usual house stuff). Don’t get me wrong, we are comfortably well off today, and might even FIRE by 57. However, I have thought long and hard about the effect of not having any debts when we were starting our lives as adults in our late 20s.

    I have often wondered if paying for tuition (via loans) is the best way fwd for my son in 14 yrs time. I think a good coding skill at school (or extra curricular) should be the way fwd from the age of 10. Him starting an apprenticeship at 18 with 5+ yrs of coading skills seems like a better option than then him starting at 21 with upwards of 100k in debt.

    Hard for us, especially given our background to say to our kid, don’t go to univ! Who knows, maybe he will become a car mechanic!

  • 12 ermine April 16, 2022, 2:36 pm

    @rishi #11

    > I think a good coding skill at school (or extra curricular) should be the way fwd from the age of 10.

    Hmm. For starters he’s 4, so another 14 years till the rubber hits the road, and secondly, the job ads for coding always wants the latest as experience. Personally I figure once you have learned one computer language (that is used for real jobs, ie isn’t specifically targeted at beginners) you are good to go on any other with a bit of study and Google and Stackexchange by your side, but employers disagree 😉 They often want tiresome accreditation which are simply make-work and a gravy train for training organisations.

    In some ways there’s much to be said for some of the trades if you want to avoid university. They aren’t going to be outsourcing electricians and plumbers halfway round the world like the nascent Internet allowed them to do with the Y2K work that established the waves of BPO and offshoring that followed.

  • 13 Old_eyes April 16, 2022, 2:53 pm


    Always tricky to predict what jobs will be required in future decades. Will ‘coding’ still be relevant? AI, automation, offshoring, may have made it a low value occupation. Who knows?

    Remember The Graduate – “I have one word to say to you – plastics!”. I had a similar experience when choosing A-levels, with parents and relatives trying persuade me that colour TV repair man, was the career of the future. Fortunately I did not listen.

    We tend to take a far to transactional view of university. Relatively few degrees are vocational. Most end up providing value in other ways. My first week at university my tutor said to a bunch of us “you think you are here to study chemistry, and we will teach you a load of that. But what we will really teach you is how to become reasonably expert in any topic in three weeks”. A bit of over-statement, but it turned out to be true. The skills to collate information, sort the gold from the dross, organise it and act, served me well through three different industries and starting two companies.

    I have no beef with apprenticeships, and I know people learn and thrive in different ways, but I have not seen enough in the programmes of the apprentice schemes I have encountered on what to do when the industry you have apprenticed yourself to vanishes in 15 years. Not enough On the inevitability of change.

  • 14 xxd09 April 16, 2022, 4:31 pm

    A student loan is a real burden to land on a youngster who has no concept of serious debt
    Paid for my 3 kids through University -qualified with no debt-expensive for the parents!
    My son -a deputy head in a Scottish secondary with a largish poorer end to the school says that high achievers from this group will not entertain University and debt
    Firms seemed to have twigged this and recruit these high achieving 6th formers directly into their businesses from school
    Salaries paid from the get go and if University qualifications the required at a later stage the firm pays
    The way ahead for more businesses?

  • 15 ZXSpectrum48k April 16, 2022, 4:43 pm

    I think it’s impossible to guess what knowledge/skills your children need even a decade away. Recency bias is utterly lethal.

    My parents (zero qualifications, unskilled) always wanted me to get a steady job at 16 (postman etc). When I did A levels and wanted to go to uni, they wanted me to do Computer Science. I liked playing computer games so coding must be similar and isn’t that Computer Science? They were horrified when I went up to do Mathematical Physics. Even more horrified when I turned down multiple jobs as actuarial or accountancy jobs to do a PhD. How would I ever get a job with any of that? Another three years wasted. I’d be 24 before getting my first ever job.

    When I told them I’d just earned £200k in my third full year of work (more than my dad has earned in the prior decade) they were staggered. How did I know a PhD in Quantum Field Theory was basically a guaranteed path to millions if played with a modicum of skill? Of course I didn’t. It was just a confluence of fortunate factors (aka luck).

    Next time it will be another subject area. If I was to guess it won’t be coding or any STEM subjects. That’s way too consensus. Too obvious. I reckon it’s going to be artistic, creatives or entertainment, not math or engineering. Much harder to replicate with AI. God, perhaps we’ll all look back in two or three decades and regret we didn’t tell our children to do Media Studies!

  • 16 Hariseldon April 16, 2022, 6:41 pm

    For those worrying about what jobs their offspring get in relation to student loans, thinking logically a job is not the answer but a business.
    A better way to generate money is to scale your efforts, self employed and employ others.

    Encourage your offspring to be entrepreneurial.

  • 17 Neverland April 16, 2022, 7:25 pm

    But with inflation more students get drawn into making student loan repayments, just another fiscal drag

  • 18 Barn Owl April 16, 2022, 7:34 pm

    @Pungus at #2 I agree that higher inflation makes fixed LTAs even more complicated to use optimally. It really depends on your salary as to whether it’s still worth going over the limit. 25% on crystallisation and 15% Income Tax (no NI) on a £50K drawdown is still lower than 40% marginal income tax (or higher) and Employers and Employees NI. In my case it made sense to go over the LTA and try to avoid the BCE at 75 tax. Well worth some detailed scenario planning. Inflation just means that more and more people will have to worry about this.

  • 19 Barn Owl April 16, 2022, 7:36 pm

    even people on a £30K pension and a 3% withdrawal rate will get hit.

  • 20 Mr Pungus April 16, 2022, 10:18 pm

    I’m put off scenario planning as I’m at least 15 years off being able to access it and Lord knows what rule changes might occur in that time…
    However the alternative of ignoring things and hoping for the best doesnt look too clever. Does anyone know of good tools for modeling?

  • 21 Andrew April 17, 2022, 1:34 am

    @Boltt I’ll resist turning the comment section in to another entitled whinge about London property, but I’m willing to pay 4x what your daughter did to get my commute down to 40-45 minutes to central.

    The reality is freehold, family houses in good neighborhoods are at 30% premium today compared to 2020. Within zone 4 you’re looking at £1M.

  • 22 Al Cam April 17, 2022, 6:30 am

    @Pungus & @Barn Owl
    One key issue is what happens in 26/27 when the freeze [LTA, etc] is supposed to end. If/when you do any planning the effect of the frozen HR tax threshold may also be worth looking at!

  • 23 G April 17, 2022, 9:17 am

    So much wisdom in the comments regarding university already while somewhat missing the fact that most of you seem to have ignored your parents’ advice on whether to go or not, what subject to study and for how long (and thrived as a result). Perhaps the next generation will be well served doing the same…

    University was my ticket out of poverty and I’m immensely grateful to my parents for scraping by enough to make it possible. Of course, it would have likely been a non-starter without a grant/modest student loan.

  • 24 Neverland April 17, 2022, 10:11 am

    @Owl, Al Cam, Pungus

    The LTA is a super generous tax break: £1m; 25% tax free for something that is supposed to just keep you out of poverty in retirement

    I can’t remember how the DB equivalent of the LTA works but it’s £40-50k a year ffs

    Meanwhile there are people in work who will have to choose between heating and eating this winter

    The way out of that is people like you pay more tax. There is no magic money tree

  • 25 Rishi April 17, 2022, 10:17 am

    Hi All,
    Thanks for the follow up comments. As I mentioned, both Mrs and I graduated with PhDs and have done well, financially and psychologically speaking. It is therefore almost impossible for us to say don’t do what we did, given our relative success.

    What I have often wondered is with univ costs going to the moon, if a £220k debt (at 8% interest!) cause more trauma than good. Both of us graduated at 28 with no debts, cannot see that happening now. And if you get paid well as a result of your degrees, then you will end up paying the loan back over 30 yrs.
    I have already started a pension and investment ISA for him (3.5k each year) this should hopefully add up to a decent sum by the time he is 18. Keep wondering if apprenticeship (for technical skills) and stewardship of his capital hopefully in 100s of thousands by the time he is 18 would be better than spending his capital on univ/take a loan.

    Given all the comments above, wonder if me trying to influence him would end up having the opposite effect and he would end up going to univ 🙂 Its going to be fun (look between the fingers kind) watching him make these choices.

  • 26 IanT April 17, 2022, 10:32 am

    I found the article on Admiral’s valuation interesting.

    Hmm. I’m quite tempted…

  • 27 Neverland April 17, 2022, 3:47 pm


    Except your kids and ZX’s don’t graduate with 00,000s of student debt – you will just write them a cheque when they graduate

    Much cheaper than paying for everyone to go to university through higher income tax

    Acquaintance of mine just did that with both his kids

    What the current student loan system has mutated into is a system where graduates from poor families pay income tax at 29% and graduates from rich families get a pre-inheritance and pay income tax at 20%

    This is the sort of thing that happens when you get into the second decade of a Tory government

  • 28 random coder April 17, 2022, 4:54 pm

    It is funny how education discussions often are not concerned with the supply and demand concerns that apply in business chat.

    As hinted at in previous posts of mine, a real question mark needs to be placed over many degrees and costs to the taxpayer. Sadly, the political class and those born into wealth can get away with degrees in history or art, classical studies, archaeology etc and given their situation, walk into well paid careers thinking that it was due to the hard work and the skills they learned from their education. The problem is worsened in politics where you can put people in charge of key department eg the treasury with said degrees etc – in no private entity would you put a history graduate in charge of the purse strings but it happens in government (previous chancellor, GO).

    The reality is most ‘normal’ people don’t have a chance of high earnings doing some of these types of degrees, and those that manage to make it are the minority.

    The answer is not to write off studies in certain areas, but it might involve more of a supply and demand type approach. This would not fix the inequalities, in fact it may make them worse since those with most resources would have the full range of choices, but at least it might reduce the people getting saddled with student debt with no real prospects of earning potential in many cases due to degree choices.

    I look at this as an outsider as I am in Scotland so benefitted from ‘free’ tuition, but it is possible to be a supporter of ‘free’ education and simultaneously think a more of a supply and demand type approach to degree funding is needed, as well as agreeing with the posters above that have suggested we don’t know where the next key skillsets will lie. We probably just need a bit of planning with regards to where the priorities are for the future funding.

  • 29 David April 17, 2022, 5:46 pm

    @ Andrew (#1 & #21, and lots of previous comments on this blog)

    Instead of battling against a ton of better resourced buyers for premium family houses in good neighbourhoods of central London, have you considered compromising on one of those variables for your first home? It doesn’t have to mean moving to Ipswich as Boltt suggested, but it’s called the ‘property ladder’ for a reason – not everybody can start right at the top, you would normally expect to work your way up gradually as your finances improve and you’ve paid off some of the equity.

  • 30 random coder April 17, 2022, 6:44 pm

    Or looking elsewhere for work and moving. Taking a 20% pay cut if your overall expenses go down by 25%+ or more is another option.

    The few people I worked with in London who came to work in Scottish office for a project made two memorable observations:

    1) “So this is what fresh air with no pollution feels like” (almost immediately after getting off the plane and continuing over stay), and,
    2) The cost of living in Scotland is clearly lower – they could see it and only were in Scotland for just over a month.

    Within 2 years one of them moved to a less expensive part of England. The London wage premium does not even get close to covering the difference in the cost of living compared to huge parts of the rest of the UK.

    For single people or couples with no big commitments, moving is a real option as even with a pay cut, you probably would have a higher standard of living. It is far more difficult for those with family or big commitments to move (or in a niche job) I accept.

    I do worry that the housing market will need a reset at some point, and London is at risk if it happens. Eventually, a serious question needs to be asked about the maximal ‘fair price’ of a minimal home, and location only goes so far. This becomes most noticeable when considering new build homes – the absolutely IDENTICAL properties get thrown up at the same time in different areas at massively different prices depending on location and it makes you realise what you are paying for. This wont apply in London as builders dont have acres of land available to build 200+ properies at a time as happens elsewhere, but it does offer interesting examples of what drives house prices when the house is absolutely identical in two parts of the country.

  • 31 Neverland April 17, 2022, 6:53 pm


    The relevant question in the 21st century with Zoom and remote working is why you need residential university courses at all for most subjects.

    The Open University is just over 50 years old

  • 32 e17jack April 17, 2022, 9:41 pm

    Just to chip in on the London property chat – the £1m mentioned does NOT get you a “premium family house in a good neighbourhood of Central London”!

    It gets you a modest 3 bed in a rough-around-the-edges bit of zone 3 or 4.

    And presumably Andrew needs a family home or he wouldn’t be looking for one…

  • 33 Andrew April 17, 2022, 11:26 pm

    @David The “housing ladder” is a nice bedtime story invented in the era of falling interest rates and mortgage deregulation, but it’s foolish to take the time to climb unless you have no choice.

    If I were to buy a 500K property (likely a 2 bed flat) today it might be worth 700K in 5 years. I’d have perhaps £400K in equity, without having made overpayments, after 5 years. However, the £900K properties I’m looking at today will be £1.3M by then. I’d have more equity, in % terms, compared to today, to put toward these properties in 5 years, but my overall borrowing would be still be *higher*.

    Let’s not even factor in all the stress, legal fees, extra commuting costs, and paying stamp duty twice!

    A more concrete, real world example of the “housing ladder” being a waste of life: In 2011 my parents sold their mortgage-free 3 bed terrace house for £225K and moved in to a detached 3 bed bungalow for £325K. They did this because they were sick of the neighbours causing grief, and they figured, at their age, it was their last chance to rid themselves of stairs before they became completely decrepit. Sensible long term thinking really. Anyway, with only a ~30% LTV they were easily able to mortgage the £100K difference over 10 years, and dad paid it off before retiring.

    Well, guess what? Their old house sold last year for £325K while their bungalow, due to a general shortage of bungalows on the market, would sell for £650K today. They could never have mortgaged that gap. If they were in the same circumstances today, as they had been in 2011, they would be growing old with dodgy knees, climbing the stairs and being tormented by bad neighbours, probably until the day they die.

    So no, I don’t believe in the ladder. In my mid 30s looking to start a family, with property in a bubble and interest rates rising,.I’m looking for a home that will see me until I reach 50.

  • 34 random coder April 18, 2022, 1:53 am

    Hmm. Yeah, nasty prices. A brand new 4 bedroom house about 30 minutes from centre of Edinburgh in Scotland is about ~£300-350k now. A 3 bedroom semi new build about ~£250k.

    I would be less concerned about how value differs by location though and more concerned about the bubble you mention. I struggle to see how that bubble can be maintained into the future, already the only people that could consider such prices are those in the extreme tails of the income distribution curve (or with stored wealth). It might last another decade or two, can’t rule it out, but a property bubble bursting would be very damaging.

    I pity the plight of people forced to live in London due to the basic living costs they endure, but just posting the previous points to show the contrast in prices, as it is remarkable what is ‘normal’ in different regions.

  • 35 Learner April 18, 2022, 5:03 am

    The troubling thing about multi-decade property cycles is that humans just don’t live very long and family formation has an even shorter window. If you only get a couple of cycles in your adult working lifetime then you better hope to have been born at the right time because there won’t be enough rounds to average out.

    Completely agree with Andrew on the vile property ladder, I’d be pleased to never read that term again.

  • 36 G April 18, 2022, 8:50 am

    I agree with property ladder and bubble comments. The ladder is a myth told by estate agents to justify the ridiculous prices of 1BR rabbit hutches. Buy the house you need and try to stay there as long as possible as this house price insanity shows no sign of ending soon (I thought the market was massively overheated in 2005 – how wrong I was). There’s nothing to justify the prices – except successive rounds of government meddling combined with BTL & a credit bubble. Getting out of London, if you can, is good advice – providing you never intend to move back.

  • 37 ZXSpectrum48k April 18, 2022, 9:59 am

    @G. London house prcies are justifiable given comparable assets and the assumptions holders are making. The rental yield for flats in many zone 3-4 areas is still in the territory of 3.5-4.5%. Even after assuming 30% of that is lost to costs, that leaves 2.5-3% or so net. If you compare that with 10-20 year Gilts at 2%, there is still a positive credit spread over equivalent duration assets.

    The issue here is 1) that long-dated risk free yields are still very low and 2) that the market accepts a very low credit spread for London property risk.

    Those assumptions may not be valid in your view (or my view) but they will need to change to cause prices to fall. The first will require a change in long-term inflation expectations that causes long-term yields to rise. The second requires undermining the view that property is a “almost risk-free” asset. The Great British Public shows no interest in undermining that view and repeatedly votes to protect it.

  • 38 Andrew April 18, 2022, 4:31 pm

    @ZXSpectrum48k Justification with respect to the rental market is one thing. Nice 3-4 bed houses in my neighborhood rent for £2,500-£3,500/mo and sell for £800K-1M+, so the monthly on a repayment mortgage is very favorable at current rates.

    From the FIRE perspective I certainly wish I had the equity for an interest-only mortgage so I could buy shares in funds instead of buying bricks, but lenders won’t touch you on an interest-only basis these days unless you have more than 25%.

  • 39 Indecisive April 18, 2022, 4:52 pm

    @random coder, #34
    “I struggle to see how that bubble can be maintained into the future”

    I spent all the time from 2005ish onwards holding that view, and didn’t buy. I eventually bought in February 2020 (oh the timing).

    Maybe the bubble can’t be maintained, but it’s been maintained very well for many years. Betting on its demise – as I did – is not wise.

  • 40 Neverland April 18, 2022, 5:11 pm

    Like people go on about the housing market but it’s a really thin market

    There are about 30m homes in the UK

    In an average year only about a million existing houses change hands and about 250k new ones get built (a quarter of those are social housing maybe)

    There are only about 400k first time buyers in any given year and over half of them admit to getting a family hand out of some kind

    So you only need c. 200,000 couples earning 80k plus each to keep the whole show on the road

    The other million or so have access to pre-existing wealth from elsewhere. I mean, 30% of homes are just bought with cash mortgage free

  • 41 David April 18, 2022, 5:43 pm

    I didn’t realise the term ‘housing ladder’ had become so controversial. However, if you can’t afford a large house in one of the nicest areas, but you still want to be an owner occupier, doesn’t it still make sense to buy what you *can* afford?

    For what it’s worth, I live in a terraced house with two ‘proper’ bedrooms and a box room. The living room has a sofabed and doubles up as a guest room. We don’t have off road parking. We’re a family of four and we live quite happily there. I imagine we’d be even happier in a larger house, but we aren’t rich enough to buy one!

  • 42 random coder April 18, 2022, 8:36 pm


    Yeah, I agree, that is why I have “It might last another decade or two, can’t rule it out, but a property bubble bursting would be very damaging.”. It could keep going, we don’t know.

    However, simplifying the set of outcomes to two sets – the set of all those that have the bubble continuing, or at least being maintained, and the set of those that don’t, we can look at the impact on decisions.

    Buying in an area that is not top of the market, where you are mostly paying for ‘house’ (over area/location), the value falls to some extent. Buying in an area that is top of the market (where the proportion of the house value is not ‘house’, but location), you are risking the largest correction. This is the key risk being taken here, its not a housing market correction as such, it is a differential correction where the most expensive locations (e.g. London) see the largest decrease in value.

    I don’t disagree that the market could run for another decade or two, but in the event of any housing market crash or correction (which could be this year or in 30+ years, or 70 years…), the people who paid mainly for ‘house’ or some other good logical reason (like the good example of having a property on the ground floor for aging) are unlikely to be too upset or hit too badly with a correction, especially if its only short term over a few years – they still have that good house or the property they can live comfortably in free of stairs etc as they age. Anyone who is right at the maximum of affordability are the very ones who *could* be in most trouble if a correction comes and the current top of the market sees the greatest reduction, especially as a sudden shock to the housing market probably would come along with other wider economy changes which could lead to employment issues/changes etc.

    It does all come down to your view of risk, how safe your situation is income/asset wise, and how long you plan to live in the location – if someone buys in London (or anywhere) genuinely knowing that is where they will live for the next 30-70 years, what happens in the short or medium term is largely irrelevant, as long as they can afford to make the payments. People will rightly make their own choices. But yeah, just pointing out I acknowledged the possibility of more decades for this to run!

  • 43 Jonathan B April 18, 2022, 9:02 pm

    Student loans are of some interest to me – my daughter is currently at university. @Old Eyes makes the important point, university study is rarely intended as a training for a specific job, it is an education that turns a raw schoolkid into someone who can deal with what the world throws at them and has the experience to develop deep expertise in whatever role they need to undertake. To treat it as an investment in future salary is falling for a Tory fallacy. Does anyone really think a nurse or a teacher is only worth one hundredth as much as an investment banker?

    And on London property: our experience was that our quality of life went up enormously when I moved from my London job to one in Yorkshire.

  • 44 The Hare April 19, 2022, 5:21 pm

    @Andrew and housing comments

    I live in London in a very small 1 bedroom flat that wouldn’t be legal if it was an HMO, it’s that small. There are 2 of us living there and working full time from home. The lockdowns were a relief to us as at least everyone else was also in an intolerable situation.

    The flat above us is 1% bigger than ours and is home to a family of 5.

    It’s a nice part of London on a much wanted street in a lovely safe area in Zone 3 with good schools. The houses on the same road are £2.5m up (4+ bed, terraced).

    I am not suggesting Andrew moves his family into a 1 bedroom flat, but this level of overcrowding is not that unusual. Not everyone can move out and the costs of buying are astromomical.

    That’s where property prices are.

  • 45 E&G April 22, 2022, 12:49 am

    Somewhat relevantly, I was on holiday over Easter and met a couple from London paying £1,400 a month to rent a one bedroom flat on two median salaries doing jobs they could do anywhere else on this island. No kids so I dare say they could afford it with a bit to spare but in large swathes of this island (and, in Scotland, pretty much everywhere except central Edinburgh) you could be paying the mortgage on a very nice home for that. If you’re one of Neverland’s dinkies on 80k plus each it might be the place to be but for ordinary punters I just can’t get why you’d want to do it.

  • 46 The Investor April 22, 2022, 10:04 am

    @E&G @Others — At the risk of inflaming sentiments further, I think you might want to wonder why people still choose to live in London despite these differentials, especially when young.

    I would agree that the economic picture has changed, perhaps permanently.

    I also think some of the cultural backdrop has changed.

    E.g. when I came to London I used to go to arthouse cinemas to watch obscure Italian movies etc — now they are on Netflix. Similarly if I was the mildly eccentrically dressed 19-year old I once was I could find kinship and inspiration on Instagram instead of in Camden.

    However what has changed the other direction — dramatically — is the much-discussed political direction/climate/division.

    Following Brexit, I knew my choices going forward would either be deep countryside (for various reasons, including legacy) or about six cities in the UK.

    I’m sure there are literally millions of great people in all the other cities in the UK off my map — indeed I am sure there are (fewer) millions of people I might befriend who voted Leave.

    But that vote pretty much re-defined ‘them and us’, made worse by its anti-London sentiments (as ever in some quarters, not all (or even most) Brexit voters, etc etc).

    Everyone I know ‘like me’ who has left London since Brexit but stayed in the UK has gone to Brighton, Oxford, Bristol, or Glasgow. So I don’t think I’m alone.

    Of course you can buy a nice place cheaper in Glasgow if you can stand the weather, so the point isn’t taken off the board.

    But I suspect it will continue to be a factor going forward.

  • 47 xxd09 April 22, 2022, 12:05 pm

    As an old leaver and living in the frozen North I have been coming to London frequently over many as I have a daughter working in prisons and a son-in-law law in the city
    Nothing in London seems to change -it’s certainly the buzziest place I ever go to.Also frequent Glasgow and Newcastle for similar familial reasons
    London is the place to be-if you like cities-if you can afford it-luckily my lot can
    To a country bumpkin the pavements do certainly seem to move beneath your feet-theatres and art galleries are of the highest standard but the prices……..!
    Perhaps as Dr Johnston said so long ago”If you are tired of London ,you are tired of life!”

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