What caught my eye this week.
With 2024’s decline in mortgage rates arrested – if not yet quite beaten-up for resisting said arrest – it is likely house prices will continue to go nowhere for a while.
Especially given the higher stamp duty for buy-to-let landlords that came in with the October Budget.
The now-5% stamp duty surcharge they pay is survivable. But it’s hardly going to spur animal spirits.
Nor will the gloomier economic backdrop.
Curbed enthusiasm
Right-wing pundits are falling over each other to blame Labour’s October Budget for all the UK’s woes.
As if Labour’s plan to increase public spending by 2-3% has really flipped the UK economy overnight into a “Socialist Worker’s Paradise” that’s “capitalist in name only” and all the rest.
Not to mention the nonsense of a five-month-old government being held responsible for the past 15 years of stagnant real wage growth, rising public sector debt, and taxes steadily ratcheting upwards.
Tricky fellows, these reds! They must have been pulling the strings from opposition all along?
Still, I’m not going to bat for Labour’s hike in Employer’s National Insurance.
As I said at the time I feared for jobs – and profits – especially in the hospitality and retail sector.
That downside is already coming through in company downgrades and commentary. From an unenviable set of options for raising revenue, hiking the cost of employment wasn’t the way to go.
What’s more, Reeves and Starmer are in part responsible for the national mood music.
And that has been akin to going to a Saturday night dinner party where the host has Joy Division’s Isolation on rotation.
The only way isn’t up
None of which can be expected – to get back to where I started – to buoy the housing market.
For many of the two-thirds of British households that own their own home, that’s bad news I suppose.
People argue their home is not an asset or an investment, inexplicably to me.
Yet they expect its price to go up over time. And they – perhaps secretly – get surly when it doesn’t!
Personally, I’d argue the relatively sluggish property prices of recent years – especially in the South East, which was previously so overheated – has been a silver lining to these years of gloom.
Stalled sticker prices have enabled a real-terms price crash. That has begun to redress decades of unsustainable growth.
Given the centrality of housing to the UK economy, I’d take such an inflation-adjusted silent crash – that is, price falls in inflation-adjusted terms – to an actual plunge in nominal prices any day.
Take me back to dear old Blighty
From a long-term historical perspective, UK property remains achingly expensive.
Data from Mojo Mortgages this week compared the landscape in 2024 to half a century ago:
Yes – it is definitely far harder to buy a home today than it was for our parents and grandparents.
The table even understates the issue. I make that a 310% increase in the deposit as a percentage of a house.
The upshot is that house prices have risen by 2,534% in 50 years.
Yet salaries have grown by just 1,791% over this period.
Which means, Mojo calculates, that today’s salaries are £13,676 short of keeping pace with house prices.
Or alternatively that house prices should be £75,000 cheaper.
Nobody’s happy
There are a lot of reasons why British people feel gloomy about their finances.
Stagnant wages, higher taxes, years of political disappointment. The moribund UK stock market even.
But with going-nowhere house prices we now have a double-whammy of housing miserableness.
At least homeowners could previously feel good about their often-biggest asset escalating further in price. Even if they publicly tutted about how hard it was for young people.
But now the home-owning majority have seen the value of their nest egg stall for years, and actually fall in real terms.
Yet homes still remain out of reach for most young people. Not without a big leg-up from Mum and Dad – or a City job that comes with a six-figure bonus.
Of course Labour says it wants to build 1.5 million new homes to address the supply side.
Good thing those homes won’t need to built by workers that they just made more expensive to employ, eh?
Um… have a great weekend.
From Monevator
How to unitize your portfolio – Monevator
Accessing the Access to Work scheme – Monevator
From the archive-ator: Why your life expectancy is much longer than you think – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Mortgage payments to rise for over half of homeowners by 2027 – Guardian
Pushing UK pensions into private markets would deliver ‘tiny’ gains, forecasts show – FT [Search result] and DWP [PDF]
Supermarket loyalty schemes deliver genuine savings says watchdog – Guardian
Net UK migration figures hit 906,000 in 2023, revised figures show – BBC
Pension credit applications surge 145% on means-testing of Winter Fuel Payments – This Is Money
FCA recasts ‘naming and shaming’ rule in response to backlash – Reuters
British workers [apparently] making £590 a month from side hustles – This Is Money
Panic in Russia as rouble slips to symbolic mark against dollar – Sky
Smithfield Market and Billingsgate to close forever – Londonist
Australia passes social media ban for under-16s – Sky
Does valuation still matter for the US market? – Neil Woodford
Products and services
Halifax is offering an unusual 18-month fixed-rate mortgage – This Is Money
Could a professional ‘life admin’ service make your life easier? – Which
Premium Bond prize rate cut to 4% – Be Clever With Your Cash
Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
The most-viewed houses on Rightmove in 2024 – This Is Money
Watch out for high charges when accessing your pension – Which
Homes for sale with stunning staircases, in pictures – Guardian
Comment and opinion
Warren Buffett’s new letter on estate planning [PDF] – Berkshire Hathaway
Rail ticketing in Britain has become an absolute farce – Guardian
Thematic funds: double trouble – Behavioural Investment
It’s bananas to regard art as an investment – FT
Bitcoin and FOMO – A Wealth of Common Sense
Getting ready for a year of One-in, One-out – 3652 Days
Misleading economic and investing indicators – Humble Dollar
Secrets of smart investing with Jazon Zweig [Podcast] – Part 1 and Part 2 via Apple
The financial stability consequences of digital assets [PDF] – US Federal Reserve
A white paper arguing passive investing has reduced price inelasticity and market responsiveness, with consequences down the line [PDF] – Apollo Academy
Naughty corner: Active antics
Is investment in space about to take-off? – Institutional Investor
A chat with retired UK fund manager Anthony Bolton [Podcast] – BTBS
Larry Swedroe: improving low-vol strategies with leverage – Alpha Architect
Why are you looking at everybody else’s returns? – Investment Talk
After Return on Equity – The Diff
The best-performing US stocks of the past 20 years – Bespoke
Three reasons why investors are brushing off Trump’s tariff threats – Sherwood
Kindle book bargains
I Will Teach You To Be Rich by Ramit Sethi – £0.99 on Kindle
Eat That Frog! Get More of the Important Things Done by Brian Tracy – £0.99 on Kindle
Growth: A Reckoning by Daniel Susskind – £0.99 on Kindle
A Confederacy of Dunces by John Kennedy Toole [An old fav, not about investing] – £0.99 on Kindle
Environmental factors
What can convince consumers to buy more EVs? [Search result] – FT
Cash-strapped UK to water down green targets as economic reality bites – Politico
Will flights really reach net zero by 2050? – BBC
For the love of a little sea in Ireland – Hakai
How islands are confronting existential climate threat – BBC
Robot overlord roundup
The state of generative AI use in business – Menlo VC
How an AI grandma fights back against phone scammers – CBS
The tangled web of AI company ownership [Interactive] – Sherwood
Apple Intelligence ads are missing the mark – Sherwood
Off our beat
Whatever happened to the big night out? – Guardian
More Americans want a second passport and are willing to pay – Sherwood
The promise of DuoLingo – The Dial [h/t Abnormal Returns]
Happiness is a choice – We’re Gonna Get Those Bastards
Looking back at the Future of Humanity Institute – Asterisk
‘Clean girl’ influencers in court – The Verge
German and Nordic countries prepare their citizens for possible war – Guardian
And finally…
“The venture industry is a meritocracy, up to a point. It is also what its critics call a ‘mirror-tocracy’.”
– Sebastian Mallaby, The Power Law
Like these links? Subscribe to get them every Friday. Note this article includes affiliate links, such as from Amazon and Interactive Investor.
I know I shouldn’t have, but I enjoyed the clean girl catfight article. The punchline sums up how I feel about a lot of culture now
I thought it was just me getting older. It’s good to hear that it’s also the algorithms wot did it, a slow fade to ecru.
There is a huge difference between people who ‘own’ their home with a mortgage, because that home is tied to a large financial investment and it needs to not fall for that investment to be a good one.
I got had by that, and I paid the mortgage off in 20 years specifically to never be had by that again.
The spoiler is that until your mortgage is cleared you don’t own your home. 99 % of the time the difference doesn’t matter and you can pretend to be a homeowner. But the leverage matters, particularly early in your homeowning career, or you use the equity as a piggy bank to finance living above your means. Leverage is lovely most of the time, but when it isn’t it’s horrible.
Everyone needs a place to shelter out of the wind,rain and snow ie a house
Very very secondarily it’s an investment or an asset
Personally I never included it in my Asset Allocation for that reason
As a result I bought a very small cottage (easily paid off during the days that endowment mortgages actually paid off with a lump sum over and above the mortgage!) and lived in it ever since -(not an IHT problem for me) -it’s size encouraged the 3 kids to leave home and not come back plus it is now a very suitable size for an old retired couple-affordable to heat properly in every room etc etc
House aspirations have got completely out of hand -do I detect the increasing power of the feminine influence here?
Lowering expectations which will probably happen anyway driven by market forces is a possible way ahead
xxd09
House prices seem to be limited to a combination of multiple of earnings or the propensity for landlords to outbid potential owners.
The real tragedy is the ratcheting up of rents – higher prices for ever worse properties.
No one has to buy a house, but you have to live somewhere…
Property seems to be a less than zero sum neofeudal shitshow in the UK (or as boomers call it, “my pension”
Many people don’t see their primary residence as an investment, and honestly, I’m, kind of, with them. A home isn’t just bricks and mortar, bought for an agreed price plus an eye-watering stamp duty. It’s our sanctuary from the chaos outside, and let’s face it, shelter is a human right, just like food or clean water. We’re raised to think that way: starting with living rent-free with our parents, where savings just meant not spending all your pocket money on sweets. When we move out, rent or mortgages become a necessary evil, not an investment strategy.
Buying a house is hardly rational either. “Ooh, bay windows!” or “Look, the kitchen gets morning light” win over spreadsheets every time. And even if you sell, you’ll just end up giving the proceeds to someone else for a similar house because: you still need somewhere to live. And no, you can’t easily move anywhere cheaper, because: jobs, friends, family, standards, etc.
It’s like other “assets” we don’t treat as investments: uni degrees (sure, some have better ROI than others, but many still insist on chasing a “calling”) or dogs (I could, in theory, sell mine to a puppy farm or for medical research, and yes, I do occasionally threaten him with exactly that, but I suspect he doesn’t take me seriously 😉 ).
Im a boomer. My first house, a semi, bought in 1978. £7,700, Deposit of £700.
It took 2 full time wages saved for 1 year. No holidays, going without, well everything.
I have never thought of my house as an investment. Or my pension. It’s my home, I live in it. I don’t care too much if the market value rises or falls. I have never consider buying to let. IMO a home should not be used as a business opportunity. I have seen quality renters literally thrown out of a rented home. My sis in law rented for 22 years, but when the owner paid off his buy to let mortgage she was gone in weeks.
The rebuilding cost of homes bears no resemblance to the market value. Why is this? Is buy to let responsible?
Fine set of links this week, thank you @TI. Particularly like AI Grandma, want her on my phone – so much more useful than Siri!
Interesting and perennially emotive thoughts on house values. As retirement looms and I approach the magic number, the house (which sits below the line on the pension spreadsheet) nevertheless has significant value. With no IHT complications, its monetisation is absolutely part of the safety net planning. Asset.
Can someone explain to me why the deposit percentage is so much higher than historically. I had a 95% mortgage when I bought my first place c.25 years ago and scrimped on everything to be able to afford it. I assume you can still get 90% (if not 95%), why are people not buying with these? Is it BOMAD?
@ChuckieB
Not an expert but I started work for an Insurance company in ‘92 and they had big reserves for MIG policies- mortgage indemnity guarantee. In the early 90s interest rates seemed less differentiated by deposit % and buyers had to purchase the MIG policy to protect the lender (against financial loss).
Over time interest rates has become dependent of deposit size – or risk based pricing if you like. Today 95% mortgages seem to pay a higher premium than historically – IMO
The Guardian headline “Rail ticketing in Britain has become an absolute farce” made me smile wryly although not for quite the same reason as the article is actually about. I recently went to the GWR site to get a relative a single ticket from S… to one or other of 2 local towns. The ticket from S to B was £35, the ticket from S to P was £13.99. Town B is physically closer to town S and it will be the same train. So you pay less to travel further…. make it make sense!!!
@ChuckieB
Your total loan size is capped as a multiple of your salary. Say your maximum loan (based on your income) is £400k. But you want to buy a house that costs £500k. That means you need a 20% deposit. Even though there are 95% deals available, such a deal will not enable you to buy the house you want, since the bank will only lend you up to £400k. Hence as house prices go up, if salaries do not increase at the same rate, deposits as a percentage of the purchase price have to increase to make up the difference.
Being picky, I’d say the mojo figure are incorrect for the deposit period for 1974 – average wage was about £1800 pa so perhaps 20 months, but not 3 months with 20% disposable savings (also it was probably a single wage in those days )
Aside, my aunty and uncle moved in with my parents in 1971 (aunty pregnant) and bought a house in 1973 for £4K, and still there. It didn’t take them 3 months to save the deposit, but there again they were teenagers and probably earned less than average
@Sarah,
Rail ticketing in the UK is utterly bonkers. I believe that the complexity is a British Rail legacy dating back to before the 1994 privatisation. I’m a retired non-driver and regard buying train tickets as a something of a game.
To wit, I’ve just returned from my annual trip south to meet up with old friends. I booked in early October with my old git’s railcard when a simple search for 1st class Advance tickets yielded a return fare well north of £300. Split tickets, cash back credit card, cashback credit card reward and a train operating company bung resulted in a net cost of £211.65. I should stress this was with precisely the same trains and changes as the original search.
Long may it last!
“As a result I bought a very small cottage”: not very small if it accommodated three children. Ours had one bedroom that accommodated us; the other was almost fully occupied by a built-in bed that would take two children if they were of the same sex and hadn’t yet started adolescent growth spurts.
It had originally been a farm labourer’s cottage: I suppose the farmer would have moved the family to somewhere bigger if the young chap and his wife started mass-production of children. A delightful cottage, mind; for us as a then childless couple, just the job – with an open fire fuelled partly by wood scavenged off the beach and washed to get the salt off. And then the ashes went onto the compost heap.
“The rebuilding cost of homes bears no resemblance to the market value. Why is this?” Because it is the land that is expensive not the hovel built on it.
dearime -it was indeed very small with 3 very small bedrooms-one of which was divided into two for 2 kids
A farm labourers cottage too with a coal fire
Much more cosy now with central heating etc but still not worth more than a couple of hundred thousand-if that
Very different house from our peers-question of priorities
xxd09
Small correction. For the white paper at Apollo academy it should be ‘reduced price elasticity’.
Also worth mentioning that houses were purchased with one salary 50 years ago. Due to positive changes within society, most homes are now purchased with two salaries. I notice the focus was on deposit rates, no mention of what the interest rates were?
There are also, as we have seen recently, significantly more people living in the country than 50 years ago, which far outstrips the country’s ability to supply homes. England is now the second most densely populated country in Europe behind the Netherlands.
Lastly, the housing stock, whilst far from perfect, is of better quality than 50 years ago.
Thank you for the replies.
@hosimpson – would have thought no-one buys the home they want, it’s never for sale at the right time and it’s always too expensive (has been the case for me)! Is it that people aren’t prepared to compromise so much these days because their lives must be perfect? I bought my first place as somewhere to sleep and stop paying rent, it was far from perfect.
Ermine – I’m surprised you’ve not referenced old buffets comment on compounding given your debates on this over the years -> “But the
real action from compounding takes place in the final twenty years of a lifetime”.
On compounding – we are a solid 15 years into a US bull market and there is lot of people confusing a p/e multiple expansion with compounding.
I get time in the market over timing the market etc etc and Neil Woodford will be forever tarnished but heed the message not the messenger and I’m going to really struggle to put the next ISA batch into a global tracker given the S&P500 multiple.
On housing, politics and UK economy, it’s all bad news isn’t it? One can hardly blame the conservatives for trying to make political capital – that’s just the nature of it all. Equally I’ve never been able to quite square the circle of 15 years of austerity alongside the greatest peacetime expansion in debt as % of GDP particularly with it all being spent on current expenditure not investment. Doesn’t quite work does it…
Housing’s been propping up the economy for decades hasn’t it. Same as spending North Sea oil revenues on current expenditure. Short termism looms large across our society.
The labour govt’s performance since coming to power is therefore deeply disappointing and disturbing. They have a very large majority if not in voter consent. Brexit is done and the pandemic has passed if not all the impacts. Starmer and Reeves are not intellectually bankrupt. They know the UK needs massive restructuring in energy, education, infrastructure and it’s going to be at the further expense of current living standards but there’s no appetite to take difficult steps or indeed be honest with the electorate. What happens next year when the unions want another >5% pay rise? More tax rises?
The UK is now more and more vulnerable to external shocks. What will it take for the people to wake up and smell the coffee? A real national disaster? events dear boy events….tends to happen every decade or so. We’re due another one in a few years time…European conflict? Energy crisis? Climate type disaster?
Does any of it matter? Well in 4 and a bit years time there will be another election. Farage will surely look to the US and say to the UK electorate do you feel better off? If not, you’ve tried the mainstream now try us. Reductionism to problems is a powerful force. Trump’s used it to very good effect.
What’s the answer? A mix of global equities, physical gold, some gilts (inflation & nominal), resilience across yourself in as many ways as you can.
It’s not going to get any better over the next five years is it.
@hosimpson rereading my post I’m not sure that it was clear where I was going with it. What I was trying to question was whether the higher deposit percentage was happening through choice and therefore we should be less concerned by it
@Seeking Fire #19 > “But the real action from compounding takes place in the final twenty years of a lifetime”
mea culpa, I didn’t read that letter, it’s a good’un 🙂 Logically it applies to any exponential where the rate of growth beats out the depletion of the capital. Spoiler alert – WB is better at this than most of us
Equally logically, it doesn’t apply to little people because they run down their assets after they stop working, unless their rate of depletion is less than the growth.
> we are a solid 15 years into a US bull market and there is lot of people confusing a p/e multiple expansion with compounding
I couldn’t agree more. It feels more and more like the dotcom bust 2.0 is waiting in the wings.
For FI/RE aspirants look at the bottom line and roughly halve it. If that’s good enough crack open a beer. If that’s too harsh knock off a third, if you can swing for a 4% SWR on that you’ll most likely get away with it. But if you only just about crest the finish line at the moment, there’s something to be said for OMY or two to get some breathing space. Highly paid jobs don’t grow on trees, particularly after you’ve had a year or two out…
“Highly paid jobs don’t grow on trees, particularly after you’ve had a year or two out…”
The Telegraph carried an article this weekend on a couple who had retired in their fifties to the Med where they run a donkey sanctuary. I didn’t read the piece but I did enjoy the photo of them and three of their asses – daft but utterly happy, I’d say, donkeys and humans.
You don’t happen to own a potential donkey pasture in Zummerzet, do you, ermine? It could be one giant leap for donkeykind.
Here’s an earlier Telegraph piece on a related theme.
https://www.telegraph.co.uk/news/2020/03/13/finishing-school-donkeys-helps-find-new-homes-pets/
> You don’t happen to own a potential donkey pasture in Zummerzet, do you, ermine?
Talking to a local farming family they say Londoners are buying some of the onesy-twosy plots round here, as an IHT ag relief scam. I didn’t entirely follow the logic, but he was able to point to the field. So donkey sanctuaries or other aspects of horseyculture could be on the up. Presumably as long as the land is < 1mill it can be added to your usual residential relief and allowance to big up the total a little.
They're bringing in Pine Martens to Exmoor. A rather fine mustelid. Not sure how they expect them to bridge the gap between Exmoor and Dartmoor.
Slightly confused why the Migration figures are not prime time, front page news for longer than a day – almost as though the major parties and media class have agreed to brush these inconvenient facts under the carpet. As a percentage of the population it’s in truly unseen territory 2021 onwards with massive impacts on British society and day to day life but it’s discussed in the most casual of terms despite repeated evidence of concerning trends.
The most bizarre aspect is this happened without any mandate – quite the opposite as the Conservatives have spent 10 years talking a good game whilst doing the opposite and the Boris/Sunak period turbocharged the process beyond what would have previously been considered conspiracy theory levels. Anecdotal evidence of my own eyes (Recruiting a role) shows a noticeable volume of people in the labour market who had India based roles their whole career then suddenly appear in the UK 2021-2022. Tell me what that does to average incomes and career progression for those 18-40?
I’ve no idea where this ends but nowhere good is my fear. There are effective solutions but I can’t see it happening under the current Labour administration as it would require the grasping of nettles their internal politics won’t allow.
One effect that might help explain the “unsustainable house price growth”:
A vast number of 20-somethings Live At Home now. They pay rent, mostly taken untaxed, so the mortgage payer’s real incomes are well up, and house prices rise accordingly.
It might go further: a new era of Granny Sub-Flats?- with richer growing families buying the vacated OAP houses while poorer/incoming people keep the smaller house prices up.
Then you have the Guardian link “stunning staircases” point: you can house more people if you use your space better: the big ones in vast wasteful halls
will go and the super compact ones become a fashion of necessity!
@meany
I’d be interested in knowing the going rate for stay-at-home board for 20 somethings?
We have 4 early 20’s grandkids living with their parents (2 families) – they pay £75 a week each. The parents joke about them helping paying off the kitchen but I don’t think there’s much leftover after food, utilities and wear and tear.
The kids say they want to move out but their standards/expectations are much higher than their budgets allow – too many flash houses on insta no doubt. “Rent is dead money” is quoted while taking out 5 year car loan for £2-300 pcm.
I suspect the main reason house price inflation has outpaced general inflation over so many years is because successive governments have made owning your own home incredibly tax efficient. Think about it, zero capital gains tax, an extra £350k IHT free allowance, and zero tax on imputed rent (ie while landlords pay tax on rental income and businesses pay corporation tax, homeowners pay nothing on the rent they are effectively charging/paying themselves). It’s similar to how farmland has become overvalued, because for decades farmland has been IHT free which means there has been great demand from rich investors (eg Dyson) which pushes the price up above what it should be. And I think over time the home owner focus in the UK has become culturally embedded, to the point that our parents teach us to put as much money into buying a house as you possibly can, and news articles about house prices get a low more views than changes in the FTSE100, which I think are self-reinforcing trends.
Or course some would argue the over inflation of house prices is because you can use leverage, ie get a mortgage to buy a house, but businesses can you use loans and mortgages as well (and frequently do, eg Thames Water), so I don’t think leverage alone explains why houses are more popular than stocks and shares in the UK.
We’ve got to the point where it’s better to buy as big (or as expensive) a house as you can afford and make improvements to it over time, rather than to invest in the stock market, or in additional property. Which is terrible for the economy (though I suppose there is a productive economy in home improvements) but no government is ever going to start increasing taxes on home ownership when 60%+ of households own their home.
And also *sorry rant alert* we now live in a country where residential property investors (ie landlords) are hated because they are directly competing with home owners for houses. There is no hatred for other types of investors, ie investors in businesses, land, corporate property investors, even though they are competing for similarly scarce goods. If you own shares in a business (which most people do even if just through their pension) then you are in effect exploiting the workers in that business, that is, to maximise profit the business should pay the workers as little as it can. And businesses should charge as high a price as they can for goods to maximise shareholder profits even if those goods are essential eg food. That’s capitalism and of course there are many benefits to capitalism but it is necessarily an exploitative system. No one gets upset if you own a large shareholding in, eg Tesco, and yet I hear people saying landlords are greedy and parasitic for increasing rent to market value.
I went off on a bit of a tangent there, but I guess I’m saying that if home ownership didn’t have such tax breaks then the economy might be more balanced, people might have investments in stocks and shares rather than in a house, renting might not be so expensive (because house prices wouldn’t be as high) and so on. Never gonna happen though!
@Wephway
I pretty much agree with all your points.
I think there is a massive distortion in the economy due to the tax efficiency of primary residences, that has led to the massive rise in house prices compared to average salary over the last few decades. Moreover, this is greatly worsened by the lack of new housing being built. (A cynic might note that house builders have traditionally accounted for ~25% of the Tory Party’s contributions.) Once can, perhaps more with hope than expectation also wish to see an increase in new housing stock over the course of the current government.
Also from this point of view, I suspect that higher Stamp Duty for second homes and landlords is probably overall a good thing. In addition, much higher council tax rates on unoccupied property would also seem beneficial.
@ChuckieB, @Wephway
The answer isn’t straightforward (the older I get, the more shades of grey I see), but beyond generational beliefs about housing or refusal to compromise, I’d argue stamp duty is a major culprit. It became progressive in 1997, but the curve has steepened since then.
Take a £500k entry-level flat in London Zone 2. Many are bought by people in their 30s, planning for families in the next few years. As house prices rise, progressive stamp duty creates a vicious cycle. Higher transaction costs mean you need to stay put longer to justify them, making the idea of a “for now” home and upgrading later almost absurd.
The first-time buyer exemption helps, but only postpones the problem. By your second home, higher stamp duty means you need to plan to stay longer, which means you need to plan for more space, better schools (possibly both primary and secondary, depending on your timing and the size of family you want to have), and a reasonable commute… that adds up to a pricier property.
And then there’s the maths. Stamp duty on £500k is £12.5k; on £600k, it’s £17.5k. Stretching to the £600k house (with help of extra “deposit” from family, presented as a “gift” to the bank) can buy you 10 years in the same house instead of 5, saving £12.5k in the long run. Is that irrational? Hardly.
Take me for instance — no one could have accused me of being unwilling to compromise as a first-time buyer. I moved to Clapham, FFS, and even got a lodger to help pay the mortgage for the first couple of years! Yet my stamp duty alone cost more than an entire year’s rent in my previous flatshare (far nicer, in a much better area). I was mortgaged to the hilt, with a 15% deposit, and sure, I could have bought a cheaper place in Elephant & Castle. But honestly, if you end up getting stabbed on your way home because some teenager wants your laptop, it doesn’t feel like much of a saving, does it.
@SF (#19), @ermine (#21):
Totally with you both re S&P p/e multiple.
FWIW, I have been there for some time (several years now!) too.
Just in case you missed it ERN’s recent take on the current valuation [and possible dotcom 2.0] is almost hidden in the comment at: https://earlyretirementnow.com/2024/12/02/small-cap-value-stocks-diversification-or-diworsefication/#more-78754
and might be of some interest to you both.
@Wephway #27
> I don’t think leverage alone explains why houses are more popular than stocks and shares in the UK.
Nobody needs to own stocks and shares in their 20s, but they need to live somewhere. If that’s not under their parents’ roof then it’s usually renting.
That’s not usually the greatest amount of joy you can have given the landlord/tenant power balance in the UK so people buy a house to get landlords out of their face, and most people need to do that with leverage.
I don’t disagree with some of what you say in that homeownership is privileged, but quite frankly the main benefit of homeownership is you don’t have to deal with Britain’s army of amateur landlords. It’s 35 years since I’ve dealt with that ilk but the memory hasn’t faded, and renting in Britain doesn’t seem to have become any less horrible, just horrible in slightly different ways. And yes, I hear landlords aren’t happy, but nobody needs to be a landlord – they hold more of the cards than tenants do, and have the privilege of choice in the matter.
Let’s hope the originators of the table you linked on the differences between 1974 and 2024 employ someone more numerate to calculate their mortgages than they do to present data. While the raw data appear to be sound enough (at least their sources are listed) the final column (labelled ‘difference’) is a mixed bag. I’ve not been able to get the same value as them for the ‘percentage’ difference in either price or deposit, although the simple percentage increases (i.e., divide the 2024 value by the 1974 value) are about 2600% and 11000%, respectively. The differences for % deposit and deposit as % of income are arithmetic differences and should actually be quoted in percentage points and not as a percentage.
That aside, in the original article, it is the table of house price to income ratio that is interesting to me. It declined from 1974 to 1994 and then nearly doubled between 1994 and 2004 and has increased slowly ever since. It hasn’t helped that rents have also increased significantly since 1974 meaning that those unable to live with mum and dad while saving for a deposit, have it much harder now than in the old days.
One other thing, before 2000 MIRAS (which was a continuation of earlier schemes) also made paying off the mortgage a bit easier even when interest rates were high.
There’s a (imo) quite good IFS youtube/podcast on this subject, in particular on how tax damages the housing market, worth a watch/listen if you’re interested in the subject: https://www.youtube.com/watch?v=KnfENB1sf7Y&t=1183s
@Ermine, I understand you had a particularly bad experience of renting. Personally I rented for 9 years from 5 different landlords and never had any issues but maybe I just got lucky. I believe the Renters Rights Bill is being brought in to try and crack down on bad landlords, in particular the new housing ombudsman should go some way to helping improve the rental sector.
I guess I’m just trying to say that I don’t think investing in property should be seen as ‘evil’ or ‘greedy’, because it’s no different to investing in stock/shares, there’s still exploitation going on either way. That’s just capitalism (which overall is still a good thing I think we can all agree).
It’s the beneficial tax treatment of owner occupation that drives high house prices with all the problems that causes in my view. And while I agree the playing field should be slightly tilted to first time buyers over investors, I think (a) if you go too far in taxing landlords the cost just gets passed on to renters making it harder to save up for a deposit, (b) the rental sector is important for a dynamic economy where workers can move to where the jobs are, and (c) a lot of the extra taxes on landlords are simply a way for the government to bring in extra revenue (as they talk about in the IFS podcast I mentioned above) but that causes distortions in the market and actually there are plenty of other wealthy people who’ve done very well out of land/property/business who could be equally highly taxed.