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
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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!