What caught my eye this week.
Last week we talked about the infamously inverted yield curve in the US. Meanwhile here in the UK the Bank of England has already hiked its policy rate to 0.75%. Now policymakers and pundits alike are mulling over how much faster and farther central banks will go.
There are various ways a higher Bank Rate could slow (or worse) the economy. Theories will lead you into a Spaghetti Junction of the money supply – M1, M2, M3 and beyond – or down other half-forgotten cul de sacs.
In the UK though, it’s probably easiest just to think about the housing market.
For good or ill (okay, ill) the UK economy is still geared around property and especially residential homes. A sector that seemingly has been flying through the stratosphere on fumes for decades.
But I believe when something has been seemingly running on fumes for decades, it’s probably better to assume you haven’t properly identified the fuel.
In the early 2000s both politicians and punters blamed supply and demand for high house prices. And I did too, for what it’s worth. Not enough houses were being built to meet demand, we believed. Never mind that rents had failed to soar by anything like the same extent – even though everyone has to live somewhere.
About a decade ago I finally realized that interest rates were all-important. Along with the laxity of bank lending, rates decide how much somebody feels they can pay each month for a property.
Very many home buyers will pay as much as they can manage without totally derailing their lifestyle. They hope prices will rise in time, or if not that their income will. And most pay via a mortgage.
What could go wrong?
Something going up beyond the rent
Take a look at this graph from Capital Economics, as highlighted this week by This Is Money:
The graph suggests that soon mortgage payments will become more expensive than rent. This should not normally be the case, because landlords want to make a profit1.
As rates and house prices rise, the monthly payments required to own a home via a mortgage climbs further. The graph forecasts that monthly payments will soon be above their last peak.
Of course, a pound is worth a lot less now, and it will be worth even less by Christmas. But the pressure from rates shrugging off their torpor and struggling to their feet is clear.
Caveats abound. Many people are on fixed-rate mortgages nowadays. Affordability is stress-tested when you get a mortgage. The nice lads on The Property Podcast reckon this cycle has several years more to run as regulations are loosened and banks go a bit crazy.
Also, would policymakers really want to provoke a housing market crash by raising rates too far?
Long ago I used to scoff at such talk as clutching at straws in the face of an elevated market. But actually, presuming policymakers will do all they can to avoid a repeat of the early 1990s housing crash has been a pretty good heuristic over the years. How much higher could Bank Rate go before roiling UK PLC and its stretched populace?
With vast government debt also looming large, you can see the appeal of inflating away these problems by avoiding real yields from climbing too far (aka financial repression).
In such a world, you might think you’re getting finally 4% from your savings account, but you’re forgetting inflation is running at, say, 5%. The real value of your money is still getting gently mullered.
Interesting times. Have a great weekend all!
From Monevator
Defusing capital gains: a worked example – Monevator
The Slow and Steady passive portfolio update: Q1 2022 – Monevator
From the archive-ator: the revenge of the latte factor – Monevator
News
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!2
House prices have risen more than 18% since the first lockdown – BBC
Four-day week trial in the UK: which companies are taking part? – Yahoo Finance
Covid infections at record levels in most of the country, figures show – Guardian
One in four investors pausing contributions to ISAs and pensions due to cost of living crisis – ThisIsMoney
The top 1% of UK adults received 15% of fiscal income in 2018–19. More than flows to the bottom 55% of adults combined [PDF] – Institute for Fiscal Studies
Products and services
UK’s energy strategy may take years to bring down bills, says Kwarteng – Guardian
Best cash ISAs for the new 2022-2023 tax year – Which
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
Venture capital trusts raise more than £1bn [Search result] – FT
Marcus Bank paying 1% again on cash savings and cash ISAs – ThisIsMoney
Your rights if you are affected by travel chaos or Covid – Guardian
Supermarkets on Deliveroo and Uber Eats – Be Clever With Your Cash
Should you buy a new-build home off-plan? – Which
New no-fault divorces: an end to the blame game? [Search result] – FT
Future-proof homes for your next stage, in pictures – Guardian
Comment and opinion
A checklist for corrections – Compound Advisors
Okay boomer, what’s your inheritance tax strategy? [Search result] – FT
The world is waking up to autocracy risk – Morningstar
Five things I know about investing [Fortnight old] – Ken French
Lessons from ‘King Boglehead’ Taylor Larimore at 98 – AARP
Stock options: why it’s not always a straight line from shares to cash – B2B
The yield curve just inverted. So what? – Of Dollars and Data
Seeking a new ISA platform – Simple Living in Somerset
Testing the retirement waters – Humble Dollar
A flexible retirement age increases income inequality – Klement on Investing
Dependence – Indeedably
Behavioural finance 2.0 [Podcast] – Standard Deviations
Crypt o’ crypto
Government sets out plan to make UK a cryptocurrency tech hub – GOV.UK
In defense of Bitcoin maximalism [April Fool] – Vitalik Buterin
Naughty corner: Active antics
Nick Train: the patient optimist [Podcast] – Far From the Finish Line
How to identify companies most vulnerable to surging energy prices – Maynard Paton
Don’t panic, don’t chase – Howard Lindzon
Four ways value investors can use momentum – Validea
How one shareholder takes his voting duties semi-seriously – Humble Dollar
Brexit screwing up UK trade mini-special
UK exporters are struggling, and it isn’t hard to see why – David Smith
Lorries are queuing 18-30 hours on the M20 due to broken borders – via Twitter
Sunak admits UK’s dismal recent trade ‘might’ be linked to Brexit [Search result] – FT
Hopes of post-Brexit US trade deal fade away – The London Economic
Kindle book bargains
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: Notes from a Grown-Up Country by John Kampfner – £1.99 on Kindle
Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman and Chris Yeh – £0.99 on Kindle
Environmental factors
Final warning: what does the IPCC’s third report installment say? – Guardian
Can Norway’s $1.3 trillion oil fund actually give up oil? – Institutional Investor
The race to rebuild the world’s coral reefs – Wired
Scientists find microplastics in human blood for the first time – Guardian
1,000-year old oaks used to create ‘super forests’ – BBC
Off our beat
DALL·E 2: OpenAI’s new natural language to art incarnation – OpenAI
The time hack we should all know – MIT Reader
How everyone got so lonely – The New Yorker
Do you have to like your job? – Vice
Keep your waist to less than half your height, guidance suggests – BBC
The current thing [A few weeks old, how ironic] – Stratechery
No news is good news [Also week old] – The Commonplace [h/t A.R.]
And finally…
“To the extent that the world still doubts Elon, I think it’s a reflection on the insanity of the world and not on the supposed insanity of Elon.”
– Ashlee Vance, Elon Musk: Inventing the Future
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- Although that’s yet another truism that’s gotten screwy in the near-zero interest rate years, as landlords in pricey parts of the country have banked on capital returns. [↩]
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We all need somewhere warm out of the rain and snow in these northern climes but…..
To extend that premise to far always seemed odd to me except for the very rich
Pensions,raising kids( one of the most expensive things you can do!) ,travel seemed much more important to me than a large fancy house
Houses are a necessity but are expensive to buy,maintain and heat so buy the smallest one you can get away with!
My wife and I raised 3 kids in a small cottage which now suits us both in retirement and is so so small that they can’t move back in-joking!
I never did make enough to get that big house after everything was taken care of but it was not a popular point of view in those far off days
xxd09
The Tory government is still full of former spads who remember what happened to John majors government when the housing market collapsed in the early 90s
Remember help to buy was created in the ashes of the gfc and the government has 00s billions of fiscal headroom now due to tax rises and inflation
They will do everything necessary to keep the bubble stoked until a 2025 general election
Conservatives conserve the assets of the already rich
Thanks for this! but just to point out a minor error – it’s waist, not weight, that we are being advised to keep less than half our height.
Thanks for the brexit links this week must admit i had stopped looking at it. People are never going to admit its an economic act of madness so will point at lots of other issues. Now the gradual squeeze is making it obvious and its going to get worse until people admit there is a problem. Ignoring it is foolish but we know there are lots of fools out there.
Me and my partner are just about to start playing the mugs game. We are going to view 7 properties this afternoon.
In the last month our disposable income has taken a hit thusly: £90/mo increase on rent (lease renewal), £110/mo lost to higher taxes (thanks Sunak), and ~£70/mo increase on energy = ~£270/mo.
This kind of sudden hit to your cash-flow definitely pushes you to be conservative about estimating a household budget in a newly purchased home.
I know for a fact that us buying a property will impact our ability to save and invest in the short-term, and hence retire early. My personal capacity to save and invest outside of a pension (e.g. in an ISA) will be reduced to something like £500/mo – which may sound pretty good but, as demonstrated by this cost of living crisis, can be wiped out very quickly.
On top of this buying a home is a big risk. As of today we could both lose our jobs and still make rent and pay bills for around _5 years_ before ending up on the street. If we buy that will be measured in months.
But what are the alternatives? At the end of the day buying will provide 5 years of guaranteed regular savings at 2.25% (repayment component of the mortgage), reduced rent (the interest component), shelter from a landlord who is putting up the rent at 5%/year and, hopefully, a good return on our 15% deposit (a 1%/yr increase in house prices will yield a ~5%/yr return on our deposit after factoring in taxes and costs).
At 35 I’m also hoping our first home will be pretty close to a ‘forever home’, with no foreseeable reason to move in the next 10-15 years.
@GDAS (@others who also contacted me on Twitter and email) — Thanks, that is a truly stupid and embarrassing typo. Not to mention mathematically challenging.
Fixed now! 🙂
@Andrew — I’ve remembered your concerns about the housing market over the years. 🙂 Needless to say I’d suggesting fixing the rate for those five years. At least if inflation stays surprisingly high and your rate is fixed it’ll help with your debt affordability in the long-term. Good luck!
@Pinkney — Indeed. As I’ve said from the start, it was never going to be a car crash (though this ongoing border SNAFU is worse than I expected) but rather a slow bleed from lower growth, a more closed economy, higher inflation, etc etc. We’ll hear about the problem of our aging society or a failure to level up the North or whatnot, but they won’t admit to the 10-25 basis points a year lost to stupid trade barriers. And that will compound over time. There’s zero sign of Singapore-lite, either (rather we’re now a high tax high spending state, though most of that’s not their fault to be fair) so even the economic haves will suffer over the long-term. Oh, and we have got the war in Europe they said it was scaremongering to bring up. Absolute muppetry.
@xxd09 — Has to be satisfying to have bagged a lifetime home though!? 🙂
Brexit was always going to be a short term nightmare, generally a bad idea but I always thought that 25 years after it would work out, people adapt.
However Brexit is playing into a World that is changing a lot quicker than I ever imagined, Globalisation is going into reverse and protectionism and nationalism are certainly stronger than we have grown to expect.
Keeping an ability to be more self sufficient is looking more attractive in many parts of the World and had Brexit been defeated by a small majority I would imagine there would be strong pressure for another vote.
@TI – Two questions – (1) does your £525 bonus link for InvestEngine still work? (2) where can I find the list of available ETFs? They say there are 500+, but which ones are they?
@Andrew –
you buying a property will impact your ability to save in the medium term. Plan to be broke for 5 years at leat. But when it comes to retiring early, property is an investment. You can look at it as an inflation-pegged fixed income instrument that pays your rent. The peg isn’t perfect since you’re exposed to future maintenance costs, however, on the plus side, it’s a near perfect hedge for longevity risk. Also, the older you get, the more stressful moving becomes.
Location matters. I originally rented a 1 bedroom flat in a well known city centre. Later, I bought a house about a 30 minute journey away, in the middle of a new area, but not near a city centre, and with no fancy city centre benefits like coffee shops, night life etc. My monthly housing cost went up very slightly but I had a 3 bedroom house and mortgage term well below the normal number of years.
The times where living costs are going up and people are considering their options are the very times to ask do you need to be living where you are, and could moving to a different area save you a fortune? The value of my house would not even get me a 1 bedroom flat in the city centre. I know this post is looking more widely at the overall situation, and appreciate that some people have no real choices due to work arrangements and such, but chatting with work colleagues quickly made me realise that for some individuals, the idea of living outside an expensive city centre or moving to an area perceived as ‘not as good’ is just not something they will ever entertain.
Each to their own, but I would encourage anyone worried about rising housing costs to go back to the absolute basics – do you need to live where you are? and could moving to a cheaper area, whether renting or buying, be a good option? This necessitates viewing housing as a form of shelter and not an asset you are assuming will rise in value, but once you view your house as a base to live in and work from, and not an asset, you might just start viewing your living options and the associated costs differently.
Went to see a newly listed 4 bed terrace in zone 3 today, which was the first day of viewings. 35 couples/families showed up to view. 2 others shared our 15 minute slot. Afterward the agent told us he expects it to easily go for £100K over the asking price.
Presumably this means there is still tonnes of room for increased mortgage rates to knock a load of buyers out of the market before prices start falling.
OTOH I work in residential development and we’re now being told by purchasers that if they don’t get their property deals through in the allotted time for their mortgage deals, then they can’t afford them.
Seems like valuers are marking the market down & hence the mortgage offers come down with them.
UK house prices are essentially determined by three factors: long-term real yields, changes in real income and tax changes. Note the absence of “supply-demand”. Of those, long-term real yields are the biggest driver.
The fact that it took the BoE till 2019 to admit this somewhat beggars belief but they got there in the end ((https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate.pdf). It’s shows that property acts like an asset, not a tradeable good, and thus it’s flow over stock effects that dominate (Wren-Lewis was saying this for decades). It’s discounting that dominates for prices not “supply-demand”. Supply-demand, being a stock effect, drives rentals.
So what matters here is unatticipated changes in forward real yields. Not short-term interest rates. Watch those 25-year index index linked Gilt real yields. A 1% move higher in long-term real yields could generate a 20% fall in house prices.
@12ZXSpectrum48k
Yes, that is what I have been saying for decades, if less eloquently.
I would add another factor, which is societal change. There are a lot more dual high-income couples buying their first home now, compared to the past, due to women being more likely to have higher paying careers.
@ZXSpectrum48k
It looks like the real yield on such funds is still -2% today, the same figure mentioned in that paper.
None of this really explains the COVID surge in house prices.
@ Andrew:…I know for a fact that us buying a property will impact our ability to save and invest in the short-term, and hence retire early. My personal capacity to save and invest outside of a pension (e.g. in an ISA) will be reduced to something like £500/mo – which may sound pretty good but, as demonstrated by this cost of living crisis, can be wiped out very quickly.
Buying a house is long term saving, I built and sold for £152k it’s now worth £1.2mil. If as you say you will be hard pushed to buy but can still save £500/mo, your choice, but it may be better to pay the mortgage off first.
“At 35 I’m also hoping our first home will be pretty close to a ‘forever home’, with no foreseeable reason to move in the next 10-15 years.”
If you want to make GOD Laugh. tell him your plans. Now what is it that NIKE say,…..”Just do it”
@ Random Order:…but chatting with work colleagues quickly made me realise that for some individuals, the idea of living outside an expensive city centre or moving to an area perceived as ‘not as good’ is just not something they will ever entertain.
And thats the generational difference, a vegan will eat Aberdeen Angus if they want to survive.
@TI:…In such a world, you might think you’re getting finally 4% from your savings account, but you’re forgetting inflation is running at, say, 5%. The real value of your money is still getting gently mullered.
Thats infinitely better than less than 1% with 2/2.5 % inflation since 2009.
In his March 1988 budget, Ian Lawson, bless him, announced that the mortgage tax relief would be reduced/removed the following August, followed by a stampede to buy, and then followed by a slump and 1000 properties per week being reclaimed. If like many, you handed your keys back thinking that was the end of it, the banks still came after you years later.
Memories Eh!
@Andrew. To be fair the 30 year Gilt real yield dropped 80bp between start 2020 and end 2021 (from -1.8% to -2.6%), generating about a 16% UK house price rise according to their model. Plus tax changes have been positive and real disposable income increased over 2020/21. It’s only in the last three months that real yield move has reversed fully.
The BoE model has some validity over the long term but 2 years is too short for it and 3 months is just noise. Headline inflation is simply too volatile. What they really need to use is changes in forward inflation expectations and real forward starting interest rate swaps (since banks are operating through swaps in the mortage market). It’s unanticipated changes in these expectations that matter, and feed through into discounting changes. Right the real yield on swaps is lower than in early 2020 and the forward curve is much flatter. This results in higher discount rates and higher prices.
@Kraggash, good point. More WFH since covid has allowed more women to join the workforce, which could be one reason middle class still buying houses even at high prices.
@HariSeldon, Brexit was an immigration issue and the consequence is giving up some trade. The other side effect is rising incomes at low end, without which the cost of living crisis would’ve been unimaginable. But you won’t see that reported here as this website still thinks immigration has zero effect on income. Look at Europe, zero wage gains but same inflation. Saved by governments taking the hit for energy price hike – will be passed on to future tax payers.
Regarding buying houses. The way you purchase houses in Scotland is less auction-like. Also, new-build houses are put up with a fixed price, you pay your reservation/admin fee and the house price is locked-in, even if it is not built yet. Yes, even new build houses are grossly increasing in cost broadly in line with market, but by buying new-build, certainly in Scotland, you are not in a bidding war with other buyers, you literally sit down with the sales agent, they tell you the price, and you sign all the paperwork. Then they try flog you the ‘extras’ at grossly inflated costs but that can be dealt with via a polite decline.
Try looking at new builds in Scotland even if you have no intention of buying, go to a site, view the ‘show home’ and talk to the sales person. I have bought one house and I knew if I wanted it I could get it at the very exact price I was told.
And no, I have no contacts or any vested interest in the building industry, other than my world+UK index fund exposures to house builders. Just pointing out one way to avoid the bidding wars.
@hosimpson — You (and I) still get £25 via our referral link. 🙂 The £500 cashback offer was time-limited as warned in the copy when posted, unfortunately. I believe it expired 5 April.
@all — Re: Housing, very interesting discussion. I suppose if we’re applying long-term discount rates still to property prices (versus near-time mortgage rates, which I remain convinced are a factor too) then we might also apply those long-term negative yields to all those utterly beaten-up down-60% high growth tech shares in the US after all, and buy them all back! (Which indeed I have been doing at the margin, too early, and trading around positions as usual).
I suspect as ever it’s a bit of a mix of all factors. At least I’m relieved to hear that my massively down-rating the importance of supply/demand, whilst tardy, was still nearly a decade ahead of the Bank of England. 😉
@ti – you appear to be even further ahead of the BOE than you think – because the BOE paper that is linked above is a bog standard piece of supply and demand analysis.
Re: housing, if the thesis is that prices align to gilt returns then how do you explain the uneven nature of prices across the UK? I semi-regularly have a look at house prices in other places when jobs come up and am always amazed at how expensive comparable cities (based on population, demography, median incomes) like Liverpool, Leeds, Manchester and even less attractive ones (e.g. Hull) are relative to Glasgow, where you can generally get your pick of family homes in a nice suburb or town in the city region for 30%+ less than similar in those places if the disparity isn’t a function of more constrained supply?
@17ZXSpectrum48k
To add to your last comment, there is an additional delay between interest rates and inflation due to ‘human factors’. E.g. After a period when interest rates have been high for a conciderable period, a drop will be viewed with suspicion by both lenders and borrowers. “It will soon go up again”. It is only when the interest rate is seen as the ‘new normal’ that people will borrow to their full extent.
An I guess this applies when interest rate go up as well.
@E&G — Well firstly we clearly can’t take supply/demand completely out of the equation. For me anyway the discussion is about what caused the big step-change in price-to-earnings multiples between the pre-mid-1990s and the post…
With that said I think salaries would account for the difference you observe (i.e. spending power) versus supply. As I said above I believe most people spend as much as they reasonably can on their own home, subject to what the bank will give them (salary multiple) and what it will cost (interest rates).
Perhaps the much-vaunted post-Covid distribution of the workforce and presumably the attendant incomes will take the edge off this in the years ahead?
@The Investor
As per my previous reply, borrowers and lenders still had high interest rates in their rear view mirror (base rate of 10.4% in 1991). Once it was realised it was not just a temporary dip (it was only 8.3% in 1987…) and lower rates were here to stay, people were happier to pay more.
@The Investor
“Oh, and we have got the war in Europe they said it was scaremongering to bring up. Absolute muppetry.”
Not sure if you’re implying that Brexit led to Putin’s adventurism in Ukraine? I think it’s more a result of him taking a calculated gamble in doing it, because:
1. He’s done this sort of thing before, and well before a Brexit referendum was even a twinkle in Farage’s eye. See e.g. Georgia/South Ossetia, Abkhazia, etc. What did the West/EU do to stop him? Nowt other than some minor sanctions, which Germany dropped as soon as possible because it was hurting the export earnings of Mercedes and BMW!! (As an aside, if you look at what Putin’s doing in Ukraine, it’s exactly what Hitler did in the Sudetenland/Czechoslovakia in WWII).
2. The EU’s ideas of a “European Army”. Remember Mr Clegg I think it was who told us that was preposterous “scaremongering”, and then guess what? Turned out that those knuckle dragging Brexiteers were right on that too. Incidentally, those who voted remain and scrambled to get their Irish passports might want to check up on what that now actually means for them being conscriptable into that european army. Thing is, there’s already been a perfectly good “european army” for ages. It’s called NATO and has been the cornerstone of european defence and keeping the peace in Europe since WWII. By openly talking of setting up an alternative to NATO, but one which doesn’t have the USA as a part of it, the EU shot themselves in the foot and Putin has (rightly) decided that it’s not worth paying attention to if it’s not backed up by American military muscle. Again, nothing to do with Brexit and hey, the French were even looking to sell amphibious class assault ships to Russia not that long ago. Look up the Mistral class ships and Russia on google. Luckily someone saw sense there before it was too late though. Talk about selling your enemy bullets for their guns… !!!
3. Following on the theme of NATO, Germany has been a delinquent member for ages, certainly under “Mutti’s” tenure as Chancellor. Easy to have a Wirtschaftswunder when someone else is ponying up the cash for your defence. Again, this was all going on well before the Brexit referendum was a twinkle in you know who’s eye. Things are maybe now finally changing under Scholz, so I guess we’ll need to see. I don’t think history is going to be kind to Merkel. The fact that Sweden and Finland now seem to want to join NATO is, for two countries famed for their neutrality, nothing short of amazing. Maybe the world is not the bed of roses everyone thought. Maybe the fashionable bashing of the Americans as cowboys is going to end as countries decide – you know what, we want to be part of a club backed by their military might, to help protect us against the nutter to the east. Governments are (hopefully?) realising that running down your defence is a false economy.
4. Germany again. When you’ve made yourself basically wholly dependant on a single fuel for energy, being supplied by an autocratic regime, maybe you should have stopped to think about what leverage that gave that regime over you? Compounding it by being a delinquent member of the EU by trying to build a gas pipeline direct from Russia, bypassing fellow EU countries (amongst others) and thus denying them e.g. transit fees also seems odd? So much for “one EU”? Looks more like “as long as Germany is OK, that’s all that matters” ? Again, can’t see how Germany’s behaviour, strategic blunders/self-inflicted energy wounds are anything to do with Brexit…
5. You can’t have it all ways on Brexit. You can’t claim that we’re a small, insignificant carbuncle on the arse end of the colder side of the european continent, and then in all seriousness claim that Putin only invaded Ukraine because the UK exercised it’s Article 50 rights? That would tend to suggest we are important somehow, no? Remember, right at the start of the whole Brexit process, France & Germany demanded, and got from Theresa May, guarantees and new treaties on continuing defence and intelligence co-operation. Again, why would they bother with that if we were truly insignificant?
Interesting times
Boris playing rather a blinder
Got Brexit done
Got us all vaccinated asap
Got Ukraine armed -even went to Kiev!
No one’s perfect but this strikes me as a leader you might want for these times
He has the independent status of Britain enabling him to act
I afraid that EU appears rather laggard
xxd09
@Dragon — You write:
5. You can’t have it all ways on Brexit. You can’t claim that we’re a small, insignificant carbuncle on the arse end of the colder side of the european continent, and then in all seriousness claim that Putin only invaded Ukraine because the UK exercised it’s Article 50 rights?
Yes, well I didn’t say that did I? 🙂 As you quoted yourself I wrote:
“Oh, and we have got the war in Europe they said it was scaremongering to bring up. Absolute muppetry.”
I don’t believe Putin was moved to act solely on account of Brexit, no. Not at all. I do believe he believed he had much more freedom to act after years of rising division and nationalism, de-globalization etc in the West.
Straw men aside there’s plenty of merit in your other four points, a healthy chunk of which I agree with if not every detail.
I don’t think the UK is wholly insignificant. I never said that.
As I’ve said any times, I know we’re the world’s 6/7th richest nation by GDP, after more than 40 years of prospering within the EU, that Brexiteers were somehow able to convince people was some kind of economic mistake. (As always I’ve no problem with the rationale for voting Brexit for sovereignty).
Unfortunately, 6/7th isn’t 1/2nd. To remain prosperous we must trade successfully and freely. Also we can’t move our small island on the edge of Europe to, say, the South China Sea or the Indian Ocean. We’ve a huge and rich market for the stuff we’re good at (services, high-end specialist goods, etc) on our doorstep. Which we have now left.
As for defense, my point was mainly that yet again Brexiteers have been proven wrong*. War is always a few bad decisions and a couple of decades away. We gamble with peace and prosperity at our peril. (And agree with you about the gas pipeline and Germany, I’ve been arguing that German policy has been wrong since Fukushima although perhaps not here. Being pro-EU doesn’t mean thinking every country always does the right thing, any more than I thought every decision Gordon Brown or David Cameron made was the right one.)
*I am not sure exactly what they’ve been proven right on so far, except that the economy hasn’t gone completely off the rails. Remainers who claimed that would happen were muppets, too. My position has always been that Brexit is a slow puncture, not a car crash, from an economic perspective.
Dragon / Investor / XXD09 – basically agree with your comments, which are not mutually exclusive.
Brexit is a slow moving economic car crash that is now being played out and will mean less money for public services, those in need and higher taxes. All of which we are seeing and is exacerbated by the cost of living crisis that’s not much to do with brexit. But we’ve less tools to respond. The brexiteers now are starting to admit that.
Equally there are some potentially major geo-political benefits that we are seeing.
But unless we do some serious economic surgery of which there’s no appetite, things look tricky – latest data shows anaemic growth. It’s the reason I voted remain but still have a serious foot in the leave camp.
Germany is the dominant county in EU because….it’s the dominant economy – there’s a message in there for those sanguine about the economic affects of Brexit.
Very Interesting housing and BoE article. In the pursuit of FIRE and optionality I have aimed to keep my primary residence to around twenty per cent of net worth to minimise maintenance, expenses and to be able to shovel as much cash as possible into investments including a few somewhat ill advised buy to lets. Which has turned out to to be completely wrong really. Should have just got the biggest multi million pound london house I could have afforded and banked the tax free gains. At around £900 per square foot where I live I need to spend around another £1 million to upgrade to the ideal house. Which doesn’t derail fire entirely but would keep me in hock to the man for a while longer. Ludicrous really but given the number of people who will be choosing between heating and eating this year there’s nothing to complain about.
One point on property I don’t see others making is the distorting effect of our weird and complicated taxes. Many people have become B2L landlords without much of a plan, e.g inheritance, or buying a home but not selling their ‘starter’ flat, or just because pensions / investments seem complicated or casino-like versus bricks and mortar. But having taken on a B2L during, arguably, 22 years of suppressed interest rates, the growth in capital value leaves people now sitting on a significant gain that they are not daft enough to pay 28% CGT on.
Even if today they want to use some of those profits, or diversify away, there would need to be significant falls in NOMINAL value before that looks worthwhile, as CGT takes no account of inflation. Otherwise why not just keep re-mortgaging to get at your profit? Until rents decline so much the debt cannot be serviced – which they won’t as there are so few new homes being built. There is no ‘release’ valve on the pressure cooker of prices – I wonder if a one-off, 12m only rate of say 10% CGT on property sales, perhaps rendered null like the 30 day rule if the money is put straight back into B2L, could have an interesting effect in a rising interest rate world as these people get out…
@ Austrian
Very interesting – perhaps lenders should be thinking about LTV limits net of any CGT due – this could limit the ability to effectively be overdraw with the HMRC. Or even a new tax (CGT on account for properties where the mortgage is greater than the purchase price!)
An amnesty on CGT would be popular with first time buyers – perhaps even dropping the extra 8% on residential property would help.
On the plus side for taxpayers it should help IHT takings longer term.
On a personal note I rent properties to my daughters – my current idea is to transfer a % of the equity every so often to minimise CGT.
House prices can be thought of as a function of demand. Demand is a function of the ability to save enough capital over time. Ability to save is a function of the inflation of goods and services used. Inflation is a function of monetary expansion. Money (the demand/supply of) is a function of nominal interest rates.
Just an example of the silly convoluted arguments on the drivers of house prices.
Was the housing bubble in 2007 really a housing PRICE bubble? Or was it instead a bubble in housing loans? Surprisingly many think it is the former. Clearly it was only ever the latter.
Nothing is ever as simple as a BOE model.
I hereby declare the pandemic over. Infections at all time highs, excess deaths below normal, and I simply do not care anymore. 4th vaccine? I’m sure it would look great on Pfizer’s financial statements. Time to move on.
Perhaps I’m imagining it but I seem to recall a recent Monevator article covering Broker share dealing on foreign (maybe just US) exchanges?
Does anyone have a link?
Cheers
@Prometheus — Alas, I can’t recall publishing such an article anytime recently. However there’s often discussion of that sort of thing in the comments. Maybe have a trawl back through the comments on the Broker Comparison table?
https://monevator.com/compare-uk-cheapest-online-brokers/
@investor, thanks. Apologies for the OT hijack. You’re right…possibly too niche a subject for an article and my imagination being too imaginative (not age related at all!)
Btw https://freetrade.io/pricing seem to offer a comparison against the big platforms, given the necessary caveat that it has a marketing bias to its comparison model.