Sunday, Dec 18, 2016

Keeping the Ponzi Going

The Telegraph: Bank of Mum and Dad' now funds one in 12 house purchases

I'm losing track of the beginning and end of the circle. There's now £1.5 trillion in housing equity but you end up giving it away to your kids anyway. It does beg the question whats the point?

Posted by crash bandicoot @ 08:09 PM (4308 views) Add Comment

10 Comments

1. libertas said...

This really is not a surprising figure. The cliche term "bank of mum and dad" as derogatory is a nonsense attack on the family unit, disregarding the truth that families, not government, are the best source of support for children and as such, government should ensure that families have as much of their money as possible.

The Catholic principle of Subsidiarity comes into the fold here, whereby it is assumed that all powers should be exercised as close to the family unit as possible, i.e. actually a libertarian approach of minimising the size and role of government where the family unit can take care of matters.

The bank of mum and dad is a slogan of vicious socialists who would destroy the family unit at any chance. Like those who will tax families to fund mortgages that would be more efficiently supported by parents. What government could do is give tax breaks if they support their children rather than extract the cash and spend it in a way that controls the children and literally breaks up the family unit by making children dependent on the rabid teat of government rather than the nourishing breast of parenting.

Wednesday, December 21, 2016 10:38PM Report Comment
 

2. techieman said...

I don't think it's derogatory in any way Libby.

It is just showing the extent to which house prices are unaffordable without parents supplying funds.

You are condemning government while at the same time celebrating the fact that QE has reduced long gilt yields thereby contributing to increasing asset prices and loer debt servicing costs.

Prior to this generation there was little support from a BOMAD, so one of the planks of hpi support didn't exist.

Prices were affordable. The average family income could afford an average family house, mostly with a sole wage earner. Your complaint seems to be the family unit is being destroyed.

Do you not recognise that a major contributory factor is people over - stretching themselves ?

When rates rise this already social issue will likely reach crisis points.

You always want to equate your wealth in paper gains on your property with your financial acumen. You now seem to want to add to that a divisive stance that the people who have wealthy parents should be admired for helping their offspring.

In reality prices are determined at the margins so support by parents for unaffordable housing just increases costs for people that don't have that support.

Rupert and Jermima can out bid Jack and Jill to buy a place because of their access to BOMAD funding. This then increases prices for all the other Jack and Jill s.

Thursday, December 22, 2016 07:59AM Report Comment
 

3. libertas said...

I am not celebrating the fact that QE has reduced interest rates. I am simply observing it and seeing what is happening. I am the only one apparently here who rightly corrected that Gilts would go negative. And now, it is being driven more by international capital flows than QE in my opinion.

I would be very surprised if back in the day BOMAD did not constitute maybe 1 in 12 purchases as it does now. That does not seem excessive in any way shape or form, making me think that the whole meme is propaganda from a government that wants you dependent on their teat and not on parents, who give without the strict controls and dependency that come with government handouts.

No, the major factor is not people over-extending themselves, it us due to rampant inflation (caused by government deficit spending), over the top immigration (prices started soaring after Blair opened the borders, literally to the date). I do not blame individuals for participating in the market place to get what scraps they can find.

When rates rise? Not going to happen whilst capital floods into London from a sclerotic Europe. Sterling rates will only begin to rise once / if the Eurozone sorts out its issues and becomes financially stable. As we all know, they need a big crisis to lead them to reform before that could ever happen, and they are so bad now that this reform may well need to be its dissolution because even Brexit has led them to double down on their tyrannical and frankly stupid ways.

I actually do not accept that BOMAD is having a material affect if it is just 1 in 12 purchases. Certainly, help to buy, etc, is having a far greater impact alongside the buy to let boom that is being driven by dreadful industrial performance that makes the stock market useless as an alternative because of things like climate change, tax and trade policies decimating industrial production here. Back in the day, wealthy individuals would invest in factories rather than just houses, with a more balanced economy of homes and jobs (creating true affordability), but they have all gone. And everybody is huddled into London with relatively high paying jobs here and all the working class jobs gone.

Thursday, December 22, 2016 08:11AM Report Comment
 

4. techieman said...

Off we go again.. self congratulation. You are confusing negative short term rates with the long end (which as you know drives mortgage costs).

As for back in the day... if you go back to affordability indexes you will see what I mean. If prices are affordable there is no need (nor should there be) for intergenerational support. I am minded of the Japanese experience when loans were being underwritten by great grandparents. Maybe we will get there before the market turns.

You quote higher paying jobs in London and yet compare the average price home with the average salary.

As I have said before if the long gilt falls back below .5%, then we can say we are still in a bull market for uk gilts . Maybe that will happen but it strikes me that long bond yeilds in many countries are trending higher.

As I said prices are determined at the margins so yes HMGS desperate attempt to underpin an over - inflated market is no doubt a contributory factor . I did say BOMAD was ONE of the planks.

Thursday, December 22, 2016 09:00AM Report Comment
 

5. libertas said...

Sorry, the long end only drives long dated mortgages.

2yr rates will be broadly effected by 2yr Gilts, 10yrs by 10yr gilts, etc. It is precisely the flattening of the yield curve that has made 10yr fixed rate mortgages more attractive. At present, 1 and 2yr gilts are flirting with negative rates that if they go negative enough may see mortgage costs collapse and house prices soar.

Listen, if this is being driven by anticipation of a Eurozone collapse, imagine what would happen if it really did fall apart? As I have always said, capital will flood into Bunds, Swiss, Danish and Norwegian, but the lion's share will move to US Dollars followed by Sterling. Rates could plunge 5, 10% into negative territory if the capital flows are strong enough. Much of the rest of Europe will become Greece alongside mass defaults if the IMF (America) does not come in to save the day.

Wednesday, December 28, 2016 09:43AM Report Comment
 

6. libertas said...

UK 10yr gilts have touched upper resistance and are coming back down again, at 1.3%. They have a long way to fall at that point and I see negative rates right up to the 3yr gilt as a certainty this year.

Wednesday, December 28, 2016 09:45AM Report Comment
 

7. mombers said...

Don't know where to start with the private property rights problems associated with tax free gifting vs heavily taxed earned income. Why should getting money from one's parents be treated so wildly differently than getting it from working or running a business? Why should someone with no siblings be at such an advantage to those with one or more siblings (less tax free dosh per sibling to hand out)? A neutral approach would be to say everyone can get x amount tax free from work / business or gifts, then the rest taxed at the same rate. I would gladly waive my right to inherit any money tax free in exchange for my first £650k earned being tax free and tax of 40% on the rest. Money earned by working is subject to much, much higher rates. Basic rate income tax, national insurance and apprenticeship levy is 40.5% (!) on everything over £11k p.a. Higher rate is 49.3% - nearly half of what you earn over £43k. I might have a useful inheritance in 20 years time but would much rather have stronger private property rights for my earned income now, especially when I need it to give my kids the best start in life. They in turn will have little use for an inheritance when they are 60 (hopefully I won't linger much longer or shorter than that...) if it comes at the cost of a heavy burden during their working lives

Wednesday, December 28, 2016 02:01PM Report Comment
 

8. techieman said...

Libby ... a few posts back I said that 1.5% on the 10 year was a likely place to find support (for gilt prices) or resistance (for yields).

However, the question is then how far will the long gilt increase in price. Ofc you may be correct we may still be in a bond bull market.

Using uk as the example, the move to 1.5% from .5% may be a retrace against the larger bull (prices) trend or it may be the start of a bear (for prices) trend and the move back in yeilds is merely the retrace to that new trend.

I'm not sure I understand your comment re mortgages. Mortgage rates are based on the long end which is why the long end (and steepening of the yeild curve) is not exactly bullish.

Wednesday, December 28, 2016 06:03PM Report Comment
 

9. crash bandicoot said...

@ 1&3, I don't even think that the BOMAD even existed more than twenty years ago. In the days when folks could realistically buy their own home with just their wages there was no need for parental aid. And equally before the days of rampant house price inflation Mum and Dad didn't have tens or hundreds of thousands of pounds to give away after downsizing. If they sold up, they probably bought a car and a holiday and that was pretty much it.

I accept that inheritance has always existed and funded some house purchases, however it wasn't required to climb "the first step" as it is today.

Wednesday, December 28, 2016 09:52PM Report Comment
 

10. libertas said...

The question that we are not asking is, at what point is BOMAD no longer enough?!

We have not really constructed a meaningful number of family houses with gardens in or around London for probably 20yrs!! The market is now in the process of seeking out the last affordable areas where hard working upper working class individuals eeked out a comfortable but hard existence with them being priced out of these last enclaves.

In our neighbourhood, you could get a 3 bed home five years ago for £250k, but they now do not sell for under £400k. This was one of the last affordable spots of north east London! No longer.

Friday, December 30, 2016 11:09AM Report Comment
 

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