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Brian Hall

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About Brian Hall

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  1. Yes, but graduates will now be saddled with huge student loans, taxation will be rising to pay for all the bale outs, public sector pensions and a range of other issues (not least increasing housing benefit demands from those forced to rent in the private rental sector and the those less able to provide for long term care when they retire, with the retired population doubling by 2050), prices will rise on imported goods and supplies and now we have pensions auto-enrolment and benefit cuts for the vulnerable. Landlords will not be able to reduce rents by much before their cashflows go negative and they are being more agressive because they no longer see capital gains. So what will give first. Well look at Maslow's pyramid of needs and we will see that a roof over ones head comes ahead of most other things. So fewer young people may go to university to avoid the student loans and many will opt out of auto enroled pensions because they have more pressing needs. They will take fewer holidays, drive older cars, have fewer children and have them later and still they will have to find their monthly rent. These are hugely damaging things for the individuals affected and the economy as a whole. And landlords are already responding by breaking their properies up into smaller units so what one gets as a starter tenant will deteriorate. Sure one can argue that economic market forces will drive rents down but I have my doubts so long as tenant demand continues to rise. I was chatting to the Home Builders Federation recently and they said the problem for builders (who are land banking enough land to build 250,000 properties tomorrow) is ensuring buyers for their properties. There is a feedback loop that is currently working against the homebuyer and one part of this problem of buying into an overinflated market. That is why I built the model to explore the issue. And I found that buying still makes sense. I am really not sure what you are advocating. What I see is an ever increasing proportion of peoples wages being paid in rents because they have few options and the more this happens the more difficult it will be to save a deposit.
  2. I found your observations very interesting and I plan to read and reread them several times to ensure I understand all the points. But in the final analysis would you not agree that someone who owns a property outright by the age of 50 will generally be better placed to weather a range of economic scenarios than someone renting for life, say through to the age of 80 (providing these scenarios fall short of lawless anarchy that would make one wish to relocate)? I read When Money Dies recently and I am interested in what lessons can be learned from extreme examples of when systems become dysfunctional. I think we are now seeing structural changes in the market rather than cyclic ones but this doesn't mean we shouldn't try to understand them and take action to protect the vulnerable. In the case of the Weimar Republic those that owned land to grow food or had access to pounds or dollars became carpet baggers. My concerns centre around the trans-generational negatives and find it morally repugnant that some are attempting to profit from the exclusion of others. If the trends go unchecked then we could finish up with a property owning elite that rent to the rest of us in perpetuity. Somehow I don't think this will happen, after all the majority will be voters, but I worry what sort of avoidable and damaging chaos could occur before we return to what will represent normallity in the future. One angle I am exploring is what do people want and why is the system not providing this? Research consistently tells us that the majority of people want to buy. But the system has become self serving. A bit like the nations car industry in the 1960s, which was nationalised and failed to give the customer what they wanted because they could rely on being baled out. I see builders and lenders as fish in a sea, superbly adapted to doing what they do but completely ignorant and impotent with respect to the system they exist within. issues like global warming, over fishing and pollution mean nothing to fish. And coupled to this builders and lenders always place their short term competitive needs ahead of they long term health of the nation. And why wouldn't they? Jared Diamond has some interesting observations on this. At the end of the day I am a practical person and am keen to find solutions. Somehow I suspect that getting us from where we are to where we need to be will be more difficult than simply identifying the ideal destination. But understanding the system better is a sound first step.
  3. There is nothing clever or new in what you are saying and much of it is incorrect. You say that rents are not rising, but they will over a 25 year period, while mortgage repayments will depreciate. We can argue about the extent to which this will happen (and I have offered to develop a version of the model that allows anyone to play with the data), but this will definitely happen. You say that house prices are credit availability based. This is an oversimplification. For example, if there were an oversupply of properties today then prices would fall like they have in Spain. There are a whole host of drivers, individually and in combination, with reinforcing and correcting feedback loops and tipping points and market inertia and momentum resulting in all sorts of unintended consequences and chaotic behaviour, not forgetting attitudinal and confidence related drivers. You say that rents are affordability based. Well I would make the same point as above about assuming only one factor is at play here. You say that wages are stagnant. I wouldn't disagree but you are missing the point. The model is not modeling affordability. Instead it is outlining that the mechanics of homebuying mean that even though properties are overpriced (the IMF say 15%), it is still better to buy over ones lifetime. In answer to a previous comment, I reset property price inflation to the same as background inflation (way below the savings rate) and the returns were still substantial. You say that yields are falling. It depends who you listen to. I think buy to let investors overall profitability is falling. But some are predicting huge property price increases this summer, so landlords buying today could make massive returns. Once again there are a number of factors. Probably the biggest factor will be all the new investors pouring in to the sector. But then tenant demand is rising fast too. In any event, I used a constant yield percentage throughout the model, not a rising one. You say that renting is about the same as the interest element of the mortgage. I have run the numbers many ways in the past and generally buying now with a repayment mortgage is cheaper than renting. This was backed up by a report from the Halifax recently. When I ran this model the cost of buying on a repayment basis was higher than renting and this was a surprise until I considered the relatively high interest rate I had used. But what was interesting was the speed with which this reversed. Your comments boil down into three groups. The first is arguing that the model should consider wages and affordability and I am saying this is not what it is designed to do. Criticising the model for this reason is a bit like criticising a duck for not being a walrus. If I built could a walrus some would complain it wasn't a duck. Secondly you are suggesting that the seed data is incorrect. Fine, I though it would be interesting to use a 30 year average which includes boom and bust but I may publish a generic one online everyone can play with if I can find the time. But the mechanics of homebuying will remain constant and I think you will be surprised the extent to which you have to fix the input data to get the result you want. Finally, everywhere I go I find there are some people that think they understand the market. They come out with phrases like generation rent and bank of mum and dad or even property prices are credit availability based and rents are affordability based. Well I have worked in the mortgage industry for 30 years and yet I am finding the work I am doing at the moment really eye opening and often challenges received wisdom. You close with the fact you don't see the point. Well I see millions being disadvantaged because of first time buyer exclusion and the buy to let boom and I am prepared to try and do something about it.
  4. Understood. I rationale in looking to the past was to get some sensible looking seed data for the model. I agree with one of the other individuals that commented suggesting that things were very different in the 1980s. The model looks to the future using this averaged historic data but as I have said elsewhere I think I will productionise the model and put it on the website to anyone can plug in any data and read off the results.
  5. True, but my concern was with those that are excluded from homeownership, not those that are already homeowners but can't afford to remain so.
  6. I agree that wages are an important constraint. While prices were rising at 6.5% background inflation was 5.6% and we might assume that wages increases were somewhere around this level. To better answer your point I have just looked at the effects of reducing house price inflation to background inflation levels. Someone buying at 37 with 6.5% inflation would be £866,114 better off than someone who rents for life and with 5.6% property price inflation they would would be £533,572 better off. I am very interested in how the market functions and how it will boom for a while and then the bubble bursts. Wages would be an essential part of such a model as would taxation, etc, etc. But the model we are discussing now is not that sort of model. In my experience marketplace model can get very complex very quickly.
  7. Yield data over time is very difficult to get. The oldest data on yields comes from the Association of Residentlal Letting Agents but this only goes back a few years. The Royal Institute of Chartered Surveyors may have older data but I haven't followed this up and there is always the problem of consistency over the years. The model was based on public domain data from one of the large stakeholders - Countrywide I think, without going back to my notes. Why do you ask?
  8. I assumed that one either rents or buys. The cost of buying with mortgage repayments calculated to average interest rates over 30 years and the cost of renting using current rental yields were similar amounts at the outset. I took this as my base. As the mortgage depreciates away in real terms, the homeowner can save the difference between this and the cost of the ever increasing rent. Obviously if one lives with parents one can save for 13 years but if one rents one can't save as much as someone who is buying and will increasingly fall behind. After 13 year the homeowner will be significantly better off than the tenant.
  9. In my experience the simplest models can be the most inciteful, particularly if they stimulate debate. Moving a few times introduces new variables: the frequency of moving and the cost of selling/buying/moving. Typically people move up and so the benefits from owning a more expensive property will be greater than a smaller one (and the costs of renting will be proportionally higher too). I suspect these returns would be greater than the costs although I haven't modelled this. So one gains very little in terms of insights by adding to the complexity. KISS is better. A more important issue, raised elsewhere, is the impact of buying at different stages in the boom and bust cycle (assuming we will continue to have such cycles) and I have concluded that maybe I should go away and build a model that anyone can play with, rather than simply plugging long term average data.
  10. Exactly - so the earlier you buy the sooner your mortgage will be paid off and the sooner you live mortgage and rent free. Also mortgage repayments remain static while rents typically rise, which means that you will increasingly have a surplus to save in a tax-efficient savings scheme or pension (free money anyone). Finally, the earlier you do this, the longer compound interest has to work its magic. I never said the model was rocket science. One can change the variables but the logic is sound.
  11. I think rates must rise because we need to get people saving and reward those that have done so in the past. The prospective homeowner only has so much disposable income and so this may require that property prices fall so increasing mortgage repayments don't price them out of the market. But I am not an economist. With respect to the model I worked with 30 year averages to even everything out. But I have had so much interest in this specific point that I think I will go away and build a model that allows anyone to come onto the website, plug in their own data and read off a result. This model could answer all the issues you raise regarding buying with low rates in an uncertain, overpriced market versus buying with higher rates in a falling market. If you think this is a good idea, receiving your encouragement will cause me to push this up my list of jobs and priorities.
  12. No apology is required. One of the reasons I embarked on this initiative was because I got so tired of all the inaccurate, incomplete and biased data and all the self-serving, subjective opinion coming from the industry. Do you know you have to pay the Council of Mortgage Lenders over £10,000 to get access to their data. Otherwise you get given what they want you to hear. So I am not surprised you took my work to be part of all the background propaganda.
  13. Sorry I missed it. During the 30 years over which I calculated my average seed data, house prices rose by 6.5% per annum. Incidentally, the average savings rate was 6.4% per annum, which puts this figure into perspective. As various points through this period there were times when prices rose, times when they were static and times when they fell, but generally the trend was upwards. The model tracks a period of 62 years from 18 years old (the earliest one can buy) to 80 (which I took to be an average age of death) and calculated the results of buying at those ages (actually to age 60 with a maximum loan of 10 years, after which the individual was destined to rent for life) and all points between. because the period was so long, using an average over 30 years seemed fair as one is likely to experience several property booms and busts through a lifetime, averaging everything out. So property prices rise over time and rents are normally linked to property prices. That is why the private rental sector is so preoccupied with rental yields. If property prices fall and rents rise, tenants start buying, reducing demand and causing rents to fall again. This didn't happen immediately after the credit crunch, but in recent quarters rents have stabilised or even fallen a little, bringing things back into kilter. So, in principle, property prices will increase through a lifetime But once you buy your opening balance frozen. The model used a repayment calculator from www.mortgagesexposed.com. The cost of buying and the cost of renting may be similar at the outset but unlike rents which increase, your repayments, which are based on your opening balance, will not. So if you stay in the same house over 25 years your repayments at the end of the term will be a fraction of what your rent will be on the same property and after 25 years you can live mortgage and rent free. Now we can argue about buying at above or below the average market value, because of booms and busts, but I would counter these are cyclic and average out and the impact of losing say 20% from the value of your property is peanuts in relation to the enormous scale of savings one can make from buying, even in the bad times. We can also argue that interest rates go up and down (if you don't take out a long term fixed rate mortgage), but again these are cyclic and average out. Hope this explains the thinking behind the model.
  14. Enormous profits are possible with geared investing but so are enormous losses. Please see the attached extract which looks at profits and losses for both cash buyer and gear investor buy to let speculators before and after the credit crunch. By my reckoning geared investors are currently making losses (the rental income in the example just about covers the mortgage repayments and other costs). BRH Extract.pdf BRH Extract.pdf
  15. I understand your concerns. Perhaps I should develop some kind of sensitivity analysis that explores how far one can push the data before one gets a different result. I will explore this idea, thanks.
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