Salaries Are Now Irrelevant.

[wish I could afford one]

Your blog post frequency alone shows that you spend a significant amount of time on it. I also admit that I too spend a fair amount of my brain space on these matters.

Yes I do that's why I put the disclosure in. If your using "brain space" in also I wish you much success.

However, I know many who are very capable, intelligent and productive people who have no interest in it whatever. They don't have any interest in X-Factor or Eastenders either. They are members of what we tend to refer to as the middle class. They used to be able to get ahead - at least build some kind of a stake in life.

Now they can't and they don't understand why. I don't think their lack of financial market awareness is the reason.

I guess thats where I and I'm sure many others differ. I was born working class and was taught a fair days work for a fair days pay. I fully agree that its difficult. I guess what I'm saying is that people shouldn't give up and just surrender. At least if you go down fighting you know you gave your best.

[RentingForever]

Does not owning a property stop you being a stakeholder in society?

I rent. I work a normal day - as hard as I can to the best of my ability during those hours - and then come home to pursue interest (currently studying some OU courses), catch up with friends, listen to some music, plan some holidays etc. For most people on average salary there is enough surplus after essentials to do all of this.

Frankly, it's a satisfying life. It's only not enough if you buy into the myth that you are only someone when you "own" property (or more accurately for most people, own a mortgage). Free yourself from this, and life in this part of the world, at this point in time, is pretty good.

[Bear Goggles]

mortgage approvals are half that of boom levels, and about 20% down on normal levels.... IMHO its low, but not a selective group, try applying for a mortgage and see how much money is offered...

Alliance and leicster will give you 4.3x income +deposit, probably more if you went in and talked to them....

http://www.alliance-...Calculator.aspx

If you have a chunky deposit from putting your savings in gold, they will even give you a fixed rate deal at 3.4%, or you could just go for a tracker at 2.5%, that is one Cheap mortgage, the cost of servicing the debt is HALF what is was 3 years ago even for FTBErs. Even if you have a normal deposit (you didnt put your savings into gold, or havent been a heavy saver you can still get a historically cheap interest rate)

Yes, yes I can get a big mortgage, I know. Does that make housing affordable? Not really.

All you're doing is convincing me that there will be few forced sales unless mortgage/ interest rates go up, which I knew already.

You're also proving my point. We have entered an era where stopping the housing market from correcting has trumped all of the values we have previously held. Values like: Honesty, integrity and hard work will pay off. These are important values, you only need to go to a country where they don't hold true to see how bad life can be.

We're playing fast and loose with these values, there's a generation growing up (well, many have grown up) with no stake in their society, either through the state via socialism, or property via capitalism. That is unprecedented in the last 60-80 years and it doesn't bode well for us as a country.

[camem']

Nothing to work up to, nothing to look forward to except friday night, getting drunk and snorting plant feed.

Did you really snort plant feed ?

[AteMoose]

Yes, yes I can get a big mortgage, I know. Does that make housing affordable? Not really.

All you're doing is convincing me that there will be few forced sales unless mortgage/ interest rates go up, which I knew already.

You're also proving my point. We have entered an era where stopping the housing market from correcting has trumped all of the values we have previously held. Values like: Honesty, integrity and hard work will pay off. These are important values, you only need to go to a country where they don't hold true to see how bad life can be.

We're playing fast and loose with these values, there's a generation growing up (well, many have grown up) with no stake in their society, either through the state via socialism, or property via capitalism. That is unprecedented in the last 60-80 years and it doesn't bode well for us as a country.

Perhaps, but back to the OP currently salaries aren't irellivent, as a FTBer you can get a large salary multiple and a relatively cheap mortgage, as someone with a bigger deposit you can still get a huge multiple and a stupidly cheap mortgage. As as percentage of household income, the cost of this is relatively low when you look at history. The amount of money people can borrow and the cost drive the market, the credit supply hasn't been cut off, the taps were re-opened. People are still buying, and chunk of these people are younger than you and me...

150k debt spread over 25 years at 2.5% costs £678.44 a month, or £312.50 I/O, it is scarily cheap, historically rental costs are compared to I/O costs, and the I/O cost is currently ALOT cheaper than the cost to rent. Another factor to consider is people pay down debts when they are scared....

Edited March 31, 2010 by AteMoose

[Ben from Dover]

BFD

I've chosen one path of which there are many. You've obviously taken a different path in setting up your own business for which I wish you much success. Both of us have taken responsibilty. I'm also sure we both have different long term goals as I'm sure most do. Not sure why that makes me a loser.

Didn't mean it as a personal insult, I'm sure your not.

You just seemed to write a post arguing that the right thing to do is work hard in a 9-5 and made it sound so uninspiring that I think I would prefer to slowly pass away in my sleep tonight.

Sorry for calling you a loser - was a bit harsh. If anybody is going to win at the financial side of life it looks like it is going to be ou from the amount of effort you put in. guess you have to ask yourself whether it is worth such a dull sounding few decades.

[Bear Goggles]

Perhaps, but back to the OP currently salaries aren't irellivent, as a FTBer you can get a large salary multiple and a relatively cheap mortgage, as someone with a bigger deposit you can still get a huge multiple and a stupidly cheap mortgage. As as percentage of household income, the cost of this is relatively low when you look at history.  The amount of money people can borrow and the cost drive the market, the credit supply hasn't been cut off, the taps were re-opened.  People are still buying, and chunk of these people are younger than you and me...

I'm not sure what you're saying here. If the "taps have been re-opened" then salaries are completely irrelevant, Self-sert and NINJA loans proved exactly that point. Or are you saying they haven't been re-opened that far, and salary is still important a bit, like I can get 4.8x household income of a larger income? Wohoo!

You seem to be trying to prove that housing is affordable and won't fall. Great, I'm not really arguing one way or another on that topic on this thread.

My original point was that you can't get "ahead" with a salary at the moment, by which I mean you can't actually build any kind of real wealth or stake with it.

You're trying to tell me that because I can get a big mortgage I can. Or in other words:

Debt = Wealth

[Ben from Dover]

Has anyone else noticed that HPC haven't put their clocks forward yet - I just got a shock when I realized it was midnight - where did the evening go?

[wish I could afford one]

Didn't mean it as a personal insult, I'm sure your not.

You just seemed to write a post arguing that the right thing to do is work hard in a 9-5 and made it sound so uninspiring that I think I would prefer to slowly pass away in my sleep tonight.

Sorry for calling you a loser - was a bit harsh. If anybody is going to win at the financial side of life it looks like it is going to be ou from the amount of effort you put in. guess you have to ask yourself whether it is worth such a dull sounding few decades.

No need to apologise. Healthy debate is good.

Maybe I've come across slightly wrong though. I work exceptionally hard but I enjoy what I do. I have some really great people that I work with which makes it a good place to work. I also wasn't trying to imply hard work 9-5. I was trying to say that everyone has to take responsibility for their actions as nobody else will do it for you.

I'm definitely frugal but I don't feel I live a dull existence. Different to others yes but I think that's partly because I live very much within my means rather than leveraging to the hilt. I guess it takes all types.

I also hope its not decades. My current strategy has me targeting financial independence in 7 years. Only time will tell if I make it. Then I have plenty of options available to me including continuing to do exactly as I am today.

[Papa Serf]

Did you really snort plant feed ?

No, not me but some of the younger generation do. I'm a good boy, no job but a chunk of cash. Waiting on the sidelines.

Totally p155ed off with the required work ethic that is expected of us by companies that will drop any of us on a whim.

[Dr Renter]

Are you sitting comfortably? Then I'll begin.

Once upon a time, not so long ago in this country, you could do a remarkable thing. You could work hard, either in your career or as a free-agent or business person and earn yourself something called a good salary.

A good salary was great, not so much for what it was, but what you could do with it. It afforded you such things as - a stake in society - this was represented usually, by home ownership. A family house with enough bedrooms for your children to have one each. If you had a really good salary and you were that way inclined you could afford things like a private education for your children. You could achieve all this by working - in a job, a job that paid you a salary.

Anyone could do this. Obviously, if you came from a privileged background you had more access to opportunities and your chances were better, but even someone from a modest background could, by way of hard work, carve him or herself out a stake.

Then something happened. They called it "The boom". The boom, was an event that changed society, within a few short years, salaries became irrelevant. Suddenly it didn't matter whether you earned £30k or £60k or £100k, you could never get ahead. If you were young enough to live on the wrong side of The Boom you had to live in a new paradigm where the rules of the game had been changed. "Too big to fail", was the new mantra, the invisible hand had been amputated, an outdated metaphor of the foolish past.

Politicians of all colours held a consensus, unlike other booms, this time the bust should never come. House prices should never fall, no matter what the cost.

A new dawn arose. A dawn where working became a pointless activity above finding a way to provide the day-to-day basics. A dawn where the only way to get ahead was to gain access to a lump sum. There were only really a couple of ways to do this. 1. Inherit it, 2. Get a large bonus from a (publicly owned) financial institution, or 3. Build and sell a company to a corporate behemoth.

Yet still many chose to work. To get up every morning and chase their dreams the same way as those before them had done. By working hard to earn the fabled salary and taking on more and more debt they allowed the boom to perpetuate, they kept the bubble alive.

Welcome to an era here you've either got it or you haven't. An era where hard work means nothing unless you can play the system to your advantage. An era where diligence, integrity and ethics only set you back.

Welcome to the 21st Century fellow slaves!

What a fantastic post.

Hits the nail on the head.

Problem is that things won't change until those on the right side of the boom are out of power. That's going to take over 20 years. Oh well, at least my children may have a chance.

[Dr Renter]

Are you sitting comfortably? Then I'll begin.

Once upon a time, not so long ago in this country, you could do a remarkable thing. You could work hard, either in your career or as a free-agent or business person and earn yourself something called a good salary.

A good salary was great, not so much for what it was, but what you could do with it. It afforded you such things as - a stake in society - this was represented usually, by home ownership. A family house with enough bedrooms for your children to have one each. If you had a really good salary and you were that way inclined you could afford things like a private education for your children. You could achieve all this by working - in a job, a job that paid you a salary.

Anyone could do this. Obviously, if you came from a privileged background you had more access to opportunities and your chances were better, but even someone from a modest background could, by way of hard work, carve him or herself out a stake.

Then something happened. They called it "The boom". The boom, was an event that changed society, within a few short years, salaries became irrelevant. Suddenly it didn't matter whether you earned £30k or £60k or £100k, you could never get ahead. If you were young enough to live on the wrong side of The Boom you had to live in a new paradigm where the rules of the game had been changed. "Too big to fail", was the new mantra, the invisible hand had been amputated, an outdated metaphor of the foolish past.

Politicians of all colours held a consensus, unlike other booms, this time the bust should never come. House prices should never fall, no matter what the cost.

A new dawn arose. A dawn where working became a pointless activity above finding a way to provide the day-to-day basics. A dawn where the only way to get ahead was to gain access to a lump sum. There were only really a couple of ways to do this. 1. Inherit it, 2. Get a large bonus from a (publicly owned) financial institution, or 3. Build and sell a company to a corporate behemoth.

Yet still many chose to work. To get up every morning and chase their dreams the same way as those before them had done. By working hard to earn the fabled salary and taking on more and more debt they allowed the boom to perpetuate, they kept the bubble alive.

Welcome to an era here you've either got it or you haven't. An era where hard work means nothing unless you can play the system to your advantage. An era where diligence, integrity and ethics only set you back.

Welcome to the 21st Century fellow slaves!

Double post. This new website really is shyte.

Edited April 1, 2010 by Dr Renter

[VeryMeanReversion]

Salaries are not irrelevant but much less important than leveraged housing investment in a boom/bust economy like ours.

At only 4:1 leverage on an average house (£200K) with 10% HPI, you make £20K on a £40K investment in one year tax-free, approximately the net salary for one average worker. It's easier to put you faith in house prices than work for a living.

Of course, on the way down it really hurts.

Leveraged housing investments is one of the few ways to make easy money. If you are lucky with timing, you win big. If you are unlucky, leave the loss with the bank and try again later.

VMR.

[JimSkank]

Are you sitting comfortably? Then I'll begin.

Once upon a time, not so long ago in this country, you could do a remarkable thing. You could work hard, either in your career or as a free-agent or business person and earn yourself something called a good salary.

A good salary was great, not so much for what it was, but what you could do with it. It afforded you such things as - a stake in society - this was represented usually, by home ownership. A family house with enough bedrooms for your children to have one each. If you had a really good salary and you were that way inclined you could afford things like a private education for your children. You could achieve all this by working - in a job, a job that paid you a salary.

Anyone could do this. Obviously, if you came from a privileged background you had more access to opportunities and your chances were better, but even someone from a modest background could, by way of hard work, carve him or herself out a stake.

Then something happened. They called it "The boom". The boom, was an event that changed society, within a few short years, salaries became irrelevant. Suddenly it didn't matter whether you earned £30k or £60k or £100k, you could never get ahead. If you were young enough to live on the wrong side of The Boom you had to live in a new paradigm where the rules of the game had been changed. "Too big to fail", was the new mantra, the invisible hand had been amputated, an outdated metaphor of the foolish past.

Politicians of all colours held a consensus, unlike other booms, this time the bust should never come. House prices should never fall, no matter what the cost.

A new dawn arose. A dawn where working became a pointless activity above finding a way to provide the day-to-day basics. A dawn where the only way to get ahead was to gain access to a lump sum. There were only really a couple of ways to do this. 1. Inherit it, 2. Get a large bonus from a (publicly owned) financial institution, or 3. Build and sell a company to a corporate behemoth.

Yet still many chose to work. To get up every morning and chase their dreams the same way as those before them had done. By working hard to earn the fabled salary and taking on more and more debt they allowed the boom to perpetuate, they kept the bubble alive.

Welcome to an era here you've either got it or you haven't. An era where hard work means nothing unless you can play the system to your advantage. An era where diligence, integrity and ethics only set you back.

Welcome to the 21st Century fellow slaves!

Absolutely.

My parents went to the big ranch in the sky when I was 18, just before the housing boom and I stayed away from the housing market till it was too late really. My position is the future - a lot on here that moan (and quite rightly) about being priced out but many will still have the back rung that is inheritance. The next generation is unlikely to get that, and the social division that is being forged through the house price lottery is going to create a jugganaut based on apathy and revolt.

Anyway, most with any brains will leave. I did, and i'm buggered if I'm coming back to pay taxes into that system. I can save 10 times what I saved a year in England, its a no-brainer - and will become more so.

[Si1]

Leveraged housing investments is one of the few ways to make easy money. If you are lucky with timing, you win big. If you are unlucky, leave the loss with the bank and try again later.

VMR.

this is a misunderstanding underpinning the recent bubble

in the UK, you pay for this, for ever, the lenders can and will chase you until the day you die to pay off the costs of reposessing your house. you cannot hand the keys in and walk away.

asymetric risk is what you say it is. But it isn't. That's REALLY gonna hurt.

[Cicero]

Why don't people have the time or inclination to do this? I'm working 50-60 hours per week and I can still find time to take control of my own life. I must admit though that I don't watch X Factor, Eastenders, Big Brother or Coronation Street. I also don't play X Station. I do however read and spend time with friends.

To educate yourself financially at a basic level and take control of your financial freedom is probably not a lot more than a good book like that from Tim Hale - Smarter Investing: Simpler Decisions For Better Results followed by probably 2 hours or so a quarter. Anybody who can't find this amount of time is making excuses IMO. Disclosure: I do spend more time than this as I now kind of enjoy it and am trying to squeeze a little extra performance than just tracking the markets.

IMO I'm not playing any system. I am not economics or finance trained and I don't work in the sector either. I've just accepted its necessary to know if you don't want to be dependent on others. Therefore anybody should be able to do it. They just have to decide they want to and take some responsibility for their actions.

Of course it could all backfire on me but at least I gave it a go and didn't admit defeat. :-)

Good for you!

[VeryMeanReversion]

this is a misunderstanding underpinning the recent bubble

in the UK, you pay for this, for ever, the lenders can and will chase you until the day you die to pay off the costs of reposessing your house. you cannot hand the keys in and walk away.

asymetric risk is what you say it is. But it isn't. That's REALLY gonna hurt.

Bankrupcy creates the asymmetry.

With a spouse, it gets easier to hide assets. Ask Mr Bovey.

VMR.

[sun n sea]

In a normal world people with salaried jobs don't need self cert mortgages... but loads of people have them because it trims the thorny question of how much you actually earn out of the picture.

What worries me is the snap back in banking. Now they've seen what self cert leads to a lot of bankers want to go back to the salary model BUT the monster is now far too big. There just aren't the jobs which pay enough to finance a £300 grand mortgage on 3.5 salary multiples.

Going back to salary based lending can only work if the economy is clocked... wipe out the boom era rises and maybe people will have a chance of buying. If not, people and the system can only move forward if the rules keep being bent and manipulated to hide the fact that people don't actually earn enough money to pay for houses at the current prices.

The OP has a good point in saying that what you earn is irrelevant... even if you are lucky enough to earn 50 grand a year 3.5 multiples don't get you very far in the property game.. what can you buy for 175 grand?

[scottbeard]

My parents went to the big ranch in the sky when I was 18

...

Anyway, most with any brains will leave. I did, and i'm buggered if I'm coming back to pay taxes into that system. I can save 10 times what I saved a year in England, its a no-brainer - and will become more so.

Emigrating works better the fewer ties you have. I am lucky enough to have parents and grandparents (as well as a sibling and friends) in the UK, and for me personally I can't see how less tax would make up for the loss of my remaining time in their company.

If I had no close family perhaps I would feel differently.

[Saberu]

Not sure why that makes me a loser.

Because you are taking the hardest possible route to success, work hard for what.. 20-30 years (ie 50-60 hours/ week) , keep all your costs as low as possible just so you can retire comfortably?

Personally I consider your strategy a failure, you are wasting the best 30 years of your life. I'm 22, I plan to be as rich as you by the time I reach 25 assuming your portfoio is currently worth less than a million.

Honestly main reason I like money is I like beautiful girls, and they like money, I'd rather enjoy myself with them when I'm young than when I'm 50

[Si1]

Bankrupcy creates the asymmetry.

nah - mortgage debt is AFAIK one of the few things that endures post-bankruptcy, am not 100% certain so am open yto case studies

With a spouse, it gets easier to hide assets. Ask Mr Bovey.

VMR.

grrrrrrr you're right and that's annoying...

[kingsgate]

Are you sitting comfortably? Then I'll begin.

Once upon a time, not so long ago in this country, you could do a remarkable thing. You could work hard, either in your career or as a free-agent or business person and earn yourself something called a good salary.

A good salary was great, not so much for what it was, but what you could do with it. It afforded you such things as - a stake in society - this was represented usually, by home ownership. A family house with enough bedrooms for your children to have one each. If you had a really good salary and you were that way inclined you could afford things like a private education for your children. You could achieve all this by working - in a job, a job that paid you a salary.

Anyone could do this. Obviously, if you came from a privileged background you had more access to opportunities and your chances were better, but even someone from a modest background could, by way of hard work, carve him or herself out a stake.

Then something happened. They called it "The boom". The boom, was an event that changed society, within a few short years, salaries became irrelevant. Suddenly it didn't matter whether you earned £30k or £60k or £100k, you could never get ahead. If you were young enough to live on the wrong side of The Boom you had to live in a new paradigm where the rules of the game had been changed. "Too big to fail", was the new mantra, the invisible hand had been amputated, an outdated metaphor of the foolish past.

Politicians of all colours held a consensus, unlike other booms, this time the bust should never come. House prices should never fall, no matter what the cost.

A new dawn arose. A dawn where working became a pointless activity above finding a way to provide the day-to-day basics. A dawn where the only way to get ahead was to gain access to a lump sum. There were only really a couple of ways to do this. 1. Inherit it, 2. Get a large bonus from a (publicly owned) financial institution, or 3. Build and sell a company to a corporate behemoth.

Yet still many chose to work. To get up every morning and chase their dreams the same way as those before them had done. By working hard to earn the fabled salary and taking on more and more debt they allowed the boom to perpetuate, they kept the bubble alive.

Welcome to an era here you've either got it or you haven't. An era where hard work means nothing unless you can play the system to your advantage. An era where diligence, integrity and ethics only set you back.

Welcome to the 21st Century fellow slaves!

It was ever thus, really.

If you are prepared to take big gambles, start your own business, buy and sell property, do whatever, you can make a lot more than just doing a steady job.

But here's the key: not everyone values accumulation of big wealth above all.

Many people would be scared sh1tless at the the thought of stepping outside the world of a safe-ish monthly salary. They wouldn't be able to handle the uncertainty or stress.

Others value doing whatever it is they do above the pay cheque they get for it. Provided they earn a living for doing what they love, that's enough. Not everyone working for someone else is a "slave" who hates every minute of every day at work.

Some people are happy to work just enough to get by, they value their free time, their family etc way more than having enough for a new car, new TV, expensive holiday etc.

[spiral]

Any entrepreneur is paying that too - the sale of any shares is a bonus that may/may not happen, and are probably betting all their personal assets on it. However many will contribute significantly to tax generation during the period they are trying to build something.

The problem currently is there is very little upside for taking any risk.

If anything you are treated like some kind of parasitic outcast if you make any money these days - your property will be damaged or stolen and your neighbourhood deprived of any public spending - and you'll get no sympathy from the net recipients of all the tax you generate and pay - just sneering and hatred.

Why would any smart kid spend the next decade building a company working night and day with no guarantee of success when he can go and work for a bank, be home for dinner with the kids and take long holidays.

because if you own a company you currently pay 21% tax on profits then take out approx £37,000 in dividends plus approx £6000 in personal tax allowance = £43,000 (£86,000 if you make wife/partner a director) which you dont pay NI on (saves approx £10,000- dont quote me)- leave any excess in company and eventually sell shares which means paying 10% tax on any money left in company as CGT.

alternative- be an employee paying tax at 20%, 40%, 50%, no personal tax allowance after around £112,000

some smart kids must be tempted surely?

[slacker]

because if you own a company you currently pay 21% tax on profits then take out approx £37,000 in dividends plus approx £6000 in personal tax allowance = £43,000 (£86,000 if you make wife/partner a director) which you dont pay NI on (saves approx £10,000- dont quote me)- leave any excess in company and eventually sell shares which means paying 10% tax on any money left in company as CGT.

alternative- be an employee paying tax at 20%, 40%, 50%, no personal tax allowance after around £112,000

some smart kids must be tempted surely?

Most serious entrepreneurs do not operate like this, if you have investors (angel, VC etc.) or intend to have them in the future you can't put your wife on the payroll or pay dividends. I'm talking about building real growing/employing businesses, not setting yourself up as a plumber.

When you compare the current environment to US or even France currently you have to be daft to start something here - there are more negatives than you can list and literally no positives.

[DeepLurker]

Most serious entrepreneurs do not operate like this, if you have investors (angel, VC etc.) or intend to have them in the future you can't put your wife on the payroll or pay dividends. I'm talking about building real growing/employing businesses, not setting yourself up as a plumber.

When you compare the current environment to US or even France currently you have to be daft to start something here - there are more negatives than you can list and literally no positives.

Have you ever lived in France?