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dannyf

Fed Up With The Uk

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Hi all,

This is my first post on the main forum after years of lurking (and one or two posts when struggling with renting situations). I just wanted to get this off my chest...

I'm thoroughly fed up with the whole of UK PLC. to the point of depression.

I'm in my early thirties, been working around the London area for 8 years, saving what I can, and refusing to buy into overpriced houses despite most of my peers buying. I see how unsustainable the whole thing is. I don't need to repeat the arguments stated on here for the last decade... I won't go into house prices being based on affordability linked to mortgage rates, or the fact that rates are at an all time low... like I say, its all been said before.

I'm now in a position where friends with little savings are getting 50k loans from parents for deposits to buy houses which I consider overpriced. But the fact is, with their salaries, they can actually afford them even if one person is out of work (for a child for example) and rates go up to 10% (I can't be sure of this, but I've talked in detail with a good friend before he bought and told me figures that convinced me it was feasible).

But this isn't what I'm fed up of. If they want to buy into a falling market then so be it. What I'm fed up of is this 'government' trying their utmost to prop up this house of cards. I voted against labour to try to change this mess, but all I see is that its getting worse (not to say it wouldn't have got worse under labour, but it certainly hasn't reversed).

But even this lousy government isn't what has got me most annoyed. What has really got me wound up is the fact that I had a full blown argument with my mum about her now wanting to sink all their life savings into property development. This is based on a friend of hers who got into the game decades ago and now has hundreds of properties, a multitude of grants from the council, and drives around in an Aston Martin, with his wife driving a Range Rover. This guy got in the game early and has made a killing - I know its hard to stomach, but there are people that did it.

When I talk with my parents though, I really come across as jealous about this guy, and they continually spout the same nonsense about property only ever going up in price over the long run. They also tell me that their saving are making 0% in the bank (true, because I've seen that they can't be bothered looking for a decent return), but when I suggest that there are alternatives between the two extremes of 0% in a bank or invest in property, and even suggest shares, I'm met with "people like us don't know about things like that".

Personally, I'm lucky enough to have been offered a position overseas with the company I work for, and am glad I'm getting out of here. But I'm so fed up with this mess, I really cannot wait for it to come crashing down. And if my own parents get taken down with it then so be it - I tried to warn them. For now, I just feel so helpless watching a car crash happen in front of my eyes.

Anyway, I know I'm moaning and repeating what everyone has said a miilion times before, but just thought it was time to contribute and get it off my chest. Bottom line is that I'm fed up

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I'm about the same age as you and have also been living in London for about the same amount of time.

I think it's best not to look at what others are doing. If your parents and friends want to buy housing, they are adults and that is their decision. Your job is to make decisions which will impact your own life, and if you are coming up with different answers then time will tell who is right.

I also avoid talking about housing with anybody except my siblings and my very closest friends. There is no way of doing it that makes you come off as anything other than a bitter and jealous conspiraloon. People will wake up when they are ready to wake up, and the vast majority of the UK population is not there yet.

Unfortunately we are still at a stage of the game that requires a lot of patience. I think the best thing to do is to throw yourself into the non-housing aspects of your life and try to make the best of it.

Edited by Dorkins

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OP, think of it as a hedge. You stay out of the property market but your parents invest. If you're right you buy cheap and you win. If your parents are right, you inherit their property wealth and you win. Can't lose! :P

Edited by mikthe20

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Absolutely agree with Dorkins - spot on.

It's very difficult to convince people that you're the sane one and that these huge increases over the last decade are unsustainable and to pile in now is very dangerous. All you can do is give your opinion, which it sounds like you've done strongly, and move on.

It's going to take a lot more for most people to be convinced than some sage words from an HPCer - I'm afraid the lesson must come the hard way through financial pain.

Time will tell, meanwhile save hard, invest wisely and enjoy life outside of property - literally!

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The problem with many HPCers on here is they forget one simple problem....if you don't own a house/flat/dwelling then you short.....i.e. you need a dwelling to live in and you don't have one.

So if you are SURE that prices are going down in nominal terms then this is fine since your savings will buy you more equity in the future. Otherwise, if you are uncertain, then maybe buy something, don't spend all your deposit, don't stretch youself fully, don't breach FTB stamp duty threshold if you can avoid. If you are a single person by a 1 bed flat in a less desirable neighbourhood than you could afford. If you are a married couple with a few kids coming in a few years maybe a 2 bedroom flat and not the family home that you really desire. This way if prices go up your deposit is not being left behind but if prices come down then you get to upsize on the cheap. Lastly if you are convinced of house price appreciation stretch yourself to buy the biggest property in your dream location and then tell you parents to leverage up their life savings 3-4x and buy as many BTLs in tertiary locations they can find.

In reality you can never have certainty about the direction of house prices, stock markets, bond markets, the pound etc but by not owning anything you are actively speculating prices will go down.

The call isn't that easy since prices are not at an extreme; we’ve just had 20% real draw-down which historically has been about it, prices are bubbly in London/south-east due to acute under supply, which has been the case for decades and isn’t changing any time soon. People moan about affordability but we are seeing 10-15% turnover by people who are affording these prices so I wouldn’t hold on to that ray of hope and help to buy phase 2 is about to distort things massively. On the other hand, prices aren’t cheap and mortgage rates are historically low.

Place your chips....

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The problem with many HPCers on here is they forget one simple problem....if you don't own a house/flat/dwelling then you short.....i.e. you need a dwelling to live in and you don't have one.

Firstly, until the day you have paid off the mortgage, you do not own a house. Both renters and mortgagors are short housing.

Secondly, by the same logic as you used above, I also need to own a certain quantity of farmland and food harvesting/processing machinery to feed myself, a certain quantity of manufacturing to keep myself in clothes, laptops and toothpaste, a certain quantity of mines, oil rigs and forests to provide raw materials for my factories, a certain quantity of jet aircraft, hotels, restaurants, theatres and cinemas to keep myself entertained etc. I am a young person still building up capital at the start of my working life so I am short all of these. The first day I will (hopefully) not be short will be the day I have enough capital to retire.

So what exactly makes residential housing a magic sort of capital that I must buy now instead of other forms of capital which are equally necessary for life?

Edited by Dorkins

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Firstly, until the day you have paid off the mortgage, you do not own a house. Both renters and mortgagors are short housing.

Secondly, by the same logic as you used above, I also need to own a certain quantity of farmland and food harvesting/processing machinery to feed myself, a certain quantity of manufacturing to keep myself in clothes, laptops and toothpaste, a certain quantity of mines, oil rigs and forests to provide raw materials for my factories, a certain quantity of jet aircraft, hotels, restaurants, theatres and cinemas to keep myself entertained etc. I am a young person still building up capital at the start of my working life so I am short all of these. The first day I will (hopefully) not be short will be the day I have enough capital to retire.

So what exactly makes residential housing a magic sort of capital that I must buy now instead of other forms of capital which are equally necessary for life?

No but the day you buy a house with a mortgage you have basically entered into a forward contract to buy a house at an agreed price 30 years in the future, you are just paying off the capital charge month by month instead of a bullet payment at the end. Just like someone buying a commodity forward agrees to pay the cost of the underlying plus storage and capital costs until the time that they exchnage the physical for money. When you buy a house with a mortgage you pay the capital cost and upkeep before you own 100% 30 years down the line.

Residential housing is not the only magic asset. I would also encourage investment in equity that gives exposure to all the above that you mention if you want to hedge your future consumption. However, housing cost is more or less the biggest line in you personal income statement month buy month so the most important cost to hedge out. A more obvious one would be to hedge out your future energy bills by buying a diversified portfolio of energy equities, however it is probably only really the oil majors which have ok valuations at this point and the oil price is capped to the upside so the risk/reward isn't great. However, this is a website, forum and thread about housing so apologies for referring to that asset class.

Thirdly, if you are short of capital then maybe you should spend less income on laptops, clothes, jet aircraft, hotels, restaurants, theatres and cinemas and you might have more left over to save and invest?

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No but the day you buy a house with a mortgage you have basically entered into a forward contract to buy a house at an agreed price 30 years in the future, you are just paying off the capital charge month by month instead of a bullet payment at the end. Just like someone buying a commodity forward agrees to pay the cost of the underlying plus storage and capital costs until the time that they exchnage the physical for money. When you buy a house with a mortgage you pay the capital cost and upkeep before you own 100% 30 years down the line.

None of this changes the fact that a mortgagor needs a house to live in but does not own one, same as a renter.

A more obvious one would be to hedge out your future energy bills by buying a diversified portfolio of energy equities, however it is probably only really the oil majors which have ok valuations at this point and the oil price is capped to the upside so the risk/reward isn't great.

So you acknowledge the principle of looking at valuations and risk/reward before buying into an asset class? And do you not think that the current record high house price:wage ratios and record low mortgage interest rates and rental yields might lead to the conclusion that the risk/reward ratio of UK residential housing isn't great?

Thirdly, if you are short of capital then maybe you should spend less income on laptops, clothes, jet aircraft, hotels, restaurants, theatres and cinemas and you might have more left over to save and invest?

Thanks for the advice, but I'm perfectly happy with the proportion of my income I am able to save.

My point is that very few people can save enough capital in the first decade or two of their working life to retire, so like it or not you are going to be paying somebody else to use their capital. The fact that housing is presently by far the biggest single line item is a very poor reason to invest the majority of one's capital there. If anything it is an indicator that housing is at or close to peak expensiveness. Buy low sell high, right?

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None of this changes the fact that a mortgagor needs a house to live in but does not own one, same as a renter.

No but a mortgager has locked in the price of the asset so they benefit if it subsequently rises and lose out out if it subsequently falls. So their financial position becomes geared to the asset price, therefore being a mortgager is completely different to being a renter. If you own a house

So you acknowledge the principle of looking at valuations and risk/reward before buying into an asset class? And do you not think that the current record high house price:wage ratios and record low mortgage interest rates and rental yields might lead to the conclusion that the risk/reward ratio of UK residential housing isn't great?

Record high house price to wage ratios? We aren't there are we, we came off that peak 5 years ago! Low interest rates, yes ideally placed you would buy at higher interest rates, but lets be honest the UK is B.U.S.T. The 10 year has already moved back to 3% there or there about which is more or less our nominal growth rate. We don't have any more debt capacity so we don't have real growth prospects and we are a 3% inflation country so rates have done their thing. And if they haven't Mr Carney will be printing some cash to bid the market back down.

Thanks for the advice, but I'm perfectly happy with the proportion of my income I am able to save.

Glad to hear it!

The fact that housing is presently by far the biggest single line item is a very poor reason to invest the majority of one's capital there. If anything it is an indicator that housing is at or close to peak expensiveness. Buy low sell high, right?

Have you got any numbers on housing costs as a proportion of income in the UK over time because it won't be high? It will be very low! Mortgage rates today are half what they were (for new mortgages, ignoring the people paying 0.5% on legacy mortgages) and prices are down 20% nominal so the cost of servicing the debt of an average house is 60% less than what it was at the peak in 2007. Wages have not come down 60% in that time. I'd check your numbers on that assertion.

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Have you got any numbers on housing costs as a proportion of income in the UK over time because it won't be high? It will be very low! Mortgage rates today are half what they were (for new mortgages, ignoring the people paying 0.5% on legacy mortgages) and prices are down 20% nominal so the cost of servicing the debt of an average house is 60% less than what it was at the peak in 2007. Wages have not come down 60% in that time. I'd check your numbers on that assertion.

That's the trouble - all of these low affordability calculations are because of ultra-low interest rates. Can Carney guarantee low rates for the rest of these mortgages? I don't even think his recent guarantee of 2-3 years is worth anything. When rates need to rise they'll have to rise whether they like it or not. These current low rates are encouraging people to take on huge debts; debts that would be unserviceable with even a modest increase in rates.

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When rates need to rise they'll have to rise whether they like it or not. These current low rates are encouraging people to take on huge debts; debts that would be unserviceable with even a modest increase in rates.

This is exactly the point; so if a significant number of households have debts that are unserviceable with a modest increase in rates, as do loads of zombie SMEs, as do loads of local governments, as do PCTs, as does central government.......walk me through the scenario where interest rates move higher?

If Carney woke up tomorrow and decided he was the biggest hawk out there are moved the policy rate from 50bps to 250bps, then UK has a massive recessionary correction AND the house price crash you are looking for plus a banking crises to boot. That’s great, but you see what the pound does in THAT scenario, we end up with wealth destruction, short term inflation problem and a reset to some extent of asset prices. Why would the government/BofE engineer that?

Carney can hapily supress rates as long as he is willing to increase our monetary base. Check out the interview he did on the Today Programme on Radio 4 at the beginning of the month where he described Japan's economic failure as them not keeping loose monetary policy for long enough. The guy is nuts, clearly the lack of proper supply side reforms had a big effect there but he doesn't seem to care. So bearing in mind he thinks Japan has been too hawkish, take a look at those JGB yields, currently at 70bps for the 10 year, where do you think he sees the gilt market?

You mentioned his 2/3 year forward guidance but you missed the fact that he added 50bps to the 200bps inflation target which the BofE has never met. He also relaxed the mechanism that would question the current course of monetary policy with respect to the inflation rate. Not your fault that would be the UK media who fell for the massive head fake.

Lastly; recent US housing data looks like it is doing as it should. 30 Year mortgage rate has moved up from 350bps to 450bps and looks like the data is now rolling over if you look at pending home sales for July; so the US is as addicted to cheap money as we are and Carney is getting proved right.

Clearly this all ends in tears but we are a fair few years away from anything yet; valuations and turnover need to become insane before we get back towards bubble territory. I would look for nominal house prices up 30-40%% from here before things look toppy.

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30-40%?! And wages are going to rise by how much to service this? You must believe that lender's only affordability criteria will be the current low repayments, again because of low interest rates. This rise without wage inflation would push average house price to earnings near to 9x multiple. I must've missed the bit where Carney said he'd be sending a truckload of money to everyone.

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30-40%?! And wages are going to rise by how much to service this? You must believe that lender's only affordability criteria will be the current low repayments, again because of low interest rates. This rise without wage inflation would push average house price to earnings near to 9x multiple. I must've missed the bit where Carney said he'd be sending a truckload of money to everyone.

We're at 5x today so assuming zero wage growth (which in 3% inflation country is unlikely) gets us to 6.5x if we get 30% increase. Not sure where the 9 is from? I'm not talking overnight, I think 30% higher nominal will be the next peak.

And Carney isn't giving money away but the banks will be as of January courtesy of Help to Buy 2 and a lovely government subsidy. If you can borrow 95% LTV @ 3% for 5 years i.e. a real rate of 0% and have an interest payment half the equivalent rental payment then that looks like a pretty compelling position. Instead of being at the mercy of baby-boomer rentier landlords and losing purchasing power in your savings.

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We're at 5x today so assuming zero wage growth (which in 3% inflation country is unlikely) gets us to 6.5x if we get 30% increase. Not sure where the 9 is from? I'm not talking overnight, I think 30% higher nominal will be the next peak.

And Carney isn't giving money away but the banks will be as of January courtesy of Help to Buy 2 and a lovely government subsidy. If you can borrow 95% LTV @ 3% for 5 years i.e. a real rate of 0% and have an interest payment half the equivalent rental payment then that looks like a pretty compelling position. Instead of being at the mercy of baby-boomer rentier landlords and losing purchasing power in your savings.

Back of envelope av earning vs av house price I.e. 230k / 26k but ofc this doesn't take into account deposits or anything else. Even so your 6.5x is high enough.

I know the HPI hype has been in overdrive this year but your 30-40% is cloud cuckoo territory. I think maybe only the Daily Express is so outwardly confident ;)

If you're thinking a steady increase over many years, just look at what Japan's policies have produced: a steady decline and still they're in deep trouble.

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Back of envelope av earning vs av house price I.e. 230k / 26k but ofc this doesn't take into account deposits or anything else. Even so your 6.5x is high enough.

I know the HPI hype has been in overdrive this year but your 30-40% is cloud cuckoo territory. I think maybe only the Daily Express is so outwardly confident ;)

If you're thinking a steady increase over many years, just look at what Japan's policies have produced: a steady decline and still they're in deep trouble.

Seriously we are going more or less deposit free in January so you can ignore that. Average single wage is 26.5k but average household income is 39k; comparing a single wage to an average house isn't very correct.

Using Japan you are having a very different starting point. Put 80 years in your mortgage calc instead of 30, see what that does to affordability and think where UK prices might go in that instance. Then we'll start talking about a crash or slow moving train wreck of Japanese proportions.

Similarly Ireland where the average house price is now the same as the UK but has much worse fundamentals - earnings, issue with Euro, loose supply and demand etc.

Also, take a look on the chart on the homepage we aren't exactly in a bull market are we?

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I guess only time will tell. I think we can all see a house-price up-turn in most of the stats, so the only thing we're debating is how much it will go up before it starts to unravel again. Would your 30-40% trigger Carney to do something about it as he suggested or is he all talk? Personally I can't see the scope for that kind of increase but if the government keeps coming up with these inflationary schemes who knows how far they can pump it.

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