Most Germans Don’T Buy Their Homes, They Rent. Here’S Why

[Bland Unsight]

I met a young West German couple in Thailand last year and they were complaining about having to rent, and that they reason they did is because they needed a 25% deposit and the house prices where they lived were very expensive.

The plural of anecdote is not data, the singular of anecdote is anecdote. The epistemological value of a single anonymously related internet anecdote approaches zero. I met a West German couple in Thailand who were deliriously happy renting but had just spent an evening pretending that they were not happy - but rather pretending that they were unhappy - in order to accommodate the prejudices of a pwoperdee mad Britisher. They cried into their beer about how sad they were that their recent acquaintance was so bewitched by the idea that they could borrow themselves rich that any dispassionate observer would have agreed that the poor mad Britisher must have believed that they really could borrow themselves rich by paying more for a house than anyone else was willing to pay! Once they'd got over the empathy, we laughed ourselves sick.

That low figure of people renting is possibly down to the fact pretty much all East Germans were in rented property up until 1989 and no doubt most still are.

By 'low' I presume you mean 'high'...

Besides when they get to retire or should they just want a year or 2 out of work who pays the rent.

Just imagine that your house was NOT so expensive. You could save some of your income and you could pay into a pension. Then later, you could pay your rent using your savings and your income.

Of course, we will see the same thing here, spray painted for our pwoperdee mad brains. People will pay big mortgages all their life (where the costs all in are greater than the rental costs) and then at the end of their life they will use equity release schemes to release the limited equity that they have accumulated. They will rely on this equity release because the costs of servicing the mortgage and maintaining the property have prevented them from saving or paying into a pension. What is the difference?

The principal difference is that if you rent the owner of the asset bears the risks associated with the tendency of assets to depreciate, spring leaks, subside and all the rest - and that if you rent you accumulate savings and do not under the shadow of a massive burden of debt.

If renting was so great the rich would be doing it.

First up, we are all rich in a non-financial sense. Rich beyond the wildest dreams of people dead two hundred years - kings, queens the lot. What they would have given for anti-biotics to stave off the death of loved ones from trivial bacterial infections... Hot running water on tap at home? Sewerage? The list goes on.

Secondly, contemporaneously, rich is self-evidently a relative term. Why do the rich have a different portfolio of assets and debts to the rest of us? Because they have more assets and less debt - that is why they are rich! That is what it means to be rich!!!!

Thirdly, in order to become rich you must not p!ss money down the drain unless the rate at which new money flows into your coffers is so great that you can readily tolerate the loss. Now, my income is pretty fixed, so I am loathed to start buying an overpriced asset with money borrowed at 200-300 year low mortgage rates which only exist because of the extraordinary intervention of unelected monetary authorities and which are in a sense merely an attempt to delay the inevitable. Not to mention that the intellectual dogmas which have given those monetary authorities such power are dying on their *rse right now, all over the world.

The rich have got your number, pal. You think that house prices will always go up and you have no ability to assess how difficult it will be to pay off the debts that they so freely grant with new credit money. You are the greater fool and you'll get what the greater fool always gets. Shafted. Work away.

[BananaMan]

^^

Hope you feel better after that.

No we were just discussing no one was crying, but they were a similar age from the renters Utopia of Germany yet were claiming it isnt such the renters Utopia people like yourself make it out to be ... Did i mention this was some scientific study based on millions, no i didnt you did to try and come across as intelligent or show off your devastating wit!

As for being Pwoperdee mad as you so put it well ive waited 8 years to buy and have saved, plus the fact that i work around the globe and companies pay for my accommodation means i am in an OK position with a substantial deposit and could buy outright by the end of this year.

But being as i don't live in the renters Utopia that is Germany where rent is so low i can retire at 55 with enough in the bank to pay the rent for another 30 years of life then buying somewhere is important as ive a kid who will be 4 soon and has moved around enough. Do you understand this funny man?

Being as i worked around 3 months of the year last year and made around 45K im clearly not being worked to death, oh and i just walked away from a 75 USD an hour tax free job in the Pacific.

You dont know me your just some jumped up internet warrior who is bitter he didnt buy in 1997.

Me i'll more then likely take the hit to buy a crappy 3 bed semi as i have a custody battle soon and need somewhere settled. I will be hoping that prices do still crash as at the end of the day if they fall 30% itll only mean 3 months work for nothing, not good but i'll survive.

No debt needed here.

[Bland Unsight]

^^

Hope you feel better after that.

It's not about me - or you. There are hundreds of posters on here who could have handily marshalled the same arguments against you. You got both barrels from me because of your specious conclusion. I'm guessing from your reply that you are not some sock-puppet VI propagandist, but you might as well be - the arguments proffered would be the same.

All that matters is the price of housing - rents vs house prices is just a distraction, a question regarding how you pay, not what you pay. Only in dear old Blighty has this matter been so obscured by house price inflation (and now explicit state encouragement of HPI) that we can no longer see the wood for the trees.

[BananaMan]

It's not about me - or you. There are hundreds of posters on here who could have handily marshalled the same arguments against you. You got both barrels from me because of your specious conclusion. I'm guessing from your reply that you are not some sock-puppet VI propagandist, but you might as well be - the arguments proffered would be the same.

All that matters is the price of housing - rents vs house prices is just a distraction, a question regarding how you pay, not what you pay. Only in dear old Blighty has this matter been so obscured by house price inflation (and now explicit state encouragement of HPI) that we can no longer see the wood for the trees.

My conclusions come from the fact i live in England which is a corporate state where we have shyt short term rental agreements with tosser landlords, where rent is ludicrously expensive in relation to wages .... the fact we have a LIBLABCON government who are doing everything in their power to keep prices propped up and will continue to do so .... They've managed to keep the plates spinning for 11 years since it should have popped and look as if they've got the ability and will to do it for another 11, by which time i will be nearing 50.

You seem to think you are some kind of enlightened being and that anyone who doesnt follow your renters gospel is vastly below you, i've waited and rented i'm now in my parents spare room with my kid so i can save money and its shyt. Unfortunately some of us who have waited for a crash have to sell out and admit that within a lengthy time frame there has not been a crash of any sort (in Southern England where im looking to live) and we were wrong.

There may well be one in the near future but no one really has a clue as to whats happening, so long as rates are at this level then the property price scam will slowly wind down over 20 years.

And most Germans don't earn enough to put vast amounts aside for renting after retirement, most Germans will struggle like the rest of us, maybe the Germans i met were visionaries and realise even their govt is running a social security ponzi scheme and they may not pay their rent in retirement.

[futurepaul]

In Switzerland there are limits to what a property owner can make from a property.

I sublet to someone else there and the rent in registered with the authorities

my contract had rent rise limits of 1.3% above inflation

The deposits can be 3 months plus 1 months rent (over 9000 chf on my first place)

There are many private landlords but there are also professional companies renting, this is the way I did it.

If you buy there no one pays off their mortgage because this attracts additional tax

[Bland Unsight]

You seem to think you are some kind of enlightened being and that anyone who doesnt follow your renters gospel is vastly below you, i've waited and rented i'm now in my parents spare room with my kid so i can save money and its shyt. Unfortunately some of us who have waited for a crash have to sell out and admit that within a lengthy time frame there has not been a crash of any sort (in Southern England where im looking to live) and we were wrong.

That is a pointless ad hominem argument - and mistaken. Let's look at your contribution to the thread. You offer a single banal anecdote about two Germans and work from there to the conclusion "If renting was so great the rich would be doing it.". Someone you don't know calls you out on your arguments and it's ad hominem time: "funny man", "You dont know me your just some jumped up internet warrior who is bitter he didnt buy in 1997" complete with the shabby teenage grammar and punctuation. Now you're largely back to the voice of reason, excepting the occasional insult "You seem to think you are some kind of enlightened being and that anyone who doesnt follow your renters gospel is vastly below you" (sic), and the punctuation and grammar are largely back on track. If all the things that you claim to be true are true then you're clearly not in a good place and I've no interest in kicking a man when he is down just for the pleasure dishing out the kicking, but pouring out bile in my direction won't actually make you feel any better, and it doesn't bother me as I'm here to discuss house prices, not get into a slanging match with a stranger.

Fundamentally, I believe that right here right now is a really bad time to buy in the UK. You are tacitly arguing that because they have in your word "kept the plates spinning" thus far, it follows that they will be able to keep the plates spinning indefinitely. If it was that simple why did we endure price corrections after the Barbour and Lawson booms?

I personally think that renting and buying could be good options for different people at different times, hence I disagree with you when you suggest tacitly that renting is everywhere and always a means for the rich to extract economic rents from the poor. Properly organised a healthy private rental sector could match the needs of those who want a low but stable return on a large amount of capital and can readily bear the incidental costs of maintaining the capital asset (e.g. insurance companies) with private households who want high quality accommodation but for a variety of reasons cannot buy or choose not to buy in order to avoid the frictional costs or risks associated with a purchase.

There may well be one in the near future but no one really has a clue as to whats happening, so long as rates are at this level then the property price scam will slowly wind down over 20 years.

And most Germans don't earn enough to put vast amounts aside for renting after retirement, most Germans will struggle like the rest of us, maybe the Germans i met were visionaries and realise even their govt is running a social security ponzi scheme and they may not pay their rent in retirement.

Where are your numbers? The recent Resolution Foundation Squeezed Britain reports states that of the approximately 15 million people making up the low to middle income group, 60% are owner occupiers (presumably predominantly mortgaged) but of the 15 million, 55% have no savings and 69% have no pension. Find me some numbers that suggest that the problem is as bad in Germany. Additionally you're ignoring the fact that a great deal of German employment is in the mittelstand companies which, as per this 2011 FT piece, "often pay high wages but also offer social amenities such as flexible working hours, free childcare and generous pension contributions", (emphasis added), i.e. lots of German pensions are not the state pension so your suggestion that most Germans are in the jaws of a "social security Ponzi" is just so much blah-blah-blah...

Secondly, there is a reason to believe the hypothesis that most Germans are not as desperate to buy as most Brits and that is HPI. In Boom and Bust (Second Edition), Harrison quotes the Barker report figures for the real rate of HPI for a number of European nations from 1971 to 2001. In Germany it was 0.1% in the UK it was 3.3%. (Just in case your maths is as bad as your manners, 1.033^30 = 2.64, so the real value of a UK house almost tripled, but 1.001^30 =1.03, so the German house gained 3% in real terms over the same period. That's almost 2 orders of magnitude difference, so presumably Germans are less anxious about 'missing the boat'; ridiculous phrase, but there's a reason it has currency.)

Essentially, you don't know what you're talking about. You string together a rag-bag of facts and prejudices and when anyone has the temerity to call you out on it, you become abusive. I'm out. If arguing on the internet with people matching your profile was so great everybody would be doing it.

For what it's worth in 1997 I was working in the West End as a production runner in a small film company, delivering packages, making cups of tea and pulling down about £7,500 gross, so my bitterness regarding not choosing to buy a house at that point is fairly limited.

You clearly want to buy, so buy. Just don't come here expecting everyone else to buy your p!ss weak rationalisations, or even just let them stand. Good luck.

[snowflux]

Many Germans do buy (or build) houses, though typically somewhat later in life than in the UK. This is usually done using a "Bausparvertrag" or building loan contract, a contract taken out with a building society in which you are guaranteed the loan of a certain amount of money at a particular rate of interest to buy or build a house in return for saving regularly for a defined period. Mine was for seven years, which is typical. Such contracts typically require you to save 40 or 50% of the final payout amount.

Housing in Germany generally consists of relatively spacious low-rise apartment blocks in the town centres and large, typically detached houses in the suburbs. The usual way of doing things would be to rent an apartment in a block typically owned by a corporate landlord while saving in your Bausparvertrag. Then, when that matures, you use the payout to buy, or as is still frequently the case in Germany, build a house. You then pay off the loan from the building society at the interest rate specified in the contract. Variable rate mortgages are virtually unknown in Germany.

[Bland Unsight]

Many Germans do buy (or build) houses, though typically somewhat later in life than in the UK.

...

(snip)

...

You then pay off the loan from the building society at the interest rate specified in the contract. Variable rate mortgages are virtually unknown in Germany.

Interesting post - thanks.

Sounds like complete madness. I assume that at the same time as Cameron is hosting events to encourage UK industry to be more like the mittelstand Merkel has invited the Chief Executives of Nationwide and Persimmon to explain the virtues of not building enough houses and allowing 75% LTV interest only mortgages to wannabe BTLers, .

[BananaMan]

Chairman

There you go again twisting words and completely imagining ive written words to make your argument.

If you read back it was you who starts using insulting words, hence why i referred to you as an internet warrior, it seems youre so full of your own importance that self awareness is clearly lacking. As for my grammar and punctuation this is a webforum not a marked essay so i couldnt really care less.

To answer your question "Fundamentally, I believe that right here right now is a really bad time to buy in the UK. You are tacitly arguing that because they have in your word "kept the plates spinning" thus far, it follows that they will be able to keep the plates spinning indefinitely. If it was that simple why did we endure price corrections after the Barbour and Lawson booms?"

Because after the last boom interest rates went up and they didnt come up with QE hence we lived in something nearing a capitalist society, surely a jumped up tea boy like yourself can figure this one out.

The govt are showing that they will be keeping interest rates at zero percent or similar levels at any cost, and the fact all the major Western economies are doing the same means Britain is unlikely to be picked off by the markets for following suit.

Here is a link showing areas of West Germany where home ownership is around 60%, the overall low figures in Germany are skewed by those in the East where its closer to 15%. There are more links online showing it to be just under 60% in West Germany.

http://www.pie-mag.com/articles/5485/german-home-ownership-rises-to-46-berlin-projects-at-risk/

Now as its around 65% in the UK there isnt a whole lot of difference.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9856095/Home-ownership-falls-to-lowest-level-since-1987.html

http://www.theguardian.com/world/2011/mar/16/new-europe-germany-property

Up until recently i would have agreed that renting a council house is a good idea if one is looking to rent for life, but what happens to this person when they get to 60 and can no longer work and the kids have moved out .... thats right they will get booted out due to housing benefit not covering the rent for extra rooms.

If someone is a wage slave then renting long term in the private sector isn't viable if one wishes to live after retirement. Not many pensions in Britain pay enough to cover the rent.

You ought to clear off to Germany as you see it as a Utopia, im sure you'll come back disappointed.

[Venger]

I'm split between Chairman and sympathy for BM's views on this, but more Chairman as I'm not buying until the crash. No surrender. Doesn't make any mathematical sense for me to surrender and buy, at the last stage sucked into the view it's the new normal, ultra high house prices.... simply because it hasn't crashed yet.

MSW: Demand is intrinsically linked to affordability, and that's linked to how much banks are prepared to lend and how much people are prepared to borrow. Demand for housing is a very flexible thing. Saying something isn't going to happen because it hasn't happened yet doesn't really make any sense. That's like saying because I haven't died yet I won't, but I guess I probably will. And a housing crash is much the same. Something not happening simply makes it more likely that it will, rather than it won't. If the conditions are in place, and the conditions are in place.

Markets are driven at the margin. They're driven by people who have to buy or people who have to sell. So when you get to the point when there are people who must sell, and that will come, then prices fall across the board because not many people have to be forced to sell at a low price to push values down.

To answer your question "Fundamentally, I believe that right here right now is a really bad time to buy in the UK. You are tacitly arguing that because they have in your word "kept the plates spinning" thus far, it follows that they will be able to keep the plates spinning indefinitely. If it was that simple why did we endure price corrections after the Barbour and Lawson booms?" Because after the last boom interest rates went up and they didnt come up with QE hence we lived in something nearing a capitalist society

It come be a secondary phenomenon the HPI reflation we've been seeing, people chasing yield. Rates are low because risk is high. Also US banks now rebalanced with QE. US taper underway, affecting world wide liquidity flows. My view is we're not long away from many a yield chaser and complacent expensive asset holder getting squeezed. The borrowers facing a real horror show for their decisions. UK buckling to new market conditions, hopefully putting a sudden stop Cam and Osborne are doing with their HTB now.

The Fed immediately dropped the discount rate in 1929 from 6% to 5%. Within two weeks, the rate had been cut to 4.5%. My March 1930, 3.5%. The system expanded credit enormously. Falling interest rates were not accompanied by a growth of money aggregates. (How is UK bank lending going now?) Negative T-bills in 1932/3 (investors willing to take a loss for financial security of capital), massive stimulus programs did not prevent deflation in the US in GD. QE was needed because conditions worse this time around. Or I could be wrong and borrowers and existing outright owners going to be floated to even bigger riches on good old continual HPI.

[Democorruptcy]

Just imagine that your house was NOT so expensive. You could save some of your income and you could pay into a pension. Then later, you could pay your rent using your savings and your income.

Of course, we will see the same thing here, spray painted for our pwoperdee mad brains. People will pay big mortgages all their life (where the costs all in are greater than the rental costs) and then at the end of their life they will use equity release schemes to release the limited equity that they have accumulated. They will rely on this equity release because the costs of servicing the mortgage and maintaining the property have prevented them from saving or paying into a pension. What is the difference?

The principal difference is that if you rent the owner of the asset bears the risks associated with the tendency of assets to depreciate, spring leaks, subside and all the rest - and that if you rent you accumulate savings and do not under the shadow of a massive burden of debt.

No.

The principal difference is that paying a big mortgage and then doing equity release is borrowing money twice.

This obviously suits the financial sector but also the government because to pay bigger mortgages people typically have to work more hours and so pay more taxes.

So it's 30, 35, 40, 45 then 50 year combined household income joint mortgages, now at 4.3 times combined income. The 4.3 times household income can tick up with the length of mortgage term because increasing the term length makes the payments look cheaper.

If enough people are prepared to do it, how can it be stopped?

[Bland Unsight]

Chairman

There you go again twisting words and completely imagining ive written words to make your argument.

If you read back it was you who starts using insulting words, hence why i referred to you as an internet warrior, it seems youre so full of your own importance that self awareness is clearly lacking. As for my grammar and punctuation this is a webforum not a marked essay so i couldnt really care less.

"No, he started it!" Really? I have no illusions regarding my importance, (though I suspect you meant self-importance).

With regard to the care you choose to take in communicating with the rest of us, fair enough - but readers will make assumptions if you can't handle grammar and punctuation, and it does make it more difficult to understand what you've written.

To answer your question "Fundamentally, I believe that right here right now is a really bad time to buy in the UK. You are tacitly arguing that because they have in your word "kept the plates spinning" thus far, it follows that they will be able to keep the plates spinning indefinitely. If it was that simple why did we endure price corrections after the Barbour and Lawson booms?"

Because after the last boom interest rates went up and they didnt come up with QE hence we lived in something nearing a capitalist society, surely a jumped up tea boy like yourself can figure this one out.

You've just begged the question. Why did monetary and fiscal authorities allow them to eventually rise in the past and precipitate the busts? If all we needed to do to avoid the busts was keep them down, why didn't we do that in the past? Have you worked that out?

As to 'jumped up tea boy', it was interesting work and I enjoyed it. Anyway, the logical structure of your insult doesn't work, it should be "even a jumped up tea boy like yourself can figure this out", indicating that it was easy to work out and thus even someone of modest intellectual means ought to be able to work it out. What you've written suggests that you believe that tea boys would reliably be expected to understand why fiscal and monetary authorities are reluctant to raise rates presently, but that's ludicrous. Of course, if you have the same lackadaisical approach to saying what you mean as you do to grammar and punctuation, then even a jumped up tea boy like me might anticipate your prose being a little off the mark.

The govt are showing that they will be keeping interest rates at zero percent or similar levels at any cost, and the fact all the major Western economies are doing the same means Britain is unlikely to be picked off by the markets for following suit.

The policy rate is not the entire extent of interest rates. The 10 year gilt has been knocking around 3% since last summer. Low, certainly, "zero percent or similar", hardly. Rates on 95% LTV mortgages are 5% and change. Again, low, but not zero. SVRs are somewhere between the two and doubtless set to drift higher in due course as the withdrawal of the Funding for Lending collateral swap for lending against residential mortgages shifts the marginal cost of capital affecting the banks' mortgage books. Here, you are just plain wrong.

Here is a link showing areas of West Germany where home ownership is around 60%, the overall low figures in Germany are skewed by those in the East where its closer to 15%. There are more links online showing it to be just under 60% in West Germany.

http://www.pie-mag.com/articles/5485/german-home-ownership-rises-to-46-berlin-projects-at-risk/

Now as its around 65% in the UK there isnt a whole lot of difference.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9856095/Home-ownership-falls-to-lowest-level-since-1987.html

http://www.theguardian.com/world/2011/mar/16/new-europe-germany-property

Up until recently i would have agreed that renting a council house is a good idea if one is looking to rent for life, but what happens to this person when they get to 60 and can no longer work and the kids have moved out .... thats right they will get booted out due to housing benefit not covering the rent for extra rooms.

I wasn't contesting your numbers on ownership rates as (i) you didn't offer any for me to contest and (ii) the 2004 numbers are in the OP. (You may find that it's working up all the insults that is taking your eye off the ball on the actual substance of what is being contested, though ignoring apostrophes should have lightened the cognitive load somewhat.)

If someone is a wage slave then renting long term in the private sector isn't viable if one wishes to live after retirement. Not many pensions in Britain pay enough to cover the rent.

Who the hell else is going to rent the houses? Or do you imagine that they will just stand empty and that the private banks owed money by the BTLers will just overlook the fact that the mortgages are no longer being paid?

You ought to clear off to Germany as you see it as a Utopia, im sure you'll come back disappointed.

Whatever. You claim that by the end of the year you will be able to buy a house with cash. Great. Buy one. If you have the debt free liquid assets to buy a house outright, you are rich. Lucky you.

You tacitly suggested that renting is everywhere and always exploitation of the poor by the rich, "If renting was so great the rich would be doing it." I disagree. As snowflux's illuminating post points out a household will clearly not necessarily have been able to save a significant deposit a short period after its formation. What it needs then is good value, high quality rented accommodation. We should strive to ensure that our society provides that and are probably compelled to acknowledge that as a matter of fact some other societies (e.g. Germany) are presently doing a better job on that score than we are.

As to, "If someone is a wage slave then renting long term in the private sector isn't viable if one wishes to live after retirement. Not many pensions in Britain pay enough to cover the rent.". Firstly, not many incomes cover the mortgage these days!. Secondly, if everyone believed that they had to buy in order to avoid penury in retirment, then they would be willing to bid house prices higher and higher, to the point where they were taking out self-certified interest-only mortgages at very high LTVs and very high price-income multiples, which is of course exactly what happened. Have you read the FSA Mortgage Market Review or the FCA commissioned Experian report on Residential Interest Only Mortgages?

This leaves us in a place where prices are very high compared to incomes. For many people a discussion of what would be best (renting or buying) is irrelevant because they cannot afford to purchase, regardless of what they want.

My quarrel with your remark, "If renting was so great the rich would be doing it" is that it provides a frame that distracts us from two more important questions which are firstly, why renting in the UK is such an overpriced nightmare and secondly why we have allowed a situation to persist where households are perennially encouraged (almost required!) to take on enormous financial risks in order to obtain shelter adequate to their needs at a price that they can afford.

Anyway, an end to Chairman vs BananaMan, at least from my side of the fence. I think that it's very important that the hpc threads don't just become tedious unreadable flame wars.

It seems to me trivially obvious that UK incomes must pay for UK housing. We've allowed a situation to come to pass whereby UK households could use almost completely unregulated access to odious debt in order to use their present assessment of their future incomes to borrow vast amounts of money and use it to drive up house prices.

At a given point in the boom, maybe 2003-2004, a significant cohort of buyers arrived who used interest only mortgages and assumed that they would acquire a significant portion of their equity through house price inflation. To my mind this was a real sea change.

Previously, people were using a rule of thumb that house price inflation would mean that they were better off buying than renting and that wage inflation would mean that you should borrow as much as you can at the outset because in future it would 'get easier' as the real value of the principal (and thus the real value of the interest on the principle) were eroded by inflation. Further, even though endowments meant that some people thought they were doing it but actually weren't to the extent that they thought they were, essentially all UK mortgages were repayment.

Right now, I see the following differences. Rather than endemic wage inflation we appear to have weak to non-existent wage inflation. Secondly, the last five years have shown that servicing the mortgage debts with the incomes of the people who are servicing the debts, even at these once in a lifetime rates, is extremely difficult. If we entertain the notion that unless you can service the debt and accrue for the costs of inevitable maintenance and repairs and save for a rainy day quite unrelated to the fabric of your house and save for a pension, then in reality you cannot service the debt, then I would argue that a large proportion of the extant cohort of mortgaged owner-occupiers have mortgages that they cannot actually afford, and no-one is coming to their rescue. Rates aren't going lower, they are going up next and wage inflation may well be a promise of jam tomorrow, delivered already broken.

What the UK has managed to stave off so far is a correction of prices down to the level at which people can afford to buy the houses. If you want to jump into that market, jump away. I'm going to wait five years to see what comes of what comes, rent cheaply and save. If the first home I buy is a retirement flat, so be it. I didn't make the weather, but I have to play the hand I'm dealt, and I'm not keen to jump into the nightmare a lot of rash borrowing has created.

[Bland Unsight]

No.

The principal difference is that paying a big mortgage and then doing equity release is borrowing money twice.

This obviously suits the financial sector but also the government because to pay bigger mortgages people typically have to work more hours and so pay more taxes.

So it's 30, 35, 40, 45 then 50 year combined household income joint mortgages, now at 4.3 times combined income. The 4.3 times household income can tick up with the length of mortgage term because increasing the term length makes the payments look cheaper.

If enough people are prepared to do it, how can it be stopped?

I totally agree and accept the correction - you've pointed this out in the past and I think that you are absolutely right. This is how it will play out. People will reach the end of their working lives still having a non-trivial mortgage and at that point they will have to enter an equity withdrawal arrangement. The amount of interest that they will have paid out over their lifetimes when a final reckoning is made will be horrendous.

It is financial capture, plain and simple.

If enough people are prepared to do it, it can't be stopped. But we can at least argue with them when they recommend the plan to the rest of us on hpc, .

[Bland Unsight]

I'm split between Chairman and sympathy for BM's views on this, but more Chairman as I'm not buying until the crash. No surrender. Doesn't make any mathematical sense for me to surrender and buy, at the last stage sucked into the view it's the new normal, ultra high house prices.... simply because it hasn't crashed yet.

Fundamentally, I'm convinced that we cannot afford these prices and that people are sitting on illusory gains. There are just not enough strong borrowers to support these valuations. If transaction volumes recover, I'll take another look at my assumptions.

[Venger]

My quarrel with your remark, "If renting was so great the rich would be doing it" is that it provides a frame that distracts us from two more important questions which are firstly, why renting in the UK is such an overpriced nightmare and secondly why we have allowed a situation to persist where households are perennially encouraged (almost required!) to take on enormous financial risks in order to obtain shelter adequate to their needs at a price that they can afford.

Know of a nearly high end IT chief exec who is renting. Think the McMansion landlord/developer at one point was trying to sell at... I can't find the listing, but way over £2m (perhaps £4m). And I could spend an hour looking for that rental listing (got it saved somewhere) but I won't. Just recall it was a very low yield rental for the landlord vs big cost savings against not buying. He's British but is likely to go back to US for a length of time in the future, so it suits his circumstances, and probably his finances. Also Premiership footballer I notice don't have much problem renting. Know one who was renting recently, landlord still marketing it for sale, and reduced by half-a-million pounds in that time. The froth maybe taken off, but perhaps more serious correction to come.

[BananaMan]

I'm split between Chairman and sympathy for BM's views on this, but more Chairman as I'm not buying until the crash. No surrender. Doesn't make any mathematical sense for me to surrender and buy, at the last stage sucked into the view it's the new normal, ultra high house prices.... simply because it hasn't crashed yet.

It come be a secondary phenomenon the HPI reflation we've been seeing, people chasing yield. Rates are low because risk is high. Also US banks now rebalanced with QE. US taper underway, affecting world wide liquidity flows. My view is we're not long away from many a yield chaser and complacent expensive asset holder getting squeezed. The borrowers facing a real horror show for their decisions. UK buckling to new market conditions, hopefully putting a sudden stop Cam and Osborne are doing with their HTB now.

The Fed immediately dropped the discount rate in 1929 from 6% to 5%. Within two weeks, the rate had been cut to 4.5%. My March 1930, 3.5%. The system expanded credit enormously. Falling interest rates were not accompanied by a growth of money aggregates. (How is UK bank lending going now?) Negative T-bills in 1932/3 (investors willing to take a loss for financial security of capital), massive stimulus programs did not prevent deflation in the US in GD. QE was needed because conditions worse this time around. Or I could be wrong and borrowers and existing outright owners going to be floated to even bigger riches on good old continual HPI.

I think there will be a crash as prices are just ludicrous for the average worker in parts of the country that are vaguely prosperous so i also agree with Chairman .... Its the timescale that is the unknown for me and pretty much everyone else that is the problem.

The position i am in being a single father with a kid starting school in September means fuuk it and dive in within the next 9 months, may be buying before ny potential bail in .... if i can borrow a little off family i will be a cash buyer thus making my position that little bit stronger in negotiating a deal. But i actually hope the value of anywhere i buy drops in value significantly enabling me to buy somewhere better and so this country becomes a more fair and decent place to live.

[South Lorne]

So who owns the houses that are rented?

..majority tends to be professional organisations ..not individuals...

[Venger]

I think there will be a crash as prices are just ludicrous for the average worker in parts of the country that are vaguely prosperous so i also agree with Chairman .... Its the timescale that is the unknown for me and pretty much everyone else that is the problem.

The position i am in being a single father with a kid starting school in September means fuuk it and dive in within the next 9 months, may be buying before ny potential bail in .... if i can borrow a little off family i will be a cash buyer thus making my position that little bit stronger in negotiating a deal. But i actually hope the value of anywhere i buy drops in value significantly enabling me to buy somewhere better and so this country becomes a more fair and decent place to live.

The dragging time-scale is a concern of mine too, but I'm holding out. Ok you could buy outright, but perhaps consider how you've struggled to build up your savings. You might have earned good money in recent years, but In my experience it still takes discipline to save, especially against HPI years.

Also consider the magnitude of people who aren't as well positioned as you, who want to buy via debt. Run your numbers through here, imagining you were such a buyer, and see what interest on principal they're signing up to, competing against us, buying at such high prices. http://www.drcalculator.com/mortgage/uk/

Also mortgage rate deals/fees http://themortgagemeter.com/#/latest_changes then all your legal costs, stamp duty, other fees. I look at all that and braced for waiting, rather than settling for some over-priced dingy make-do place for much of my savings, which would likely fall in value significantly in that crash, to pay all fees again to upsize to something better (with mortgage) I could have perhaps afforded if I'd waited for hpc 2.0 immediately (if it comes near future) .

Versus rental costs, and possibilities of a weakening rental market (rent prices) into the longer term. Perhaps finding a good solvent landlord / not one who is mortgaged up hard. Enjoy renting perhaps? The freedom of it, and choice. Enjoy having capital to deploy when you fully choose? VI's in the market will try and sell you something when they want, and smart buyers will buy when they decide. Although there are all the scare stories, of bail-ins and skims on capital for the savers, (including non-owners) but I've got to stomach that too, rather than allow it to influence me against hyperinflated house prices.

[BananaMan]

^^^^

Yes i agree with all that, if i didnt have a kid there is no way id be buying.

Irony is the stresses of the housing market and constant moving (and other things) has led to me and the ex splitting up and now i look after my kid with my parents and can only work now and then so i've lost a lot more not working then any crash will save me ... maybe i will get unlucky and lose twice!

I'd like to wait another year in the hope that the Labour party wins the election and then the markets go against us but there just seems too much will from Carney, Dave Osborne and the banks to let the property market crash or even slowly fall as it was starting to.

(And just to confirm i wont be voting Labour)

[Bland Unsight]

I think there will be a crash as prices are just ludicrous for the average worker in parts of the country that are vaguely prosperous so i also agree with Chairman .... Its the timescale that is the unknown for me and pretty much everyone else that is the problem.

On the balance of probabilities, it seems that we got off on the wrong foot, and as I called you the greater fool from a cold start, the egg is on probably on my face. You'll know where you are coming from. If you're not here trying to gull the ignorant into taking out mortgages that they can't afford, then an apology is owed, from me to you, and one is offered.

I agree with the idea that the timescale is unknowable. Why we tolerate a casino housing market now that is it is obvious that it benefits the few at the expense of many is interesting, but hopefully not stable. We'll see.

[BananaMan]

On the balance of probabilities, it seems that we got off on the wrong foot, and as I called you the greater fool from a cold start, the egg is on probably on my face. You'll know where you are coming from. If you're not here trying to gull the ignorant into taking out mortgages that they can't afford, then an apology is owed, from me to you, and one is offered.

I agree with the idea that the timescale is unknowable. Why we tolerate a casino housing market now that is it is obvious that it benefits the few at the expense of many is interesting, but hopefully not stable. We'll see.

No worries, sometimes the internet brings the worst out in us all.

My fear is they are copying the Japanese and the timescale could be drawn out a lot longer then any of us can wait ... i hope not as many decent "hardworking" people in their late 30s i know with young kids will be renting shythole flats for ever.

Prior to 2007 i knew there was going to be an imminent crash and i took 100% of my money out the stock market never to return it, now i have no idea.

[Visitor]

We lived in Berlin a few years ago and we bought our place, through habit. Acquaintances suggested we were crazy for tying up a pile of money in a building. With Berlin's tenure security and Town Hall specified rents there's simply no need to buy to get the security you need for the children's schools and work commitments.

That no politician has seen that it just works in Berlin and suggested it is copied continues to bewilder me. i don't want to believe that they are brazenly protecting their landlord gravy train - especially since the longer it goes on the more Housing Benefit they will be paying.

Edited January 29, 2014 by Visitor

[Steppenpig]

That no politician has seen that it just works in Berlin and suggested it is copied continues to bewilder me.

Housing is expensive and difficult to arrange fairly everywhere. I don't think the Germans have come up with a miraculous solution or anything, there are just as many problems caused by renting as by buying. In fact, I find the way it works in germany a little odd, There are oftenlegal disputes regarding who is responsible for what. For example, the owner can decide to upgrade the kitchen, and is then legally entitled to demand higher rent. The renter may also want to upgrade the kitchen himself (and possibly take it with him when he leaves and reinstall the owner's original kitchen. The renter is also generally also requred to completely redecotrate the property before vacating it at the end of the lease.

Also, most dwellings in Berlin, and other European cities, are flats, which are mostly rented, while individual houses ine the sticks seem to be mainly owner occupied. That seems to have a certain logic,, there is something odd about an individual owning a fraction of a block of houses,, but British towns and cities still consist mainly of houses.

Edited January 29, 2014 by BigPig

[porca misèria]

The UK rental system used to be a lot more like this before Thatcher’s *reforms* in the late 80s....

No. Quite the opposite. Renting in the UK in the 1980s was a total nightmare. Unless you had access to private channels (e.g. friends-and-family, or a student accommodation office) there were no tenancies to be had at all. Only those with tenancies dating from before the 1977 rent acts had them: for the rest, the best you could get was a "license" to live somewhere. Germany by contrast was good: I got a very nice flat, for the price of a room in a run-down HMO back in Blighty.

Renting in the UK improved a lot after 1989 as ordinary people, including accidental landlords caught by the crash, started to rent out places fit to live in.

Yes, I rented both in England and Germany in the 1980s. Germany is where I escaped to when priced out of London.

[porca misèria]

So who owns the houses that are rented?

The place I rented was owned by the widow of a wealthy industrialist, who had two or three such pads in cities to which his business had frequently taken him.

AIUI a great many are owned by big corporations. So that'll ultimately be your pension fund.