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zugzwang

We Need New Ways To Pass On Property Wealth

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Telegraph troll floats a trial balloon. Maybe something, maybe nothing. But worth keeping an eye out for.

If affordability constraints are limiting the effectiveness of HtB, and thus Osborne's ability to keep the bubble inflated, then why not shift focus instead to the over 50s?

http://www.telegraph.co.uk/finance/personalfinance/houseprices/10623701/We-need-new-ways-to-pass-on-property-wealth.html

We need new ways to pass on property wealth

More families may need to pass property wealth on to the next generation earlier in life – but how?

By Richard Dyson

5:07PM GMT 07 Feb 2014

Hate it or love it, the property shortage in Britain will push house prices up for years. That was George Osborne's message last week as he indicated demand would outstrip supply for a decade, regardless of hoped-for planning reforms and other initiatives to ramp up home-building.

One of the most troubling consequences is the divisive split between the wealth of generations. Homeowners in their fifties are, on average, controlling huge property riches. Their children's generation is more or less locked out of it.

The older generation's route into property ownership was also, at least on the face of the statistics, comparatively easy. A homeowner in his mid-50s today would have bought their first property in the early Eighties aged around 27. It would have cost £17,000 – just over twice their income at the time – and they would have put down a 12pc deposit. Their children, at least those who manage to buy today, have to find a 20pc deposit and pay £147,000 for their home. And that sum is more than four times their income.

These numbers are all averages. They come from research by HSBC published earlier this week, and they portray the problem starkly. The situation has not arisen overnight, although with today's rapidly rising house prices it can only be getting worse.

But when it comes to exactly how the parents' generation is finding the ready money with which to help, the research dries up. Very well-off families might have sufficient "spare" cash to get the younger generation on the ladder. Most middle-class households, though – with the looming pressure of retirement and care costs, and so on – will surely not. For them, the solution will be to spill some of the equity out of one generation's homes and hand it to younger ones. As future price inflation cranks up, this will become an even more obvious solution. But the available ways to do this are limited and crude. They are neither good value nor very safe.

Some might suggest the traditional mortgage as a way of effecting the wealth transfer. Perhaps in the past, but not today. Traditional mortgages require monthly repayments, and homeowners in their 50s are often income-stretched. In any case – as older mortgage applicants will know too well – bank lending to those in their 50s and 60s has dried up, mostly because lenders fear the wrath of a watchdog which has decided that virtually no-one should grant mortgages extending into retirement. The same watchdog has all but shut down interest-only mortgages, too, so anyone hoping to reduce their monthly outgoing by that method is also thwarted.

And then there is so-called equity release, which describes specialist loans aimed at over-55s. With these the borrowers don't make monthly payments but lock into lifelong mortgages where interest – at a fixed rate – rolls up and is paid, along with the capital, on the eventual sale of the property.

Again, these deals are less than perfect. There is relatively little competition among lenders and it is hard for borrowers to assess value. There is also the risk that high rates of interest, compounded over many years, could blot out existing equity. These loans are not, on the whole, good for people in the 50s or 60s because the chances are they have long to live.

Other solutions need to be developed and encouraged. Recently I asked pensions minister Steve Webb whether there was a role for government to look more closely at the process of helping people release equity more efficiently, to help wealth move down from one generation to another. He seemed surprised and replied that it wasn't the Government's job.

But this and earlier governments have played their part in creating the distortions and pressures in our housing market. They need to be involved in all the potential solutions too.

Edited by zugzwang

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Telegraph troll floats a trial balloon. Maybe something, maybe nothing. But worth keeping an eye out for.

If affordability constraints are limiting the effectiveness of HtB, and thus Osborne's ability to keep the bubble inflated, then why not shift focus instead to the over 50s?

Dyson cut his teeth at the Wail(I think), which goes some way to explaining his love of HPI. Venger posted a Mail cutting ages ago which was written by Dyson, might have been on one of the regional forums. The name jumped out.

Interesting that the reason cited for passing on wealth, is that prices are too high.

The junior personal finance faces at the Torygraph seem to change every year or so, dunno what they do to them but they don't seem to last long. Probably have to leave London to afford a place to live. Maybe they get disheartened by the comments left by their articles, most of which rip 'em to shreds. I hope so.

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Dyson cut his teeth at the Wail(I think), which goes some way to explaining his love of HPI. Venger posted a Mail cutting ages ago which was written by Dyson, might have been on one of the regional forums. The name jumped out.

Interesting that the reason cited for passing on wealth, is that prices are too high.

Good memory. http://www.housepricecrash.co.uk/forum/index.php?showtopic=194478&view=findpost&p=909424857

The bad stuff somehow made good? Turned around with go-go house price reflation, QE, 0.5%, HTB1+2, landlords getting in again, flippers and so on.

I wonder who gets lumped with paying for all the bail-out? Non-inheriting non-Bomad independent young people, imo.

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