Jump to content
House Price Crash Forum
thefruits

Wealth Not Income Driving Hpi

Recommended Posts

I've been a poster on HPC for many years and have been through many stages of optimism and frustration of ultimately buying the house of my dreams, without taking on the mother of all mortgages. Well I have the worlds biggest mortgage and have my dream house. I earn a very good salary yet buying the house wasn't a question of income because those I was going against weren't income rich, they were cash or wealth rich. It struck me that simply having a great job, great income and access to whopping mortgages isn't really always enough. What you need is a whopping inheritance, or to have bought a house for say 100k in 2001, ,sell it for 500k in 2014 and hence a 700k house needs a relatively modest mortgage.

Hence I came to the observation that the key determinant in stopping HPI isn't whether Houseprices and Incomes are out of kilter, it is whether the enormous flow of funds triggered by inter-generational gifting / inheritance / overseas sources stops.

As it happens, I got lucky but I was staggered how easily I could have lost the house. I paid full asking as I feel they aren't building too many great houses in great locations, (normally one without the other) and I hope its a house I can live in for the next 30 years but crikey... it was touch and go.

So.. is the transfer of existing wealth really the key fuel to HPI ? and incomes are becoming irrelevant ?

Share this post


Link to post
Share on other sites

I earn a very good salary yet buying the house wasn't a question of income because those I was going against weren't income rich, they were cash or wealth rich. It struck me that simply having a great job, great income and access to whopping mortgages isn't really always enough. What you need is a whopping inheritance, or to have bought a house for say 100k in 2001, ,sell it for 500k in 2014 and hence a 700k house needs a relatively modest mortgage.

Indeed, there is simply no way to get anything approaching good value in a purchase when your up against people who have been gifted 10's or 100's of K simple because they happened to have owned any random property in the last 15 to 20 years.

Share this post


Link to post
Share on other sites

Inheritance really is the key.

An only child whose parents own a detached house in the southeast could easily pick up a £0.5m inheritance tax free.

That is about 30 years after-tax income for an average wage earner.

Of course if that £0.5m is used to buy some houses to rent out the problem gets worse.

Share this post


Link to post
Share on other sites

Indeed, there is simply no way to get anything approaching good value in a purchase when your up against people who have been gifted 10's or 100's of K simple because they happened to have owned any random property in the last 15 to 20 years.

Where there is a chain there is usually a chump at the bottom taking on the Jumbo mortgage so the rest can extract their wealth. Hence the notion of it being a Ponzi.

Share this post


Link to post
Share on other sites

Inheritance really is the key.

An only child work whose parents own a detached house in the southeast could easily pick up a £0.5m inheritance tax free.

That is about 30 years after-tax income for an average wage earner.

Of course if that £0.5m is used to buy some houses to rent out the problem gets worse.

Very true......that is why taxing wealth rather than income would be one way of narrowing the gap between those that have to work to those that accumulate wealth from others without working for it, it gets given or comes off the back of rents of others that do work or from something making money, growing in value whilst lying in bed or on the beach doing absolutely nothing whatsoever.

Share this post


Link to post
Share on other sites

You're a brave man coming on here and admitting that you've bought a house with a big mortgage!

There's a certain circularity to your argument in that those with inherited wealth (through housing) only have large monetary wealth because someone, somewhere, with real money derived from productive activity (either saved money or borrowed money to be paid for through an income) is paying a lot of money for that house. It has to be that way.

Imagine a country with fine houses but where nobody has a job - the people still have real 'wealth' because they live in nice houses but in money terms they have nothing. Taking my analogy further - in such a country someone might turn up who does have a high paying job but who has to live in a tent because there are no empty houses - if one person then wants to sell their house to him he's still screwed because the seller can push the price up to the maximum that he's prepared to pay as he has no other choice. It's either live in a tent or pay top dollar for the house. If he ends up paying 700K for that house, all the other people in the country with no jobs can say - ooh., we're rich our house is worth 700 grand. That's an exaggerated version of the housing market in SE England at the moment, IMHO. But ... if TWO people want to sell their house to him, then it's very different. Now he can get a house for the minimum that either of the two sellers would accept. He gets a house for 100K and suddenly all the people in that country find that their houses are 'worth' 100 grand.

Edited by gimble

Share this post


Link to post
Share on other sites

Those already on the housing ladder have been able to do well in a sense. The house I'm in we couldn't possible afford if it came to buying it now, neither I or the wife earn enough, however thanks to the equity in the previous house built up by HPI we could afford to buy, however if prices keep increasing the mortgage needed to buy would have been beyond us.

It's a huge ponzi scheme which appears to still have plenty of room to grow.

Share this post


Link to post
Share on other sites

So.. is the transfer of existing wealth really the key fuel to HPI ? and incomes are becoming irrelevant ?

I understand what you're saying, but isn't it a circular argument? "X is so expensive that only people who inherit X can afford to buy it." If X (in this case housing) drops in price, then so does the inheritance. However, it never drops against X (itself). I don't see how inheritance can be the driver.

Besides, most inheritors are not inheriting multiple housing - they are generally inheriting a share in a single house, and (given they have to make up the shortfall) are therefore also better served by an HPC - particularly if they are looking not just at their own situation, but at their childrens' etc.

Share this post


Link to post
Share on other sites

I've been a poster on HPC for many years and have been through many stages of optimism and frustration of ultimately buying the house of my dreams, without taking on the mother of all mortgages. Well I have the worlds biggest mortgage and have my dream house. I earn a very good salary yet buying the house wasn't a question of income because those I was going against weren't income rich, they were cash or wealth rich. It struck me that simply having a great job, great income and access to whopping mortgages isn't really always enough. What you need is a whopping inheritance, or to have bought a house for say 100k in 2001, ,sell it for 500k in 2014 and hence a 700k house needs a relatively modest mortgage.

Scary think is that you could do that and still have a £250k mortgage. And critically, if you assume that you bought at the age of 25, you are now nearing 40 and you don't want a mortgage lasting into your 60s.

It will be.. interesting to see, if and when prices start to drop and IRs rise, what happens to people in this situation.

Share this post


Link to post
Share on other sites

How many families are single child ones? And how much of this inheritance will get swallowed by care-home fees?

Depends on how ill and infirm your parents get. Not everyone ends up in a care home, however it's clearly a spin of the roulette wheel about what happens. For the plebs it's down to luck if you get to inherit any wealth or if the lot is lost with expensive care.

Share this post


Link to post
Share on other sites

The "traditional" link (correlation more exactly) between house prices and mean income has been broken for some years. I remember when this became clear to me when reading about the US HPC and an Isreali investment club buying up "cheap" US property. London is in a bubble mainly due to overseas investment. The OP is correct - the HPI gains are being transfered onward to new purchases. Windfall equity is passed on by BoMD. If you are starting from scratch you are goosed, an average income will buy you squat.

This can continue for a long time yet. Far longer than many people on here realise or want. However, eventually it must fail. When the boomers start to die and/or go into care there will be too much property and too few buyers. Prices will correct downwards substantially. Likewise a massive financial crisis here or abroad will start such a correction. The problem is the timing of these events and the possibility of other factors pushing prices up for some reason. Right now (according to this monring's papers) the Russian wealthy are buying up London Prime to get round sanctions. This event has nothing to do with housing market fundamentals, not even for that matter housing, but it will fuel the price ramping and distort the aggregated figures (again).

A crash is inevitable at some point but it may yet be another decade away. Or it might be next week. As an investment a house is not a wise one in the long term, unless - of course - we have a currency crash and your mortgage is paid back in the debased currency!

If you're in the market good luck with the guessing game. I think I will rent and be on the safe side for just a bit longer :lol:

Share this post


Link to post
Share on other sites

Have to agree with the OP and I made precisely the same points on another thread last week that it is wealth not income that is determining house price inflation.

I have been very pro punitive inheritance tax on this forum for that very reason. It makes me bloody angry when the likes of the Milibot have several million in property courtesy of family inheritance.

But wealth is not always a matter of inheritance tax, people just aren't dying any more, wealth tends to accumulate over a lifetime and we now have the problem of the older generation in many cases sat on enormous portfolios and seeing property as a safe haven.

Furthermore, no destructive resets. You can't compare income multiples following world wars etc. after seventy years of peace and eye watering boomer wealth accumulation.

A retired friend aged eighty asked me what I thought about buying the neighbour's property for quarter of a million as an inflationary hedge. He's not some one you would think is rich, just a retired teacher sitting on cash.

My next door neighbour aged 70 is renting her half a million pound house out and has moved just down the road to another half a million pound house. The house opposite similarly is now rented out as the boomer couple bought a large country house a few miles away.

Tony Blair and Michael Meacher will be proud of this greedy multi property portfolio ''socialist'' Society.

[

Edited by crashmonitor

Share this post


Link to post
Share on other sites

Those already on the housing ladder have been able to do well in a sense. The house I'm in we couldn't possible afford if it came to buying it now, neither I or the wife earn enough, however thanks to the equity in the previous house built up by HPI we could afford to buy, however if prices keep increasing the mortgage needed to buy would have been beyond us.

It's a huge ponzi scheme which appears to still have plenty of room to grow.

It's not a ponzi scheme, but it is a lottery.

Start from the position that property is a scarce resource. There aren't enough decent properties in high employment areas with good travel links and local amenities, so there's competition for them. Back in the 80's and 90's interest rates were high and trending up, consequently the affordability limit to that competition was set with cheap houses and expensive mortgages. But the lucky lottery winners who bought then saw their debt quickly eroded by inflation, so their pain didn't last.

For the last thirty years interest rates have trended down, so the affordability limit is now set with expensive houses and cheap mortgages. But the unfortunate lottery losing buyers of today wont see their debt quickly eroded by inflation, so their pain will last for many years, plus they won't get the capital appreciation that 1980's and 90's buyers enjoyed.

Some generations are just luckier than others. At least none of us were conscripted into a shooting war.

Share this post


Link to post
Share on other sites

Very true......that is why taxing wealth rather than income would be one way of narrowing the gap between those that have to work to those that accumulate wealth from others without working for it, it gets given or comes off the back of rents of others that do work or from something making money, growing in value whilst lying in bed or on the beach doing absolutely nothing whatsoever.

How about punitive taxes on second homes and BTL porfolios. Tax the Bollinger Bolsheviks until their pips squeak. Housing would quickly return to sensible income multiples without Blairite property hoarding.........

http://www.spectator.co.uk/spectator-life/spectator-life-life/9022871/socialist-climbing/

Share this post


Link to post
Share on other sites

Depends on how ill and infirm your parents get. Not everyone ends up in a care home, however it's clearly a spin of the roulette wheel about what happens. For the plebs it's down to luck if you get to inherit any wealth or if the lot is lost with expensive care.

It would be fairer, of course, if IHT came from a fairly low threshold (say £50k) and was explicitly used to fund elderly care, to remove the lottery element.

Share this post


Link to post
Share on other sites

How about punitive taxes on second homes and BTL porfolios. Tax the Bollinger Bolsheviks until their pips squeak. Housing would quickly return to sensible income multiples without Blairite property hoarding.........

http://

www.spectator.co.uk/spectator-life/spectator-life-life/9022871/socialist-climbing/

That greed detailed and evident in the spectator article is shocking although the vested interest aspect of MPs has been known about for a long time the actual extent is staggering - and they complain about their wages.

It's not an objection to their remarkable wealth it's the fact that they've insinuated themselves into positions where there own vested interest seems to be all that matters to them - the overall economic health of the UK seems to be of little interest to them.

It's quite possible that under the current system a party like UKIP wouldn't be much different although it's still hard to believe UKIP could be as staggeringly gross as the LibLabCon vested interest scroungers and troughers.

At least UKIP is an opportunity to churn LibLabCon MEPs and MPs off the trough and achieving that would be better than nothing (and it's clear that nothing is ever going to be achieved with the LibLabCon status quo) and it's even better if LibLabCon holders of safe seats get churned.

Edited by billybong

Share this post


Link to post
Share on other sites

That greed detailed and evident in the spectator article is shocking although the vested interest aspect of MPs has been known about for a long time the actual extent is staggering - and they complain about their wages.

It's not an objection to their remarkable wealth it's the fact that they've insinuated themselves into positions where there own vested interest seems to be all that matters to them - the overall economic health of the UK seems to be of little interest to them.

It's quite possible that under the current system a party like UKIP wouldn't be much different although it's still hard to believe UKIP could be as staggeringly gross as the LibLabCon vested interest scroungers and troughers.

At least UKIP is an opportunity to churn LibLabCon MEPs and MPs off the trough and achieving that would be better than nothing (and it's clear that nothing is ever going to be achieved with the LibLabCon status quo) and it's even better if LibLabCon holders of safe seats get churned.

+1 re. the LIbLabCon party .....vested interest in sustaining housing wealth at the expense of sensible housing and economic policies.

Share this post


Link to post
Share on other sites

It's not a ponzi scheme, but it is a lottery.

Start from the position that property is a scarce resource. There aren't enough decent properties in high employment areas with good travel links and local amenities, so there's competition for them. Back in the 80's and 90's interest rates were high and trending up, consequently the affordability limit to that competition was set with cheap houses and expensive mortgages. But the lucky lottery winners who bought then saw their debt quickly eroded by inflation, so their pain didn't last.

For the last thirty years interest rates have trended down, so the affordability limit is now set with expensive houses and cheap mortgages. But the unfortunate lottery losing buyers of today wont see their debt quickly eroded by inflation, so their pain will last for many years, plus they won't get the capital appreciation that 1980's and 90's buyers enjoyed.

Some generations are just luckier than others. At least none of us were conscripted into a shooting war.

All ponzi schemes are lotteries since only the early adopters get the opportunity to cash out profitably. They differ from pyramid schemes because the ponzi schemer - in this case George Osborne - acts as a 'hub' for recruiting new investors.

A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the high returns requires an ever-increasing flow of money from new investors to sustain the scheme.

Share this post


Link to post
Share on other sites

All ponzi schemes are lotteries since only the early adopters get the opportunity to cash out profitably. They differ from pyramid schemes because the ponzi schemer - in this case George Osborne - acts as a 'hub' for recruiting new investors.

A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the high returns requires an ever-increasing flow of money from new investors to sustain the scheme.

Are you saying property has always been a ponzi scheme or did it only become a ponzi scheme when George Osborne arrived?

Share this post


Link to post
Share on other sites

Have to agree with the OP and I made precisely the same points on another thread last week that it is wealth not income that is determining house price inflation.

I have been very pro punitive inheritance tax on this forum for that very reason.

The Daily Express (a pretty working class paper) has run a campaign against IHT for that very reason. Increasing taxes will have you shot as a Marxist traitor these days :)

Share this post


Link to post
Share on other sites

The Daily Express (a pretty working class paper) has run a campaign against IHT for that very reason. Increasing taxes will have you shot as a Marxist traitor these days :)

IHT is not the solution. Consider two 40 years olds. Person A bought a cheap property in 1995, the Person B missed the boat but now inherits money equivalent to the equity Person A has, why is it fair that Person B pays tax on their "lottery win" whilsts Person A doesn't? The solution is land value tax instead of other taxes.

Share this post


Link to post
Share on other sites

IHT is not the solution. Consider two 40 years olds. Person A bought a cheap property in 1995, the Person B missed the boat but now inherits money equivalent to the equity Person A has, why is it fair that Person B pays tax on their "lottery win" whilsts Person A doesn't? The solution is land value tax instead of other taxes.

Person B can get the hell out of the UK whereas Person A is stuck in this hole. You can't put a price on some things in life.

Edited by TheCountOfNowhere

Share this post


Link to post
Share on other sites

Surely the solution is cheaper housing? Cheaper housing = Less meaningful inheritance + Less lottery for all concerned.

I'm still not sure what mechanism is meant to translate inheriting property into higher house prices - sounds like the cart before the horse to me...

Share this post


Link to post
Share on other sites

Inheritance really is the key.

An only child whose parents own a detached house in the southeast could easily pick up a £0.5m inheritance tax free.

That is about 30 years after-tax income for an average wage earner.

Of course if that £0.5m is used to buy some houses to rent out the problem gets worse.

Yup. I have a better paying job and work harder than a lot of people I know, but it counts for nothing. I have way less ability to buy a house, than the people I know who have inherited. It's not even a case of them waiting well into their 60's, or having it eaten away by care home fees or cruises, because the money is being handed out now. It's £100k's people are being given. I'm trying to play catchup by no holidays, no spending, high pension contributions, hardcore saving... and it's really demotivating sometimes. Mind you as I'm one of the few people I know that actually has a pension I may get the last laugh on that one.

Like you I'm an only child but stand to inherit £0. Mum and Dad left/estranged and to add insult to injury my Step Mum has already given everything, including her house, to a religious cult leader who is an ex 2nd hand car dealer. Hows your luck.

Obviously, I have an extreme bias towards heavily taxing any form of inheritance, to narrow the wealth gap. Otherwise working hard and getting a decent job will be (is) a waste of time.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   212 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.