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David Smith Britons Growing Richer.

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David Blane eat your heart out. David Smith he the man. A wondrous miracle has been identified by Mr Smith where money can be created by bricks and timber arranged in a certain manner on a small piece of land. Productivity, innovation and competitiveness, old hat, equity release is the way to go.

This man is a saint how can we go about getting him canonised?

We are rich I tell you, rich!

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"Disposable wealth" - is that before or after the house is disposed of?

I recall seeing headlines like this before the last crash - I was on a visit to the UK at the time and something didn't make sense to me but I didn't think about it too much as it didn't affect me. I have never forgotten it though as soon afterwards the market crashed. The gist of the article was that everyone would get rich as they would in due course inherit their parent's valuable properties. There was no mention of who would be buying these properties.

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What a pathetically shallow article.

'Equity release' is no more than a fluffy marketing term for borrowing against your home.

..and because you can do that, that makes you rich does it?

Go back to school David.

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"Disposable wealth" - is that before or after the house is disposed of?

In today's miracle economy you don't need to dispose of the house - you simply borrow against this illusion of wealth.

It's modern day alchemy.

Today, debt equals wealth.

It amazes me the economics editor of the Sunday Times puts his name to this article without challenging the underlying flaws in this "wealth" boom we are currently experiencing.

And when the crash happens what happens to this "disposable wealth"?

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"Disposable wealth" - is that before or after the house is disposed of?

I recall seeing headlines like this before the last crash - I was on a visit to the UK at the time and something didn't make sense to me but I didn't think about it too much as it didn't affect me. I have never forgotten it though as soon afterwards the market crashed. The gist of the article was that everyone would get rich as they would in due course inherit their parent's valuable properties. There was no mention of who would be buying these properties.

Never seen the point in articles like this. Not an in depth analysis, more a self congratulatory, aren't we all so wonderful in our crass ignorance of fundamental economics, type speech.

Do people not question how relatively weak economies suddenly boom and their house prices soar. And the fact that the same time IR are non existent, merely a coincidence?

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For financial well-being it is essential to do three things -

Increase income

Increase net wealth

Minimize spending

I see no problem with spending a proportion of increasing net wealth that is not income (MEWing), however old you are. HOWEVER, if that net wealth is your home, and you want to trade up at some point, or are relying on it for your retirement fund then clearly that is dangerous.

The real problem is people who, when they are spending a proportion of their net wealth, believe they are spending part of their income (ie that part of their income that is the £20k they get every year from ever increasing house prices).

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I wonder if some people have started ignoring the difference between money they actually have, and credit they can call on. It's easier to think about this in terms of available credit in a bank account rather than house equity. E.g. if they go to the cash machine, if they consider the "available balance" (including overdraft) as the true amount of money they "have". Similar for credit limits. There was a thread on here discussing some woman on the radio who was advised how she could get access to more credit, and was very happy that she could go out on a spending spree.

I'm not saying that everyone thinks this way, but I seem to keep on seeing things in papers, on the internet, etc., which seem to suggest that this is the way some people think.

Returning to housing, I agree with the comment that people think that by MEWing they are spending that part of their "income" that comes from HPI.

Billy Shears

Edited by BillyShears

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As Mervyn King said the "value" of a house is just opinion whereas the debt it creates is real. These kinds of farticles indicate that we are in the closing minutes of the end game.

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David Smith is no fool. But he is deeply cynical. Describing home equity as wealth is disingenuous, you don't pay interest on wealth, you earn interest. I says a lot that he thinks he can sell this flannel to the readers of The Sunday Times.

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Returning to housing, I agree with the comment that people think that by MEWing they are spending that part of their "income" that comes from HPI.

Or they think that it doesn't matter as the price will keep on rising, making their debt a smaller and smaller percentage of the value of the house. i.e. the debt will all but pay itself off, through ever rising prices.

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The only problem is that accessing the wealth through equity release/bigger mortgage is that it makes you poorer due to the fact that you pay more interest year after year while earning the same money.

Borrow 50 grand now on an interest only loan for all your dreams to come true! But you will be nearly 3 grand a year poorer every year afterwards and that is before you try to pay back the 50K!

Wonder why they never print that last part :rolleyes:

Edited by erd

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I wonder if some people have started ignoring the difference between money they actually have, and credit they can call on. It's easier to think about this in terms of available credit rather than available funds. E.g. if they go to the cash machine, if they consider the "available balance" (including overdraft) as the true amount of money they "have". Similar for credit limits. There was a thread on here discussing some woman on the radio who was advised how she could get access to more credit, and was very happy that she could go out on a spending spree.

I'm not saying that everyone thinks this way, but I seem to keep on seeing things in papers, on the internet, etc., which seem to suggest that this is the way some people think.

Billy Shears

The banks have offered me credit, therefore I must be a valid adult.

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I knew it was all over in 2004 when I drove thru an estate in hailsham where the shitey little 2 up 2 down ex council houses were now apparently worth '£179,000'.

And outside each house - a big shiny black BMW 4x4, probably costing more than the owner's house had been 'worth' just 2 years previously.

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At the end of the article is a clue.

Father Fred has commented already on the subject of net wealth, and my understanding is that a measure of net wealth can be defined as

Savings = disposable income - consumption +/- changes in net financial assets.

It's sleight of hand to expand the definition of disposable income to include those changes in net financial assets, and encourages people to believe that those changes can only be increases.

But not everyone is fooled, as can be seen at the end of David's article, in a comment made by another analyst, Shane Bayliss.

Shane Baylis, chief executive at KDB said:, “Consumer spending growth levels and disposable-wealth growth levels should not be confused or conflated. This analysis shows that disposable wealth — the money people can really put their hands on if necessary — has continued to grow in most parts of the UK. However, consumers may have access to that disposable wealth, but may not be choosing to spend it.”

;)

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Very irresponsible article IMO. As others have commentated, if you're going to mortgage your property to the hilt, how does this debt make you wealthier? I only need one kidney to survive, what's that worth on the open market? How about MEWing against my kids future income (I guess this has already been done in japan with generational mortgages).

The end of the article, though is actually very bearish:

Figures on Friday suggested households are struggling under the rising burden of debt. There were 23,351 individual insolvencies in England and Wales in the first quarter of the year, up 12.9% on the previous quarter.

Official figures also showed that there were 33.442 possession orders in the first quarter, a 29% increase on a year earlier, and the highest since the third quarter of 1992. Possession orders are the first stage of mortgage repossessions.

Analysts said, however, that many people were now choosing insolvency, because of changes in the bankruptcy laws.

Maybe he's being leant on to prop up the image that all is rosy in the garden. Anyone with two brain cells to rub together, reading those last paragraphs should be able to put two and two together, though.

TLM

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Maybe he's being leant on to prop up the image that all is rosy in the garden. Anyone with two brain cells to rub together, reading those last paragraphs should be able to put two and two together, though.

he's embarassing.

economics editor ?

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  • 341 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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