Scary little investment survey

[LEE]

We've been thinking of selling our house and renting.

It just feels like a bubble is about to burst and that maybe it's a good time to cash in and sit it out for a few years.

What will Joe Public do, if they are asked to bail out yet another smash & grab by greedy (see: Corrupt) banks?

[Aunt Maud]

It just feels like a bubble is about to burst and that maybe it's a good time to cash in and sit it out for a few years.

That's calling the market. We did that 8 years ago, but prices continued to rise after we sold.

We did have another house though and my thinking was that I would rather have less debt and fewer assets than a pile of debt and a couple of houses, because I was convinced that interest rates were going to shoot up and the UK housing market was going to tank.

I wouldn't gamble with the roof over my head though and trying to call the top of the market is gambling. If you've done the sums and worked out that the total debt will become un-servisable if interest rates rose to say 6%, then that's making an informed decision on your ability to weather a realistic financial event.

That's what kept me awake and it still bothers me now, although my level of debt is tiny, but I'm unable to work. So my decision proved correct, although for very different reasons.

In hindsight I would have been better off renting the house in Somerset out and using that income stream to pay off all the debt, but I'm now in the position of not caring if the housing market loses 75% of its value overnight. I'm more than happy with that.

I like to read Roubini before bedtime.

[Polar Bear]

Point of order:

Joe Public is not asked to bail out the banks - the politicians made that decision last time and will do so again.   

The problems with banks actually failing are unthinkable but also the perceived and actual rewards for failure need to be removed.   They should feel our pain.

[caerau]

Interests rates simply cannot rise to 15% for the foreseeable future, it would be utter disaster and everyone knows it.


Of course that hamstrings the economy in interesting and not necessarily fun ways.

[Veloman]

Interests rates simply cannot rise to 15% for the foreseeable future, it would be utter disaster and everyone knows it.

Pity, as some savers would love that!

[Asterix, the former Gaul.]

Here's a nice little chart, look who's in deep shit.

https://data.oecd.org/hha/household-debt.htm#indicator-chart

The only four European countries with less household savings than us:

Poland, Portugal, Greece and Latvia

 

Household saving is the main domestic source of funds to finance capital investment, a major impetus for long-term economic growth. This indicator is measured as a percentage of household disposable income.

[caerau]

Interests rates simply cannot rise to 15% for the foreseeable future, it would be utter disaster and everyone knows it.

Pity, as some savers would love that!

Well indeed.  I did piss of a guy behind in a bank queue once who was moaning about low interest rates (understandably, he was a pensioner I guessed from his age) by pointing out that as a mortgage holder, low interest rates were fine by me.


I once asked my father what the runaway inflation of the 70s was like* and he told me loved it at is constantly made his montage cheaper.


My memory of it was making Walker's Crisps go from 5p a packet to about 17 p a packet.  Such was my age-related concerns at the time






*well runaway for the UK, other countries and in other times would think it was luxury I suspect

[Morat]

Point of order:

Joe Public is not asked to bail out the banks - the politicians made that decision last time and will do so again.   

The problems with banks actually failing are unthinkable but also the perceived and actual rewards for failure need to be removed.   They should feel our pain.

ain't that the truth. There's not enough fat cats taking the long dive off the top of their skyscrapers these days.

[Asterix, the former Gaul.]

...
I once asked my father what the runaway inflation of the 70s was like* and he told me loved it at is constantly made his montage [that'll be  'mortgage' !?] cheaper.

  ..if we have big inflation we need big pay rises to keep up.  Are we likely to get big pay rises and retain investment in this country, I ask myself..
  Capital can be an economic migrant even if people can't.   

[caerau]

I only really mentioned inflation with regard to its connection to old high interest rates historically.


When we had high interest rates that tended to come hand in hand with high inflation which meant the high interest rates (with regard to savings) didn't really mean very much necessarily.


We really are quite hamstrung with the inability to really push up interest rates should inflation bite.  Hence 'quantitative easing' I guess.


Inflation isn't just cause by high wages, it's also caused by things such as supply/demand, currency fluctuations (Brexit anyone?  )


I am not an economist but I definitely feel there is a long-term cancerous look to this stuff.

[Ian H]

Being at a time of life where I wish to be working less than I used to, the current situation is not all that rosy.  Fortunately we have got rid of any borrowings, but securing a stable income looks a bit pie-in-the-sky at the moment.

[tatanab]

...
I once asked my father what the runaway inflation of the 70s was like* and he told me loved it at is constantly made his montage [that'll be  'mortgage' !?] cheaper.

  ..if we have big inflation we need big pay rises to keep up.  Are we likely to get big pay rises and retain investment in this country, I ask myself..
  Capital can be an economic migrant even if people can't.

The big jump in interest rates in the late 70s were not matched by pay increases, and even if they were the increases would not have occurred until the next" pay round".
At the time I'd been in my first house about a year.  At 7.5% the mortgage on a 2 bed 1930s terraced house was cheaper than the rent on a 1 bed flat.  At 15% it meant that I lived on bread and eggs because I could afford little else, I also went late into the subsidised canteen at work in the hope of larger portions .  I had no car, no TV, no washing machine - none of the modern "necessities" but I did have 5 pedal cycles which had to share pedals/ pumps/saddles etc as needed.  In 1978 I was an electronic design engineer with 7 years experience and on £3800, about the national average salary, with a mortgage of £9500.  If I saw the cost of something (probably a bike part) I automatically converted the price into "canteen meals".  e.g. - That gear mech is 6 canteen meals , I do not need it that badly.  I suspect that caerau's dad had held a mortgage for some time and so the impact would have been less.

[caerau]

Dunno, you'd have to ask him (which would be rather tricky without a medium these days sadly), I was a bit young to know properly but he did have a pretty well paid job I think.  I think we (i.e. my family) were on property 2 by then so had probably built up decent equity - presumably they'd been on the property ladder since about 1970 when I was born.
I can only give his perspective on it - I did ask him that as at the time I was rather curious as to how they'd managed.  And his answer did and still does surprise me a little.
I guess he was one of the lucky ones.


15% would be ludicrous now.  Everyone has bought into a market where house prices are up to 5x some people's wages, I'd wager a rise to that level currently would destroy the ability of virtually everyone on a mortgage to pay it - so it would be in nobody's interests.
Building societies and banks wouldn't do well out of nationwide mass repossession.


It's also worth noting that I remember seeing how much they bought the house my mum still lives in now for - about #21,000 in 1979. By about 1986 people were selling on our street for 8 times that.  I hope you did equally well on that front later on at least. 

[Aunt Maud]

Down my parents road, 1930's 3 bed ex-council semis are changing hands at £500,000+

I think that's more than 5x the average wage down that road. OK it's London, but still.

[caerau]

It doesn't have to be 5x the average wage, it has to be relative to the wage of whoever is buying. Also, it's the mortgage that is the issue, not the entire house price.  If you have managed to build up 400k in equity over the years...
Anyway, London prices are insane and I suspect not-really representative of the UK market in general.


I have a 4 bed detached in Cardiff with a garden.  That would be millions in London.  I'd be lucky to afford a shoebox in London.

[Aunt Maud]

I'd be surprised if people are bringing £400,000 in equity to a house purchase like that. £200,000 would be a more realistic number.

[tatanab]

By the time interest rates went to about 15% for the second time (very early 80s) I'd been in the house a couple of years and it did not hurt me anything like as much.

What is noticeable is that when I took my first mortgage the building society showed me graphs of price versus wages for a first time buyer.  Prices went up until a point where they flattened out until they hit a line of 3x salary, so they went up in steps.  At that time I had to queue at the building society to get one of their mortgage allocations and was allowed only 2.5 x salary, add my deposit and my first house was £10k, so pretty much 3 x salary.  If the same rule applied these days that house would cost about £75-80k, but like many it was split into 1 bed flats in the 1990s each of which sells for £130k these days.