Proportion of cash buyers increasing

LisbonLaura

In a more advanced culture (where greed & need never meet) Britain's over-population problem would become Ireland's solution.
Just the kind of remark to attract a McSneering.

julieq

Where do you think savings go exactly Graham?

kabayiri

julieq wrote: »

Why it's bad for the young is that they have a classic double whammy. They're excluded from the property market because of lending restrictions and high prices, but they're also seeing rents going up because of competition for housing of all sorts.

It certainly isn't bad to be flexible, and renting is a sensible choice for many. But the problem is that unless you address the fundamental supply problem in the UK you create a captive market of young renters who are essentially stuck for life into ever increasing rental costs.

Maybe the market has changed Julie.

Sometimes events conspire to change people's behaviour. I guess we have to accept this will always happen.

I'm not even sure it's even down to a double whammy. I worked with a lot of young graduates in the last couple of years. A few things are noticeable.

- They are carrying a lot more debt into their working career. This trend is unlikely to diminish if tuition fees go up.

- They will accept short term contracts. Confidence in job security didn't seem particularly high.

- They seemed even more mobile in outlook. Maybe this is due to the sheer numbers going to further education establishments beyond their home territory.

I'm not saying any of this is good or bad, but all these things can influence why someone would choose renting over buying.

Last I checked there was still oversupply of property like flats in places like Leeds. Maybe we should shift lower value work out of the capital (those jobs which can be moved like civil service jobs). I can't see vast numbers of houses being built in the South East any time soon.

julieq

Actually Graham, my "wild theories" work a lot better than yours in making substantive predictions which are born out by events. I think it was, what, 2 or 3 weeks ago I was under fire for suggesting that you don't need first time buyers to sustain the market because of rental yields.

That's because they're not wild theories, but fairly conventional economics. Debt and lending is the other side of the savings coin - without borrowers you can have no savers unless you're putting silver coins into a hole in the ground. Debt does generate wealth, not in and of itself but by providing the means for people to do something valuable. If you'd prefer capitalism to dissolve into a miasma of risk averse prudence then be my guest, but otherwise it doesn't work badly.

Cleaver

julieq wrote: »

That's because they're not wild theories, but fairly conventional economics. Debt and lending is the other side of the savings coin - without borrowers you can have no savers unless you're putting silver coins into a hole in the ground. Debt does generate wealth, not in and of itself but by providing the means for people to do something valuable. If you'd prefer capitalism to dissolve into a miasma of risk averse prudence then be my guest, but otherwise it doesn't work badly.

Just on this point, I'm currently reading 'The Ascent of Money' by Niall Ferguson which is an entertaining read. Well, entertaining if you're definition of entertaining is learning about the bond market, why debt is necessary to create wealth and the rise of the company and equities, the history of insurance and how banking started. My wife thinks I'm mad for reading this type of thing. And although it's interesting, the chapter on the creation of insurance is a helpful way to send you to sleep at night.

Anyway, worth reading for folks on here. I believe there was a TV show of the same name, but it must have passed me by. There's explanations of how credit started, how companies started, how markets were created, how fractional reserve banking started etc. etc. and quite a bit of discussion around the pros and cons of each.

Graham_Devon

julieq wrote: »

Actually Graham, my "wild theories" work a lot better than yours in making substantive predictions which are born out by events. I think it was, what, 2 or 3 weeks ago I was under fire for suggesting that you don't need first time buyers to sustain the market because of rental yields.

No. You weren't under fire. And no, thats npt what was said.

What was said was BTL can replace FTB's now, in the short term.

But you need FTB's to buy 2nd and 3rd time buyers houses off them so that the chain keeps moving.

Really2

Cleaver wrote: »

And although it's interesting, the chapter on the creation of insurance is a helpful way to send you to sleep at night.

I Recommended "The Directors Handbook", I am surprised I am not in a coma yet.

Cleaver

Graham_Devon wrote: »

If people are buying homes with cash, brilliant! No problem with that, it's great news. That's a market working for you.

No it isn't.

I didn't spot this comment before I recommended the book above, but there's a great explanation around the shipping industry in 17th Century Europe which explains really nicely why credit and borrowing (or debt, depending on how you want to look at it) is often required to create wealth, prosperity, advancement of society and the creation of businesses.

Paraphrasing is never good so I suggest you read the book, but there is a chapter on how all the Dutch shipping companies knew that the spice trade was where the money was at, but funding 6 month long expeditions was just not possible with the capital they had. I.e. they didn't have enough cash to fund their expeditions, as there just wasn't time to save up for the journeys. So a credit / borrowing market was created to fund the journeys. And it worked. A variety of people lent money to the shipping companies who could then fund massive voyages to the East to bring back valuable spices. The spices were sold, people either had their money paid back or those that had bought stock (I believe this concept was invented through the Dutch shipping industry) saw their value go up. This credit / debt was necessary to start this industry and, by and large, it worked as it made that area an industrial powerhouse. The shipping companies were happy, lenders were happy, investors were happy and people who wanted access to the profits to then do other things were happy. Debt creating wealth, in other words.

I'm obviously not saying that the housing market is exactly the same, but the parallels are there. People borrow money from banks to buy houses, which they then successfully pay back with interest. This interest is used for a variety of things, including paying interest to savers, being loaned out to start businesses, used by the bank to make profit (hopefully). Again, this is my very simple explanation, and it's not a perfect financial model, but show me one that is. All I'm saying is that it works much better than everyone saving up for twenty years to have enough to buy a house in cash.

Graham_Devon

Cleaver wrote: »

All I'm saying is that it works much better than everyone saving up for twenty years to have enough to buy a house in cash.

Where did I even suggest saving 20 years to buy a house? I'd agree with you there. But taking what I said and then applying 20 years saving to it is a bit off.

wotsthat

Cleaver wrote: »

People borrow money from banks to buy houses, which they then successfully pay back with interest. This interest is used for a variety of things, including paying interest to savers, being loaned out to start businesses, used by the bank to make profit (hopefully).

..and as it's cheaper in the long term to own rather than rent the mortgage holder not only gets the hose they want they save money in the process.

My book for getting to sleep is Martin Wolf's Globalisation - I've had it a year now and am still only halfway through it.