Property !!!!!! A Nation Hypnotised? Blog Discussion

inmypocketnottheirs-
I know a few people who jumped on the BTL bandwagon who are having problems renting their properties out simply because they didn't know enough about the rental market. The older landlords I know (well I have rented from them) have either sold lots of their properties off for a good profit or can ensure their rents are slightly under the market rate for the area to ensure a good supply of tenants. These older landlords also generally manage the properties themselves.

The average age of a first time buyer is now 34 according to some studies and according to every study or survey is over 30. Luckily all us people in our 30's will be retiring when we are 67 so we can take out long mortgages even though we may have problems funding them when we are over 50 due to not being in permanent long term employment, and having not taken out repayment mortgages.

While lots of people factor in that they will get payrises as their age increases and their career progresses, they don't factor in the fact that they arel likely to have children.

Also you need to consider is that if you don't currently live in Scotland, are elderly and need residental care the local authority and government will make you sell your house -that you worked hard to pay for, to fund this care if your family can't pay for it or you don't have enough other savings.

If you are lucky enough not to need residental care when elderly and manage to stay in your house until you die your heirs, if you don't leave your house to a surviving spouse, will have to pay inheritance tax on your house. Very few estates especially in the South East escape this and while the government claims otherwise lots of basic rate tax payers are hit.

If you rent, and rent when you are retired depending on your income (or lack of it) you will be means tested. As the elderly are in a vunerable group the government will pay your rent.

So if you are basic rate tax payer I would buy a house if it worked out cheaper than renting which at the moment unless you need a 2+ bed place often isn't, sell it a few years into retirement and p*** the money up the wall.

Basically I agree with Martin- don't over stretch yourself to buy a property. The last recession enabled a lot of people I know to buy their first property at ages ranging from 20 to 40. (The older they were the bigger property they brought.)

Excellent post from WhamBamBoo - it's definitely all in the timing, not pounds per week. Of course all the poperty shows extrapolate straight-line econimics so property never goes down (or even stays level) as they disappear from the box when things turn sticky (as in the early 90s).

However, it's not just property-!!!!!!, it's the same with the "change your life" progs - without exception you can start almost any business without knowing anything about the market (or even the language for the overseas editions) and everything turns out all right mid-way through part 4. Makes you wonder how real life businesses ever manage to fail - and most of them do.

Regardless of the "what's going to happen" predictions (which at least half of us will get wrong), IMHO it's still sensible to preach the "don't put all your eggs in one basket" mantra and to remember that asset values and cash-flow are entirely different things.

Have just read this entire thread and wish to ask:

Has the Bank of England ever been independent before? I used to think that if the BoE say inflation next year will be 2% - it will be 2% - they'll make sure it happens. But inflation has been above their last few targets. Not so confident now (but don't be too alarmed - they're not that far off!)

In UK we are so dependent on foreign imports which means we are susceptible to costs of rising materials and energy. Inflation may be harder to predict - higher inflation will force BoE to increase interest rates. I think we'd all agree that interest rates are not going to get out of hand over the next few years, but like someone said earlier in these posts, a 2% raise in rates might send large shockwaves through our economy as people (used to lower rates) struggle to afford repayments. But, people are more savy these days regarding interest rates, no?

I feel (& hope) that house buyers have factored into their calculations at least a 1%-2% rise over the next few years - afterall isn't 7% the average interest rates we've had in the UK for many years?

Having just looked at my own position. If interest rates went up anymore than 1% over the next year or so I'd have to go out and dig ditches or consider selling. If lots of people feel like this then there would be a glut of houses on the market & prices would fall.

Therefore, is this going to happen? We need to consider: How serious do we take the IMF warning on borrowing levels in the UK? (I can't get my little head round that). Are there any more global problems that will upset stability -eg shutting down of gas pipelines in Russia or restrictions on oil output - international governments seem to be powerless to stop these shockwaves.

On a pessimistic note, I think the suits in the BoE do their best to even out an unpredictable world. Maintaining stability/decency throughout the world is harder these days - given our high dependancy on the outside world.

I think this is why there's been a (well sort of) reluctance to invest in the stockmarket - people have bunkered in & spent their money or ploughed it into good ol' dependable bricks and mortar. Ofcourse fuelled by these fancy property programmes we're all raising the bar - but how much of the UK public is maximising the potential of their home? I reckon it's getting close to exhaustion.

On the other hand, more and more people are coming here. Popular areas like London - one of the Globe's Capital's now - (or am I just saying that coz I live here...who knows?) may remain stable. Maybe the suits at BoE will factor in all the jolly undecent people/events throughout the world - let's hope they've got the world's best mathematician on board who has a formula that factors in caos.

Are you convinced? I've got no idea...I don't mix in these circles.

Don't get me wrong - I've been optimistic about property for some time & have been bullish according to some of my more 'conservative' friends, but property is genuinely perplexing me at the moment. This headache may be signs of a bear market (maybe time to stay wise/get out)?

Like Martin says though - cannot tell for sure!

Bojangles wrote:

Have just read this entire thread and wish to ask:

Has the Bank of England ever been independent before? I used to think that if the BoE say inflation next year will be 2% - it will be 2% - they'll make sure it happens. But inflation has been above their last few targets. Not so confident now (but don't be too alarmed - they're not that far off!)

Not that far off ??

I know .5% doesn't sound like much, but look at it another way they are 25% above target !!

Bojangles wrote:

But, people are more savy these days regarding interest rates, no?

I feel (& hope) that house buyers have factored into their calculations at least a 1%-2% rise over the next few years - afterall isn't 7% the average interest rates we've had in the UK for many years?

Hello Bojangles,

Unfortunately I don't think the majority think like we do. Look at the news on Tuesday where 770k people have missed a mortgage payment in the last year, thats 3.85% of the housing stock, or 5% of owner occupied homes. That is a horrific statistics for saying the interest rate was 4.5% for the last 12 months.

But what type of people will struggle? The likes of those who bought houses years ago, or those buying recently.

Take a look at the debt statistics: http://www.creditaction.org.uk/debtstats.htm

The figures are truely shocking. Infact, the amount of debt has doubled since the start of the decade...

Bojangles wrote:

Therefore, is this going to happen? We need to consider: How serious do we take the IMF warning on borrowing levels in the UK? (I can't get my little head round that).

I think the point the IMF are making, is really quite obvious when you're looking from outside. People are increasing their debt by well over 10% per year (on average), whereas their income is increasing by 4.4% per year. This is unsustainable, and debt growth will need to slow at some point.

Look at the money supply. This is growing at around 14% per year, i.e. the amount of money (read debt) in circulation is 14% higher than this time last year. But where is that money going? Economic growth? That's growing at 2.5%. Some of it goes into general inflation, which we are told is 2.5%. So where is the remainder going?

You can easily conclude people are not demanding higher wages to make ends meet, they are taking on debt. This debt is unconstructive debt, it hardly adds to economic growth. Lets sum it up, they are robbing Peter to pay Paul.

Do you think it will last? It can't unless wages pick up, which means far higher interest rates will follow. If the debt growth slows down, there is not enough money going into the economy for it to grow, and we slide into recession, meaning more job losses.

We will eventually go into a recession, whether that be a inflationary or deflationary recession I don't know. The only way to prevent this is to start rebalancing the economy and base economic growth on something this country can sell, like manufacturing and exports. But with poor policies by the government, I can't see this happening.

When it will happen? I don't know. I guess this will be when people actually realise they are getting poorer, that will happen when they see debt for what it is - a promise to work in the future!