Get a foot on the HOUSING LADDER you loser..!!

If you’re lucky the “Bank of Mum & Dad” will “lend” you the deposit – and you will never have to repay them..!

Home ownership at all costs – epitomised by the notion of the “housing ladder” – a golden staircase to home-ownership heaven – is the UK’s greatest obsession.  The “housing  ladder” is lauded as something every young person must strive to climb onto, regardless of how much debt they incur, because housing always goes up in value, innit..?  

I am not opposed to home ownership in principle, for those who can really afford it.  But surely there is something fundamentally very wrong about a society insisting that young people should chain themselves to so much debt so early in life.   Even if property ownership is a “good investment” – which, based on recent decades, it is hard to argue against – the enormous life-term loans involved goes against the traditional and sage advice of “not putting all one’s eggs in one basket”.   Most people would be much better off – happier and less-stressed – if they could simply RENT a nice home in a nice place – IF ONLY they could get the security of long-term leases underwritten by non-profit housing cooperatives rather than one of the UK’s 2 million+ private landlords. 

Rental homes – apartments ideally – should be built and leased by govt-licenced organisations rather than individual “buy-to-let” landlords.

It is very rare to read an article that questions the wisdom of home ownership and the kneejerk assumption that buying is the ONLY sensible option.   Hopefully in the future this attitude will change if, as many industry observers speculate, UK property prices have peaked and are now flatlining at best or embarked on an a long drawn out Japan-style price slide.    I say “hopefully” because for a whole bunch of reasons (listed below) I firmly believe that it is ultimately wrong and even irresponsible for governments to promote (and subsidise) home ownership to people who cant really afford it – ie, most “first-time buyers” aka “mortgage slaves”.

Traditionally in the UK homes to rent were built by local governments whereas homes for sale were built by “speculative builders”.   But there was a time when there were co-operatively built apartments for private let.   In a property supplement I read about a well-built 1930’s London apartment building which originally had its own social club or meeting area where dances were often held.   What a wonderful idea..!   Needless to say not any more and nowadays those flats are privately owned but presumably they were originally rented.

The “philosophy” of speculative builders is, of course, to make as much money as quickly as possible.    This means borrowing money, building and selling quickly in order to generate cash-flow for the next project.   I am hoping and anticipating that 3MC will be built by non-profit organisations – trusts or co-ops – set up specifically for the purpose but perhaps more realistically – at least in the early days – some will be built by speculators and sold-off.

One reason why the 300,000 a year building target may never be met is the rapidly rising cost of building land, which means developers can’t make much of a profit building “cheap” houses for 1st time buyers.  They much prefer to build “luxury” houses on which they can turn a decent profit.

Anyone, like me, who dares suggest that home ownership for people of modest means (i.e., most people) might be a BAD IDEA – is committing the ultimate financial advice heresy. 

It is virtually impossible to sustain any discussion on the relative merits of RENT or BUY because BUY holds the ultimate trump card of “Capital Gain”, and it is certainly true that since WW2 houses have increased in value faster than any other “safe” investment. 

 

However this is not the case in all countries in Europe, notably Germany and Switzerland

   

A NATION OF MORTGAGE SLAVES

Why is it that young people with little or no savings are encouraged and exhorted, and given generous government subsidies, to plunge perhaps 10 times their net monetary worth into one single asset class, and a very illiquid one at that..?   This is totally contradictory to the well-known financial principle of “never put all your eggs in one basket”.

IMO, unless one has a net worth AT LEAST the value of the purchase, i.e., about £200,000 given the average UK (excluding London) house price, home ownership does not make sound financial sense.  But somehow property prices continue to inflate, and this has therefore created a suspension of reality situation whereby, if you can “afford” to BUY a home (and go into debt for the next 25 years), NOT to do so is considered the height of foolishness..!

The high expectation, in the minds of most British people, of making a large capital gain – one that is not subject to “capital gains tax” – is the reason why so many are so willing to financially over-stretch themselves for many years in order to pay off a mortgage on a property that is probably valued at several times their total net monetary worth.  If this is not “speculation”, or gambling, then what is? 

True, if property prices escalate at a higher rate than the overall cost-of-living index, first time buyers can feel justified, as they have built up a “nest-egg”.   Typically, after several years of financial struggle, they sell during one of the cyclical booms and immediately use the released capital as down-payment on a more expensive property…..and the cycle is repeated – wash, rinse, repeat – a few years later.

After 20 years of more of scrimping and saving, and by now possibly on their third house, our typical couple find themselves with quite a considerable net worth on paper, and even though they are still in hock to a financial institution, the 50% equity they own in their latest (more expensive) property is a source of great pride to them.   In the meantime, they may have saved up enough capital or taken out a second mortgage to buy a holiday home or an investment property to rent out.    Or increasingly, in what has become known as the “Bank of Mum and Dad” (BOMAD), they loan their children the deposit money to give them a foot on the golden ladder too..!   Never mind that it is technically illegal to loan a deposit for another loan – but maybe it doesn’t matter in this case because dear old mum and dad will probably never get their money back…!  

That said it does seems that, despite occasional – and relatively modest – dips in the residential property market, UK property buyers CANNOT LOSE by investing in good ‘ol “bricks ‘n mortar”.

But  didn’t somebody once say “if it sounds too good to be true, then it probably is..?”

 

Until now buying a house in the UK has been a “sure thing”…..but the future may not echo the past..!