I have, in internet accounts as part of strateg yin recent months - which is why I was able to easily move 17k out of B&B at the first hint of trouble 8 weeks ago ;-)
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You'd have been better off putting it into a 90 day account at a 'mutual'.
With the current lack of mortgages from the former 'agressive' providers likely to collapse house prices, and with rising unemployment and negative equity amongst all mortgage holders, what makes you think mutuals are going to be secure?
Toom
Give us an estimate. How many years?
You can not be seriously claiming that BS deposit interest rates, net of income tax, have averaged well in excess of 5.14% over the last 30 years.
After ten years of having my savings, pension and investments penalised by Brown's fiscal policy, tax and low interest rates, and now this, I think I may have been put off savings for life. And this was the Brown who not so long ago told us we'd all have to work lomger and save more to provide for ourselves in retirement. Just climb over to this side of the fence and try to do so, sunbeam.
Toom
Hmm. On what basis do you say that the average house *should* cost
3.5 times average salary?True enough, that multiplier has, over the past few decades, been the cap on how much lenders are prepared to lend against a mortgage, but surely that figure *already* has overvaluation built in.
Taking a loan of 3.5 x salary together with a 20% deposit would imply an actual cost of 4.4 x salary.
Our Mr Holmes has us believe that houses ought to trade for what people could afford without a loan, i.e. for what people now pay as deposits. Now 20% of 4.4 x salary is 0.9 x salary, so the average house should cost £20.8k.
With the current lack of mortgages from the former 'agressive' providers likely to collapse house prices, and with rising unemployment and negative equity amongst all mortgage holders, what makes you think mutuals are going to be secure?
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The negative equity thing is over hyped.
People will still need somewhere to live.
If the alternatives are between a half wrecked house on a council 'sink' estate in the emergency housing pool living next door to druggies and scum or paying over the odds for your property that is currently in negative equity then it doesn't take much intelligence to work out which option people will take.
Of course if the economy takes a serious down-turn and unemployment goes up three or four million then it'll be different, but at the moment the 'mutuals' are the best option, unless you want to buy a sock full of gold sovereigns, which may not be that bad an idea, except that you're probably too late...
Because that is the long term average house price.
That may well be what it overshoots to on the way down if banks don't start lending again.
If they leave things alone, two. They won't though so I'll call between five and ten. If the authorities really try to bail everything out, then maybe twenty like Japan. I figure they'll reach some sort of natural limit though as to just how far they can go, so call it five to ten.
FoFP
Forget it. Most of the banks are insolvent and the ones that aren't are picking up the better parts of the others with their cash.
By the time the surviving banks are solvent enough to make loans, the strictures on loans will make folks think these are the good times. It won't matter though because people will have been so burned by debt they'll swear off it for life and teach their kids the same.
The bubble is over. Next one due about 2070 or so...
FoFP
The little flaw in that scheme is that it ain't the central banks who decide interest rates any more, it's the bond vigilantes. Print enough wonga to drive inflation up any more and they'll ramp mortgages to the point where the reposession rate up to now will look like heaven.
As the authorities are beginning to learn, the trouble with getting into debt is that the creditors call the shots.
FoFP
It will be. At a new price level. Keep in mind that what's happening now is not the problem. The credit bubble was the problem. What's happening now is the cure.
FoFP
When we hit deflation, interest rates will go to zero and prices will fall. The quid pro quo is that the real value of the outstanding debt will rise.
FoFP
No they're not. In fact they're so precedented that if you check the archives I've outlined this just from reading about the last five times this has happened. In fact it's so damn similar to the US Great Depression of 1837 it's quite uncanny.
Yes, the disparity is bigger because the credit bubble was the largest in history. I still believe the results will be similar, albeit magnified, to previous credit bubbles.
The reason is that they're the third generation after the last escapade in 1929. It just takes that long for the lesson to be lost.
Why the Magic Token became domestic housing is a more interesting question.
Sing it brother!
FoFP
No. Not if they destroy real wealth in what they're doing. Throwing scarce capital away at the current juncture could prove very deflationary. The same mistake was made in the US in the 1930's.
FoFP
Out of interest how do they "destroy real wealth"? And what is "real" wealth anyway? Not cash surely?
For example a bunch of us go to work of a day. Some folks are digging steel out of the ground and so on. Others are putting bits together into cars. If the cost of doing all this is less than the price someone will willingly pay for a car, some wealth has been created. Conversely, if the car doesn't sell except at a price less than the total cost of making it, they've all worked to destroy wealth.
The Soviet Union did this on a grand scale. They all worked quite ahrd, but at the end of the day, all their work had made the whole country poorer. They'd have got poorer more slowly if they'd all just stayed in bed.
My suspicion is that this is very much what the banks have been doing for a while now, and we've just started to discover this. If they recapitalise the banks without rippping the management right out of 'em, the danger is that they'll just keep right on doing it.
Of course the lack of credit is the obvious symptom everyone focuses on. It's just debt-deflation. A huge amount of credit was created during the bubble as banks lent at 12 to 1 leverage, 35 to 1 leverage (after the big 5 investment banks in yankland were permitted to expand leverage in
2005), or even 60 to 1 leverage in the shadow banking system.Now, there's only a certain amount of actual wealth backing all that credit and as deleveraging continues, the credit has to be collapsed back into the wealth. It stands to reason that some folks are going to be left with worthless credit, and that debt is going to be liquidated. Where we have leveraged lending, as that debt is liquidated and hits the reserves of lenders, it reduces lending capacity by a multiple of what was lost and this is the driver for the debt-deflation.
Destroying real wealth in the economy right now is therefore an act of reckless vandalism that will cost us dearly. We should support companies which are clearly productive but embarassed for cahsflow as a result of the deleveraging. We should not support companies actively destroying wealth. The banks look like they're in the latter category.
FoFP
"M Holmes" wrote
Surely no wealth has been *created*, it's just been
*transferred* -- from the buyer to the workers?Where did the buyer get it from?
"M Holmes" wrote
Isn't that a transfer of wealth from the workers to the (canny!) buyer?
"We"? Are you getting all collectivist on us, Mike?
Sounds like it's back to civil servants and politicians "picking winners" and we all know how good they are at that.
Houses ought to trade for what someone with capital to invest could earn in rent as compared to bonds.
If we assume 35% of after tax income goes on housing then that's about
5600 per year in rent. So an average house should be worth around 110k.When I first started letting a house I was making around 2700pa after expenses (not counting mortgage interest) on a house worth around 50k.
Now it's more like 4800pa on a house worth around 100k (might be a bit less at the moment)
In both cases the expenses include agency fees which would increase the yield for someone prepared to run the let themselves.
In the short term I don't see falling house prices causing rents to fall. Only once the housing market starts to pick up again and people chose to buy rather than rent (because it will be cheaper).
Over the last year or so I've been moving my money into instant access accounts (even though it's costing me interest. I have been putting money into index linked savings certificates which does have a term but can be withdrawn at need.) (Unfortunately I do still have 10k in icesave that I cannot access until end Dec). But I'm hoping to be able to buy another rental property at or near the bottom of the market. I wouldn't be surprised if, at that point, rental yields are 20%+ as nobody except cash buyers will be able to buy anything. But once it reaches that point it will quickly correct as banks start lending again - that average house would be about 1x salary and people will be buying on a 10 year (or even 5 year) mortgage.
(I also have access to around 200k of borrowing at the moment - but I'm not going to assume that that will still be available by the time I'm ready to buy - although I have been tempted to take some of it and move it in 35k lumps to other banks - obviously that would be costing me around 2% now but will make it harder for the bank to withdraw it)
Tim.
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