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I agree with your sentiment, but it strikes me that there is safety and opportunity in behaving badly when the bulk of your peers are swept away in an orgy of d

by d_t_w 10y ago

I agree with your sentiment, but it strikes me that there is safety and opportunity in behaving badly when the bulk of your peers are swept away in an orgy of debt fuelled spending. Ten years ago I bought a small flat in London to live in. I paid a respectable deposit and didn't over-leverage. We were at the end of decade long property boom, there were huge concerns about the level of borrowing and ability to repay, predictions of mass repossessions if the BoE raised rates by even a quarter percent, the BoE would regularly "jaw-bone" the fact that the rate must rise[1]. The bank wanted to lend me 5x the amount I borrowed. I could have bought an entire 3 bedroom house rather than just a 1 bed flat situated in the same property. I borrowed within my bounds, priced the debt relative to an upward BoE rate, played it sensible. What a missed opportunity! In retrospect I should have taken all the cash the bank wanted to throw at me and bought the whole house. I would have been able to manage the repayments fine, and financially I would be light-years ahead of where I am now. All because the government will literally burn anyone to keep those vested in the housing market safe (particularly I reference the U.K/NZ/AU, I assume the U.S.A is similar). Behave badly in droves and the government will never raise that BoE rate. They will burn savers, they will continue to inflate the housing bubble, they will set fire to the hopes of anyone under the age of 30 buying a house to live in. Literally anything to save the retirement nest-egg of a generation of baby-boomers, aided and abetted by a generation of baby-boomer politicians. Only external factors will bring an end. In the U.K that may be Brexit (as external as that is), in AU that may be Chinese capital controls. Until those external factors are applied you're fine misbehaving. For me, behaving respectably was a mistake. [1] The rate today is 0.25%, an all-time historic low. The rate when I bought was 0.5%, at the time an all-time historic low. Saving in the U.K the last decade? Sucks to be you: https://qz.com/750443/the-bank-of-england-just-cut-interest-rates-after-seven-years-of-preparing-for-a-hike/ https://qz.com/750443/the-bank-of-england-just-cut-interest-...

d_t_w 10y ago
My language is a bit loose, of course the BoE is independent and controls the rate. But the government sets the BoE remit to use the rate to keep inflation within acceptable bounds, and Gordon Brown decided to move from RPI (which includes some measure of mortgage payments) to CPI (which doesn't). It does seem madness that we would control monetary supply without consideration of inflation in the largest asset group that lose monetary policy impacts (actual house prices, not just mortgage payments), but then I'm no economist so what do I know.
L_226 10y ago
Here in AU the Federal Government is considering allowing access to superannuation (compulsory retirement fund paid out of your wage) to first home buyers to help with a deposit. An interesting opinion piece[0] discusses how this might be construed as a ponzi scheme. [0] - http://www.abc.net.au/news/2017-03-16/super-for-housing-deposits-intergenerational-theft/8360890 http://www.abc.net.au/news/2017-03-16/super-for-housing-depo...
- d_t_w 10y ago
  Similarly first home buyer grants or stamp duty concessions, they sound appealing to young couples struggling to enter the market but have repeatedly been shown to do nothing but inflate the market further. When confronted with a golden goose that pumps money into the economy no politician wants to take a long term view of impacts, particularly when it's their generation making easy money at the expense of those who follow.
  - daemin 10y ago
    Indeed, in AU there is also the pressure of negative gearing, which enables a lot of high earners to buy many properties. Even removing negative gearing from properties is a really tough ask to get through politically.
verbify 10y ago
Just because you got unlucky by being responsible doesn't mean everyone does or will. I've known people in places where the property market collapsed and its ugly. And I know people think it can't happen in London, but 'it can't happen here' is about as myopic as it gets.
- d_t_w 10y ago
  I agree, all markets go up and down. Hindsight being 20/20 and all that. What I think I underestimated is the length the government or reserve bank will go to in order to protect borrowers at the expense of everyone else.
- pc86 10y ago
  The property market collapsing (locally, not nationally) is only an issue when you want to sell. If you buy a house with an FHA mortgage (3.5% down), you will be underwater for many years no matter what. But it's a 30-year loan, why would you buy a house if you wanted to move in 3 years?
  - duderific 10y ago
    Plenty of people did this in the US (and I assume other countries) during the Great Housing Debacle of the early 2000's, it's called "flipping." The problem is when the music stops, and nobody wants to buy houses, you are stuck with it, and either need to default on the mortgage or suck it up and live there.
verbify 10y ago
Just because you got unlucky by being responsible doesn't mean everyone does or will. I've known people in places where the property market collapsed and its ugly. And I know people think it can't happen in London, but 'it can't happen here' is about as myopic as it gets.
soVeryTired 10y ago
> In retrospect I should have taken all the cash the bank wanted to throw at me and bought the whole house. You made the correct decision with the information you had. In Ireland, people who made the opposite decision are still underwater after a decade. So it could easily have gone the other way.
- paulddraper 10y ago
  Exactly. The future is frustratingly uncertain. If it wasn't, everyone would have invented Facebook at once.
rwmj 10y ago
I mostly agree with you, but I think you missed one problem. Suppose you bought the 3 bed house. You'd have big mortgage payments to make every month. It all depends on when you sell the house. Too early and you would be sitting there watching the market increase further. You never really know when the market will turn, and if you left it too late you could be in negative equity with no way to sell the house and trying to make big repayments, perhaps having also lost your job (since these things happen at the same time). In other words unless you've got a foolproof method of predicting the future, or you love the thrill of huge financial risks, I think you made the right decision to live within your means.
- wavefunction 10y ago
  A three-bedroom house means the poster could have rented one or two of the bedrooms out. Tenants are of course their own sort of risk but that's a common strategy for young home-owners looking to reduce their monthly payments. I'm not castigating the guy because I think the prudence you're advocating for is far more wise than getting oneself into a financial jam, but there are ways to approach a risk like a house payment and reduce it.

by d_t_w 10y ago

d_t_w 10y ago

My language is a bit loose, of course the BoE is independent and controls the rate. But the government sets the BoE remit to use the rate to keep inflation within acceptable bounds, and Gordon Brown decided to move from RPI (which includes some measure of mortgage payments) to CPI (which doesn't). It does seem madness that we would control monetary supply without consideration of inflation in the largest asset group that lose monetary policy impacts (actual house prices, not just mortgage payments), but then I'm no economist so what do I know.

L_226 10y ago

Here in AU the Federal Government is considering allowing access to superannuation (compulsory retirement fund paid out of your wage) to first home buyers to help with a deposit. An interesting opinion piece[0] discusses how this might be construed as a ponzi scheme. [0] - http://www.abc.net.au/news/2017-03-16/super-for-housing-deposits-intergenerational-theft/8360890 http://www.abc.net.au/news/2017-03-16/super-for-housing-depo...

d_t_w 10y ago
Similarly first home buyer grants or stamp duty concessions, they sound appealing to young couples struggling to enter the market but have repeatedly been shown to do nothing but inflate the market further. When confronted with a golden goose that pumps money into the economy no politician wants to take a long term view of impacts, particularly when it's their generation making easy money at the expense of those who follow.
- daemin 10y ago
  Indeed, in AU there is also the pressure of negative gearing, which enables a lot of high earners to buy many properties. Even removing negative gearing from properties is a really tough ask to get through politically.

verbify 10y ago

Just because you got unlucky by being responsible doesn't mean everyone does or will. I've known people in places where the property market collapsed and its ugly. And I know people think it can't happen in London, but 'it can't happen here' is about as myopic as it gets.

d_t_w 10y ago
I agree, all markets go up and down. Hindsight being 20/20 and all that. What I think I underestimated is the length the government or reserve bank will go to in order to protect borrowers at the expense of everyone else.
pc86 10y ago
The property market collapsing (locally, not nationally) is only an issue when you want to sell. If you buy a house with an FHA mortgage (3.5% down), you will be underwater for many years no matter what. But it's a 30-year loan, why would you buy a house if you wanted to move in 3 years?
- duderific 10y ago
  Plenty of people did this in the US (and I assume other countries) during the Great Housing Debacle of the early 2000's, it's called "flipping." The problem is when the music stops, and nobody wants to buy houses, you are stuck with it, and either need to default on the mortgage or suck it up and live there.

verbify 10y ago

soVeryTired 10y ago

> In retrospect I should have taken all the cash the bank wanted to throw at me and bought the whole house. You made the correct decision with the information you had. In Ireland, people who made the opposite decision are still underwater after a decade. So it could easily have gone the other way.

paulddraper 10y ago
Exactly. The future is frustratingly uncertain. If it wasn't, everyone would have invented Facebook at once.

rwmj 10y ago

I mostly agree with you, but I think you missed one problem. Suppose you bought the 3 bed house. You'd have big mortgage payments to make every month. It all depends on when you sell the house. Too early and you would be sitting there watching the market increase further. You never really know when the market will turn, and if you left it too late you could be in negative equity with no way to sell the house and trying to make big repayments, perhaps having also lost your job (since these things happen at the same time). In other words unless you've got a foolproof method of predicting the future, or you love the thrill of huge financial risks, I think you made the right decision to live within your means.

wavefunction 10y ago
A three-bedroom house means the poster could have rented one or two of the bedrooms out. Tenants are of course their own sort of risk but that's a common strategy for young home-owners looking to reduce their monthly payments. I'm not castigating the guy because I think the prudence you're advocating for is far more wise than getting oneself into a financial jam, but there are ways to approach a risk like a house payment and reduce it.