5 ms·

In the UK you can stick whatever you want into stocks and shares isas, if you can afford it. The problem is that housing costs rise to suck every spare penny o

In the UK you can stick whatever you want into stocks and shares isas, if you can afford it. The problem is that housing costs rise to suck every spare penny of income from pretty much everyone so very few people have spare money to put into those isas.

pembrook 5y ago
I believe this is also a side-effect of these poor pension schemes. European governments see the demographic timebomb coming, so they massively incentivize their citizens to invest in a primary residence, treating it as forced savings. This inflates local real estate values to ridiculous levels, especially while interest rates are low. However, incentivizing your citizens to take leveraged bets (big mortgages) on a single piece of real estate is...not great. This means the investment portfolio of the average European citizen is ONE specific apartment (zero diversification), and negative yielding sovereign bonds (via government pension funds). Since most European mortgages are not fixed rate, it will be interesting to see what happens as interest rates start rising in Europe. While the bonds will start paying better interest, that mortgage exposure might start to wreak havoc on the average citizens finances...
- ElKrist 5y ago
  "Since most European mortgages are not fixed rate, it will be interesting to see what happens as interest rates start rising in Europe." It's the second time I see this on HN. However, the reality seems more contrasted. From [1]: "A striking feature of the credit market in the euro area is the very large heterogeneity across countries in the granting of fixed versus adjustable rate mortgages. Fixed rate mortgages (FRMs) are dominant in Belgium, France, Germany and the Netherlands, while adjustable rate mortgages (ARMs) are prevailing in Austria, Greece, Italy, Portugal and Spain." For numbers there are some graphics around p.19 [1] https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2322~0ed0879d8a.en.pdf https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2322~0ed0879d...
- 0xcoffee 5y ago
  Is that so? Here in The Netherlands fixed rate is pretty common.
  - pembrook 5y ago
    At least in the Nordics, most folks I know in the past years have been taking out floating rate mortgages. Makes complete sense given interest rates are zero right now. However, if the ECB keeps getting surprised by inflation (like the Fed is in the US), interest rates may have to be start rising in fast, dramatic fashion.
  - iso1631 5y ago
    Fixed rate for lifetime? Something I didn't realise until recently was in the US it's normal to have a 30 year mortgage with a fixed rate from the start, rather than a fixed rate for a few years and then either a variable rate or requiring a remortgage. My understanding is that most mortgages in the Netherlands tend to be 5-10 years fixed rather than lifetime. In the UK I feel there's a lot of distrust of stock markets amongst normal people, partly because the FTSE doesn't grow (back in 2000 it was about 7,000, today it's about 7,500), and that's the one reported on the normal news. There's no widely reported "FTSE dividend reinvested" measure. Add in the mortgage mess from annuity mortgages where people were sold the idea they could have their cake and eat it too, ended up without enough money to repay their mortgage at the end. Throw in the pension collapse of Equitable Life, the pension fraud from Maxwell, the stock "boom" in the 90s where normal people bought shares, driven by the selloff of nationalised industries, and then seeing those shares vanish in 2000 and never really recovering and you get a general distrust of private hands managing money, and a preference to trust the government. This meant people put their money into houses starting in the late 90s, which combined with increasing household income as new families became dual-income led to increasing house prices and a snowball effect. Even 2008 didn't really impact, as it was mainly sold as a US problem which had an effect on the UK, but not a major one. The UK government (any colour) will do anything to keep house prices growing as that's how you get votes.
  - gpderetta 5y ago
    So it is in Italy. In UK fixed rates usually last 2-5 years, then revert to variable rates (and inevitably you have to remortgage).
nly 5y ago
Yes, for perspective relatively modest 3 bedroom houses in London are going up in price, every month, by more than the average person in the UK as a whole takes home. You can be in the top 1% by income in London and still simply not be able to afford a small family home. Home equity wealth inequality in crippling.
- iso1631 5y ago
  All the income from people in London is extracted by those owning the land, because you need to live somewhere to earn that money. It's basically monopoly, doesn't matter if you pass go and collect £200 or £2000, all that happens is the people owning the properties around the board take it until you run out (or if they want to extend the game
shubb 5y ago
I am very worried (UK) that the government retirement safety net may not be there for us, as the retirement age is being pushed up beyond 70 but I am not sure most people can work full time that long without health issues. Nor can we assume that the exceptional stock market returns of the past 15 years will be repeated, which means we need to save more for the same result. I feel great pressure to earn a high wage in order to save a lot of it into a pension. This feel like a matter of survival.

pembrook 5y ago

I believe this is also a side-effect of these poor pension schemes. European governments see the demographic timebomb coming, so they massively incentivize their citizens to invest in a primary residence, treating it as forced savings. This inflates local real estate values to ridiculous levels, especially while interest rates are low. However, incentivizing your citizens to take leveraged bets (big mortgages) on a single piece of real estate is...not great. This means the investment portfolio of the average European citizen is ONE specific apartment (zero diversification), and negative yielding sovereign bonds (via government pension funds). Since most European mortgages are not fixed rate, it will be interesting to see what happens as interest rates start rising in Europe. While the bonds will start paying better interest, that mortgage exposure might start to wreak havoc on the average citizens finances...

ElKrist 5y ago
"Since most European mortgages are not fixed rate, it will be interesting to see what happens as interest rates start rising in Europe." It's the second time I see this on HN. However, the reality seems more contrasted. From [1]: "A striking feature of the credit market in the euro area is the very large heterogeneity across countries in the granting of fixed versus adjustable rate mortgages. Fixed rate mortgages (FRMs) are dominant in Belgium, France, Germany and the Netherlands, while adjustable rate mortgages (ARMs) are prevailing in Austria, Greece, Italy, Portugal and Spain." For numbers there are some graphics around p.19 [1] https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2322~0ed0879d8a.en.pdf https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2322~0ed0879d...
0xcoffee 5y ago
Is that so? Here in The Netherlands fixed rate is pretty common.
- pembrook 5y ago
  At least in the Nordics, most folks I know in the past years have been taking out floating rate mortgages. Makes complete sense given interest rates are zero right now. However, if the ECB keeps getting surprised by inflation (like the Fed is in the US), interest rates may have to be start rising in fast, dramatic fashion.
- iso1631 5y ago
  Fixed rate for lifetime? Something I didn't realise until recently was in the US it's normal to have a 30 year mortgage with a fixed rate from the start, rather than a fixed rate for a few years and then either a variable rate or requiring a remortgage. My understanding is that most mortgages in the Netherlands tend to be 5-10 years fixed rather than lifetime. In the UK I feel there's a lot of distrust of stock markets amongst normal people, partly because the FTSE doesn't grow (back in 2000 it was about 7,000, today it's about 7,500), and that's the one reported on the normal news. There's no widely reported "FTSE dividend reinvested" measure. Add in the mortgage mess from annuity mortgages where people were sold the idea they could have their cake and eat it too, ended up without enough money to repay their mortgage at the end. Throw in the pension collapse of Equitable Life, the pension fraud from Maxwell, the stock "boom" in the 90s where normal people bought shares, driven by the selloff of nationalised industries, and then seeing those shares vanish in 2000 and never really recovering and you get a general distrust of private hands managing money, and a preference to trust the government. This meant people put their money into houses starting in the late 90s, which combined with increasing household income as new families became dual-income led to increasing house prices and a snowball effect. Even 2008 didn't really impact, as it was mainly sold as a US problem which had an effect on the UK, but not a major one. The UK government (any colour) will do anything to keep house prices growing as that's how you get votes.
- gpderetta 5y ago
  So it is in Italy. In UK fixed rates usually last 2-5 years, then revert to variable rates (and inevitably you have to remortgage).

nly 5y ago

Yes, for perspective relatively modest 3 bedroom houses in London are going up in price, every month, by more than the average person in the UK as a whole takes home. You can be in the top 1% by income in London and still simply not be able to afford a small family home. Home equity wealth inequality in crippling.

iso1631 5y ago
All the income from people in London is extracted by those owning the land, because you need to live somewhere to earn that money. It's basically monopoly, doesn't matter if you pass go and collect £200 or £2000, all that happens is the people owning the properties around the board take it until you run out (or if they want to extend the game

shubb 5y ago

I am very worried (UK) that the government retirement safety net may not be there for us, as the retirement age is being pushed up beyond 70 but I am not sure most people can work full time that long without health issues. Nor can we assume that the exceptional stock market returns of the past 15 years will be repeated, which means we need to save more for the same result. I feel great pressure to earn a high wage in order to save a lot of it into a pension. This feel like a matter of survival.