Financed lifestyles

[markcoznottz]

DonkeyApple said:

Croutons said:

The one thing you seem to almost always forget about or ignore DA is that many will inherit money.

In many cases thanks to companies making stuff to prolong life at all cost to the tax payer, later than they expected.

Which means not everyone is or needs to be self sufficient through life, as not all old folk either:

A) burn 100% of assets in care,
B) undertake no active tax planning (rife in the SE thanks to property values), or
C) will leave unpayable IHT bills save fire sales (which would still leave a residue).

It's not as black and white as you make out.

True but it’s a pretty weak long term retirement plan to rely on the lottery that is inheritance. It’s not that I forget about it but that I’m not sure it’s all that big a bailout. As you mention there is the lottery of healthcare, the matter of IHT etc. There is also the drain of equity release, the splitting of wealth among multiple siblings etc.

However, the really big one is that all the people who hold the bulk of the inflated assets such as homes will all be dying off in the same short term window and all their assets will be hitting the market. The question we need to be asking ourselves is who below them has the wealth to purchase these assets at the current market values?

We’ve all spent years discussing the potential impact of rising interest rates but possibly the real threat that is looming is a steady increase in the supply of assets to the market but without anyone able to soak up that supply at current values, thus suggesting a significant value reduction needed to find the demand.

I do feel that the lottery of inheritance still needs to be treated as a Brucie Bonus rather than anyone factoring it in as a core part of their retirement plan.

You are right about one thing, huge outdated multi bedroom houses on big plots are not going to be able to be purchased in the normal manner. There's two options. Firstly they can be split into separate apartments, you will no doubt see massive foreign/private equity money flooding into this at some point. Might need to modernise the planning departments though, there are huge issues moving forward regarding maintaining the character of areas. The worst option is knocking down older properties on big plots and building Lego brick apartments. Asian families love the big older properties because they have inter generational groups living together, but it isn't an option for the western lifestyle.

Another option is to court foreign money to take on older expensive properties, this has worked in london, not sure it would work everywhere though.

[DonkeyApple]

coffeebreath said:

The larger houses belonging to boomers that no one can afford will simply be bought up by property developers and converted into multiple dwellings, i.e. flats, as is already happening all over the south. If anything, the demand will be pushed up as it's far nicer living in a converted detached dwelling with a proper garden and garage set-up, than some miserable block of communal apartments where everyone fights for visitor spaces.

That’s the solution. That is what happened with London Town houses the last time around but they currently are stopping this at the planning stage and it isn’t something that has a clear cut political upside.

[djc206]

DonkeyApple said:

That’s the solution. That is what happened with London Town houses the last time around but they currently are stopping this at the planning stage and it isn’t something that has a clear cut political upside.

It happened in the past in Brighton and Bournemouth and many other Victorian seaside towns with grand terraced houses. The results were often slumlords running stty bedsit style hovels (I used to live in one in Boscombe). Such a shame as the buildings themselves were stunning. Done right they can be nice, done wrong and things go really wrong.

[markcoznottz]

djc206 said:

DonkeyApple said:

That’s the solution. That is what happened with London Town houses the last time around but they currently are stopping this at the planning stage and it isn’t something that has a clear cut political upside.

It happened in the past in Brighton and Bournemouth and many other Victorian seaside towns with grand terraced houses. The results were often slumlords running stty bedsit style hovels (I used to live in one in Boscombe). Such a shame as the buildings themselves were stunning. Done right they can be nice, done wrong and things go really wrong.

Watch old episodes of the sweeney/minder/ professionals to see the state of the housing stock in London back then. It's taken years to gentrify London back to a standard.

[MKA29]

coffeebreath said:

The larger houses belonging to boomers that no one can afford will simply be bought up by property developers and converted into multiple dwellings, i.e. flats, as is already happening all over the south. If anything, the demand will be pushed up as it's far nicer living in a converted detached dwelling with a proper garden and garage set-up, than some miserable block of communal apartments where everyone fights for visitor spaces.

100%. It's a shame really, because these houses end up becoming derelict fast and with heaps of rubbish sacks sat outside them most of the week

[markcoznottz]

MKA29 said:

100%. It's a shame really, because these houses end up becoming derelict fast and with heaps of rubbish sacks sat outside them most of the week

It pisses people off tbf. Like being a renter suddenly means you lose any ability to organise disposal of your rubbish. I'm on a commitee and work in conjunction with a local councillor. Complaints are always about private rented, or as now happens, council tenants in private rented. Hedges not cut, bins overflowing, bins not put out/ retrieved. Council reluctant to fine tenants. They get a free pass that private owners wouldn't with inevitable results.

[DonkeyApple]

djc206 said:

DonkeyApple said:

That’s the solution. That is what happened with London Town houses the last time around but they currently are stopping this at the planning stage and it isn’t something that has a clear cut political upside.

It happened in the past in Brighton and Bournemouth and many other Victorian seaside towns with grand terraced houses. The results were often slumlords running stty bedsit style hovels (I used to live in one in Boscombe). Such a shame as the buildings themselves were stunning. Done right they can be nice, done wrong and things go really wrong.

Yup, that was partly due to the Government policy of using the defunct seaside towns as storage depots for unrequired immigrants. The problem with those areas is that the houses were once grand because the local revenues were once grand but in reality never will be again so those properties were all going to rot away unless converted because even if the price fell high enough for the local to buy that local wouldn’t have the income to pay the abnormally large upkeep of such properties.

I suspect that over the next decade we might see a split in the UK property market where homes that are 4/5 times typical household income or less will continue to climb in value or hold value but that the significantly larger properties may begin to price differently and fall in value as there becomes less money available to buy them.

An estate that is comprised of say a £300k property isn’t going to have an issue finding a buyer and of population and money supply are growing then so will values at that level. But an estate with a £1m property may well find increased competition combining with a decrease in money supply so values fall.

Something that I found interesting when I sold my flat in London a couple of years ago was that in the 3 months it was on the market we never had a viewing from anyone my age or younger, where previously that was a massive group wanting to buy. The issue was that these people, professional city workers with two incomes couldn’t bridge the value gap between their current 2/3 bed property and this one. It had become too large. The only viewings were from retired couples wanting to have a base in London.

If you look at suburban London, zones 4/5, you’re seeing something similar as the larger, prime properties are struggling to attract the next generations at the current price point. Normal housing stock is fine but the big, premium stuff looks very soft.

We know the supply of these types of property is going to increase as they are obviously mostly in the hands of the oldest but for the younger people to buy them you must have money supply that is greater than it is today and there is absolutely nothing in the radar to suggest that will happen, no massive relation of lending and no massive economic boom etc.

The whole shifting outwards from London on the overlands in recent years that has triggered property booms in places like Oxford and Peterborough etc is a function of this pricing issue. We are already seeing the changes and this is before the supply increase.

[brickwall]

DonkeyApple said:

Something that I found interesting when I sold my flat in London a couple of years ago was that in the 3 months it was on the market we never had a viewing from anyone my age or younger, where previously that was a massive group wanting to buy. The issue was that these people, professional city workers with two incomes couldn’t bridge the value gap between their current 2/3 bed property and this one. It had become too large. The only viewings were from retired couples wanting to have a base in London.

...snip...

We know the supply of these types of property is going to increase as they are obviously mostly in the hands of the oldest but for the younger people to buy them you must have money supply that is greater than it is today and there is absolutely nothing in the radar to suggest that will happen, no massive relation of lending and no massive economic boom etc.

I’m seeing this as well.
Look at the street in a nice part of South London where I grew up. When I grew up there, the residents were well-paid boomer professionals (doctors, corporate accountants, lawyers, etc.) in their late 30s to late 40s, with kids at the local private schools. Jobs in today’s terms that probably have household income of ~£200k - so healthy, but not mega.

20 years on, and the residents are....the same people. Except now they’re in their late 50s to mid 60s, semi retired and the kids have moved out. Barely any houses have gone on the market over the last 20 years. The houses that have sold so far are £1.5-2m+, so well out of the reach of the people now in those same jobs. The buyer pool at that price point is those with £400k+ incomes, a much smaller group.

That hasn’t been a problem so long as supply is constrained by the boomers sitting tight, but it’ll start to unwind when they start selling to downsize (or death), and rapidly exhaust the small pool of buyers. So the children of boomers might find their inheritance cut significantly p, but in the other hand they may be able to pick up a bargain.

[Testaburger]

Brickwall,

It’s (to me) incredible to observe, isn’t it. Along similar lines, a good friend is/was looking at places around the 2m price point. Like your estimate, he’s on around 400k a year. As such, affordability isn’t an issue as much as sheer price.

Fag packet maths suggests his (very) healthy 20k net is reduced by 10k to cover the mortgage, 3k for his two kids’ schooling and another four figures to finance and run two nice cars. What’s left over isn’t chump change, but it’s a far cry from what you’d expect such a salary to provide after bills.

As he says, it made sense if you were riding the equity boom of the last 20 years, but at this stage he’s not expecting capital gains to outweigh the financial burden of ownership.

Consequently he’s leaning towards the compromise of buying in the commuter towns justified by 6k extra pcm in his pocket. It sounds very sensible to me, and I wonder whether this chain of thought will become more prevalent amongst similar earners now that the price boom is well and truly over..

[Xaero]

brickwall said:

DonkeyApple said:

Something that I found interesting when I sold my flat in London a couple of years ago was that in the 3 months it was on the market we never had a viewing from anyone my age or younger, where previously that was a massive group wanting to buy.

I’m seeing this as well.
Look at the street in a nice part of South London where I grew up. When I grew up there, the residents were well-paid boomer professionals (doctors, corporate accountants, lawyers, etc.) in their late 30s to late 40s, with kids at the local private schools. Jobs in today’s terms that probably have household income of ~£200k - so healthy, but not mega.

20 years on, and the residents are....the same people. Except now they’re in their late 50s to mid 60s,

I'm not in this end of the market, but I did manage to get a foot on 4 years ago in a cheap 2 bed shared ownership in Milton Keynes. It's a perfectly fine starter home in a nice location. You only need a full time job to buy it, even something like a £23k single salary would be enough provided a deposit was there.

I used an online estate agent to save money with my sale so had to show around prospective buyers myself. I was expecting late 20s/early 30s buyers mostly. However I got 80% divorcees, and 20% middle age who complained it was too small (presumably because they are renting a larger family home now and got used to it). The divorcees had money from the divorce (a lot were cash buyers). I was surprised that this good opportunity to get on the ladder was seemingly unaffordable or undesirable for my age group,

Sorry to dig but...I guess because they couldn't also have a <2 year old Audi on the drive and an iPhone inside is what prevented anyone from even showing up to have a look and talk to a mortgage advisor about their future.

[DonkeyApple]

Testaburger said:

Brickwall,

It’s (to me) incredible to observe, isn’t it. Along similar lines, a good friend is/was looking at places around the 2m price point. Like your estimate, he’s on around 400k a year. As such, affordability isn’t an issue as much as sheer price.

Fag packet maths suggests his (very) healthy 20k net is reduced by 10k to cover the mortgage, 3k for his two kids’ schooling and another four figures to finance and run two nice cars. What’s left over isn’t chump change, but it’s a far cry from what you’d expect such a salary to provide after bills.

As he says, it made sense if you were riding the equity boom of the last 20 years, but at this stage he’s not expecting capital gains to outweigh the financial burden of ownership.

Consequently he’s leaning towards the compromise of buying in the commuter towns justified by 6k extra pcm in his pocket. It sounds very sensible to me, and I wonder whether this chain of thought will become more prevalent amongst similar earners now that the price boom is well and truly over..

It’s that gap between property steps that has become a gulf over the last two decades. £1m 2 bed needing to find £500k to move up to a 3 bed. Funding that big gap was still workable until the banks tightened their lending and stamp duty went up. It was at that point that people discovered that in order to fund that gap they actually needed to have money, real money. Pretty much overnight that took the underBoomers out of the equation. For them, they had the income but with £500k+ already on a mortgage they couldn’t add another £500k as they could in the past. The traditional migration upwards in Zone 1/2 ended. What replaced it wasn't a return to moving out to suburbia but quite a big cultural shift of migrating away from the tube lines to the more ‘cultural’ zones which was always something twenty year olds did for economic reasons rather than forty year olds with children! Or skipping an hour out on a mainline and swapping the £1m flat for a £900k house.

The other thing that I have noticed is that we do KYC on our clients and the typical address hasn’t changed. It’s the same roads and houses in the same parts of the UK and the professions of the people inside those houses hasn’t changed either, they are still doctors, lawyers, accountants, senior execs etc. And their incomes haven’t changed, still all too level incomes. But there is something that has changed dramatically and that’s the wealth. Twenty years ago the KYC data showed that these people had massive pensions in their 50s, big investment portfolios and no mortgage. They were genuinely wealthy individuals. Today, those in their 50s typically have no credible pension pot, nothing that will keep them in the style they are used to, no credible investment portfolio and enormous mortgages.

The key is that their purchasing power doesn’t stem from true wealth but from the ability to borrow.

Boomer assets once they have been taxed, split between siblings, used to pay down existing debt mountains aren’t on the whole going to leave sums large enough to purchase the assets even if they wanted to which traditionally they don’t.

[Testaburger]

Interesting synopsis, cheers.

[pb8g09]

My parents are one of those in their mid 60s still living in the South London home we grew up in as children in a 5 bed detached in Zone 5.

In theory they’ve enjoyed a monster rise in value since they bought it in 1991- about 250%, however they’re now at an age where they cannot maintain it and thinking of selling.

I’m adamant that the only way they can find a buyer for a tired house like theirs (albeit the largest garden in the area) is to get planning to tear the whole thing down and rebuild as a new block of flats.

I live in Bournemouth, and echoing a previous poster, all the large old houses here have been split into bedsit rentals for drug addicts and international/university students and they’re badly maintained. The ones that remain as privately owned are unsuitable as being Victorian, have no decent parking driveways (probably because the ones that could cater for more were split for that very reason).

Going back to previous posts about millennials surrounding themselves with debt- absolute nonsense. I spend around 8% of my NET salary on debt for my car (personal loan), around 1% percent on my iPhone, and 2% on clearing a 0% balance transfer used to pay for airplane flights that will be cleared within 6 months of the date of travel. On the other hand I lose 36% of my take home to pay a monster mortgage on a 3 bed semi that cost me 3 times the amount the 50 year old couple paid for theirs in 2000- don’t tell me that their salaries were 3 times less in 2000 because they weren’t.

It makes me laugh the number of Moustache Pete’s on here judging my generation for ‘wild credit purchases’ when actually the most expensive thing we have to pay for is actually the same thing that you old codgers are buying your toys and buy to let portfolios off the equity from. That’s the reality. The only way I’ll see retirement is probably from downsizing my home, because Corbyn will probably raid all of my inheritance.

[BerlinChris]

Dear dear me, reading the last 4-5 pages has me slightly worried,but at the same time, im happy I live up north where house prices arent ridiculous. My plan, as a 24 year old, save up for a deposit, which I nearly have, buy a property (modest 2 bed) for around 130k. Im lucky that I dont need to drive and enjoy cycling so as it stands im saving roughly £1.5k a month, i have nothing on finance, apart from a phone contract (is this classed as finance?).

Maybe it was how I was brought up, but my parents have drilled into me to be financially sound, and I thank them hugely for it.

The thought of having my life on finance would be enough to stop me sleeping at night. I feel for you southern folk who have to deal with the inflated house prices. Getting on the ladder must be difficult!

[djc206]

BerlinChris said:

Dear dear me, reading the last 4-5 pages has me slightly worried,but at the same time, im happy I live up north where house prices arent ridiculous. My plan, as a 24 year old, save up for a deposit, which I nearly have, buy a property (modest 2 bed) for around 130k. Im lucky that I dont need to drive and enjoy cycling so as it stands im saving roughly £1.5k a month, i have nothing on finance, apart from a phone contract (is this classed as finance?).

Maybe it was how I was brought up, but my parents have drilled into me to be financially sound, and I thank them hugely for it.

The thought of having my life on finance would be enough to stop me sleeping at night. I feel for you southern folk who have to deal with the inflated house prices. Getting on the ladder must be difficult!

It’s tough but the end result is a property in the south worth a fair amount. It’s an option for a southern couple to sell the house and retire oop north or abroad using the equity as a pension I guess. Forced into saving (well sort of).

I just looked and the only property within a mile of our house for less than £130k is a 359 sqft 1 bed ground floor flat that needs gutting. My wife used to own a 3 bed semi outside Newcastle that she sold for £115k when we bought our house. Mad isn’t it!

[brickwall]

Testaburger said:

Brickwall,

It’s (to me) incredible to observe, isn’t it. Along similar lines, a good friend is/was looking at places around the 2m price point. Like your estimate, he’s on around 400k a year. As such, affordability isn’t an issue as much as sheer price.

Fag packet maths suggests his (very) healthy 20k net is reduced by 10k to cover the mortgage, 3k for his two kids’ schooling and another four figures to finance and run two nice cars. What’s left over isn’t chump change, but it’s a far cry from what you’d expect such a salary to provide after bills.

I mean, it's hard to feel sorry for those on £400k pa, but it does beg the question: if they can't afford a family home in Zone 3, who the hell can? It strikes me that there are a lot more nice family homes in Zone 3 than there are £400k earners...so when those homes start coming to market they'll struggle to find buyers at today's prices.

There's a massive gulf between what people regard as unusually expensive houses vs. unusually high salaries. People don't blink at £1.5m-£2m houses - albeit nice houses they're far from unusual. My company has >2,000 people and revenue in the hundreds of millions, and I would guess there are <30 people earning over £100k, and <10 earning £250k+. £400k salaries really are extremely rare.

And to top it, how much of earnings at the top end are fully mortgage-able? Approximately 50% of my pay is performance linked...and I know for the higher earners even more so.

Xaero said:

I used an online estate agent to save money with my sale so had to show around prospective buyers myself. I was expecting late 20s/early 30s buyers mostly. However I got 80% divorcees, and 20% middle age who complained it was too small (presumably because they are renting a larger family home now and got used to it). The divorcees had money from the divorce (a lot were cash buyers). I was surprised that this good opportunity to get on the ladder was seemingly unaffordable or undesirable for my age group.

I've got a 2-bed in a nice part of SW London. Bought it as a FTB 5/6 years ago. When I was doing the search, it was clear the buying market was young couples in their late 20s/30s.

I briefly had it on the market 18 months ago. I presumed it would be similar types of buyer again.

The three most proceedable offers I got were:
- One from a local divorcee, presumably getting half from the sale of a £1m+ house nearby
- One from a mid-30s family with 2 young kids (my flat would be far too small, but hey their choice, it's in catchment for a few outstanding primaries)
- One from a single professional in their late 30s

Because realistically to be spending £500k+ on a first-time property means having a household income c.£100k. And whilst there are some in their 20s earning such numbers, it's actually a very small group.

[Croutons]

pb8g09 said:

Moustache Pete’s.

I hold my hand up. Not to being one, I don’t think anyway, but to not knowing what one is?

DonkeyApple said:

Yup, that was partly due to the Government policy of using the defunct seaside towns as storage depots for unrequired immigrants.

I shouldn’t laugh, but I did!

[Zigster]

Did you see that IFS report on high earners from earlier this week? Apparently, for a London-based middle-aged male, you need £700k pa earnings to be in the top 1%.

I’ve no reason to think they have their numbers wrong. I was a bit surprised how high it was, but it does go some way to explaining why London house prices are so comically high.

[Integroo]

anonymous said:

[redacted]

Every lawyer in my office earns more than 100k now (full package) - they just upped newly qualifieds at 25 to 92k plus bonus. So there are now ten to fifteen firms in London paying 25yos 100k+.

[DonkeyApple]

Zigster said:

Did you see that IFS report on high earners from earlier this week? Apparently, for a London-based middle-aged male, you need £700k pa earnings to be in the top 1%.

I’ve no reason to think they have their numbers wrong. I was a bit surprised how high it was, but it does go some way to explaining why London house prices are so comically high.

Much of the issue is that London is a global city that attracts not just the top UK 1% but the top 1% of the other 8 billion people on the planet. In addition to that the London market has been used to store and launder overseas wealth. What this means is that the locals have to compete on a global scale to buy in and obviously this all ripples out to the furthest reaches of the UK where locals end up paying more than they need to for property.

Probably the only sane things that Tory’s have done over the last decade is to force London agents to actually slow down their money laundering facilitation and to start taxing the activity. All of which has slowed London growth and of course slowed the excess growth elsewhere.