It used to take 3 years for a British family to save for a home down-payment; now it takes 20 years

This story is about the UK.

The problem has been around for longer than a decade. Near zero interest rates may have exasperated the problem, but the cause was a lot earlier.

My parents got a mortgage on their house in their early 20s. When I was the same age I had little hope of being able to do the same for a similar house and that was about 15 years ago.

7 Likes

But 15 years ago the interest rates were still only about 5-6%, whereas when your parents were buying they were probably 12-15%. Lower interest rates have a lot to do with it.

I agree there are lots of other factors such as speculation and real increase in the value of land in cities. But massive drops in interest rates are definitely a factor.

1 Like

That’s about what @lolipop_jones said will go a long way to fix the problem. I’m saying it isn’t anywhere near enough.

It seems that even if we go a long way, we still have a long way further to go. So much is broken in the world, but no-one really wants to fix it, and we just end up with things patched up with gaffer tape until it’s someone else’s problem.

2 Likes

I’m not sure we should have central banks controlling interest rates. If there is anything at all that ought to be set by the market, I would think the cost of borrowing money. Of course bringing the top tax rate back up to 70%+ would probably help with the speculation issue. Maybe Trump’s right - let’s roll things back 50 years.

3 Likes

A two bedroom in West Oakland is at least $1,600 to $2,000 a month these days. To buy anything like a two bedroom in West Oakland, it is over $300,000 or $400,000 easily.

2 Likes

Just for reference, in a sane market a property should rent for somewhere around 1/100 it’s purchase price. So you know it’s a mess when you couldn’t rent a home out without losing money, it means the market is full of speculators, not investors.

The central banks actually have limited control over mortgages, they can only set the overnight rates. Everything else is markets, and the movements of those rates can vary quite a lot from the overnight.

4 Likes

Is it because if Carlisle fell into the sea, caught fire, exploded, was consumed by Cthulhu, then verped out of his tenticles it would be better than the current Carlisle?

(Goring on Thames nearish to Oxford is lovely)

6 Likes

As a recent property buyer I can confirm the state of the UK property market is horrific. We only got on the bottom rung because of a gift from my other half’s grandfather. I live in Aberdeen which is a pretty expensive place to live because of the oil and gas industry here. The market is set up so you can just afford the rent (we earn approx £48,000 between us) and saving is difficult.

You could save every spare penny and probably take about 5 years but then what about life? What if you want kids? Want to go on holiday? Visit friends? Drive a car? Yeah life just doesn’t allow you to save to your max potential so we’re talking a long time before a 10% mortgage is reachable. Even then its for a place right on the edge of the city and you are having to travel an hour each way through shitty traffic. I’m grateful for the gift and that we have a house but things shouldn’t be this difficult when two of you have jobs.

9 Likes

I’m saying it’s close to the edge because the strongly held views on pensions appear only in threads where financial discussions are tangential to those strongly held views. It’s never really off topic, and I don’t think it’s malicious, and it’s certainly, at least in this thread as I’ve already pointed out, engendered some discussion with people other than those who have already decided that that persons views are not only not good enough for them but not good enough for anyone else, including those people actively engaging them in conversation.

It is stepping on or near a mark and is a lot more complicated a scene than the perfect case for off topic flags. It is definitely not a perfect case unless you consider it perfect because you can ignore all the contributing factors which make it messy and set a precedent for ignoring these unimportant considerations.

3 Likes

Maybe in the US where there are more banks this is true. I might be looking at it through a Canadian lens, where there are basically five big banks and their rates fall in line with the overnight rates in lockstep (overnight + 2-3 points). But if you shop around, does the best deal you can get on a mortgage really vary that widely from the overnight rate? What’s the most extreme example - like, if the overnight is half a percent, is someone going to be advertising a mortgage at 8%?

I’m not 100% sure I agree with myself, but basically I don’t like what central banks have done with interest rates. Maybe it’s just because I’ve lived my life in an era of neo-liberalism and ever falling interest rates, and it’s left me feeling like a libertarian on the issue (governments just can’t be trusted to do it right). I’m sure there are good policy reasons to have the interest rate set at one level or another, but I can’t believe there are good policy reasons to have it set at 0.5%, and I think that has essentially been a transfer of wealth from people who are trying to establish themselves (young people/poor people) to people who have already established themselves (old people/rich people). Conversely, maybe a higher than “natural” interest rate would be a transfer in the other direction. So maybe when I say I don’t like central control of interest rates, it’s like I’m saying I don’t like taxes because I think they are too low.

I’m not entirely sure.

1 Like

Actually, low interest rates hurt the retired quite a lot too, they tend to have their wealth in safer investments most closely tied to to the rates. Part of what is driving bubbles is institutional retirement managers like CALPERS looking for returns that will keep their clients solvent. As usual, it’s the very wealthy coming out with ever more from this system.

3 Likes

Yeah, my category of people who have established themselves swings older for obvious reasons, but it’s certainly not the case that all seniors are a part of it. One result of real estate values (driven in part by interest rates), though, is that many people had the chance to acquire property when it was affordable to the middle class that has since become fantastically valuable. If my spouse’s parents had kept the home they lived in when she was born, they’d be rich now. Not everyone had that opportunity.

I thought about it some more and what really grinds my gears about interest rates is that they are set by technocrats. I can’t think of an argument for having an independent treasury setting interest rates that couldn’t be made for having an independent body that sets tax rates or an independent body that sets healthcare spending. There are tons of public policy issues of huge importance, interest rates are just one of them. And that’s allowed central bankers to build up a special mystique around themselves as gurus when the reality is that I don’t think anyone really understands the full implications of higher and lower interest rates (really I feel like people don’t understand even at a really basic level; case in point, people think that low interest rates make it easier to buy real estate!).

Of course if I do a quick google search I find that people who think we should do away with central bank independence are right-wing think tanks who clearly want to do away with it so they can make things even stupider. But the fact that we keep voting for kleptocrats is it’s own problem.

1 Like

Was going to with a love of commas.

1 Like

Sounds great, except that the alternative decision not to bail would have likely led to another Great Depression. And do remember GWB started the rescue Obama continued, this was a rare bipartisan government action, though the GOP likes to whitewash that, like most pesky facts. The bailout should have, and did come with a pile of regulation (not enough), which of course is now being dismantled. But they should not have been able to buy T-bills with the zero interest loans from the Fed. That was simply stealing taxpayer money.

2 Likes

If radical action was needed, they didn’t need to choose the radical action that was most beneficial to the people who caused the problem in the first place. If you don’t count the top 10% richest people, there was a depression. In the first few years after 2008 more than 100% of the recovery was captured by the top 10%. Median wages have only reached 2008 levels in 2016, and they were still below 2000 levels. If the point of the bank bailout was to save the economy, it failed.

If the collapse of a bank would truly do catastrophic damage to the lives of too many people and that cannot be allowed to happen, then nationalize the bank and oversee the winding down of it’s operations responsibly, allowing everyone time to sever their business with the bank in a non-destructive way. Retroactively separate the commercial and investment banking sides and don’t let the investment creditors eat up all the assets.

And for fuck’s sake, arrest people for fraud they committed.

Think of it like cleaning up after an Earthquake. Step one is to try to save lives, not to make sure the people who intentionally caused the Earthquake profit by doing so.

5 Likes

The whole system is interconnected in a lot of ways, and the damage that was done by defrauding people with toxic mortgage backed assets (as well as convincing people to take mortgages they couldn’t afford to create more mortgage backed assets) was real damage that needed to be repaired. I feel like the bailout instead just kept everything as normal as possible. It strikes me that a huge amount of nominal value was lost when the housing market collapsed, and the effort ought to have been in preventing that nominal loss from turning into real loss (e.g. foreclosures which take a productive asset [a roof over a family’s head] and turn it into an unproductive one [an elaborately decorated vacant lot]). The problem is that when stocks collapse, the money is extracted from the mouths of the poor, not from the high scores of the rich. I’m not sure I know what the right solution was, but I think the bailout was a transparently bad one, and that it worked out badly.

Why is this always presented as a binary decision? So I think we are broadly on the same page - judging from the rest of your para. But I take issue with the idea that we needed to bail out banks with no strings attached access to vast federal funds and the Fed window. Why not attach strings?

Why were senior management not forced out? Why were they not forced to lose deferred compensation? Why werent equity stakes taken to dilute existing holders and the banks “rehabed” and then refloated? Why were MS and GS allowed to switch status to bank holding companies and given immediate access to the Fed window without senior management being forced to leave?

None of this made sense and there is no precedent for it. A giant public sector give-away done at non-market prices for no reason other than to make sure that rich failures would stay rich.

And the ultimate cost of it is the de-legitimization of US capitalism itself. The central element of US capitalism - the groups given custody of the currency - ie the right to “magic” money into existence, were bailed out on preferential terms at the expense of the public after they had totally destroyed the financial system through incompetence and greed. As if they didn’t have enough privileges already.

Feel free to explain why the bailout had to be on the softest terms imaginable. Maybe taxpayers should have given them extra money to salve their hurt feelings? Perhaps the interest rate should have been negative? Heaven forbid that senior directors, equity holders or subordinated debt holders should face even more substantial losses when there are still poor people to tax.

1 Like

Why were the heads of the rating agencies (the most culpable parties in my view) not dressed in a fetching shade of orange?

Because it would cast doubt on every single corporate bond issue in the world, that’s why. Talk about your too big to fail!

3 Likes

Maybe. I heard a lot of this at the time.

4 Likes

This topic was automatically closed after 5 days. New replies are no longer allowed.