So here’s the start of the property crash then

‘Property a better bet than pensions’, says Bank of England chief economist

Markets turn when everyone, but everyone, says that they won’t.

29 thoughts on “So here’s the start of the property crash then”

  1. People have been saying this since at least 2003: “I’m not bothering with a pension, I’ll just keep buying properties.” Which is great until you suddenly need £30k and you’re aged 65: what are you going to do, sell off the kitchen and back yard of one property. Not to mention the fact that sooner or later the house prices are going to crash, even though it’s the No. 1 priority of the government that they don’t.

  2. Bloke in North Dorset

    TimN,

    The problem isn’t the people who keep buying properties, its those of my generation (60 later this year) who kept moving up the property ladder rather than save in a pension. I had numerous friends and acquaintances in my 20s and 30s who were taking this approach.

    Anecdote alert; I was talking to a youngish colleague recently about pensions and she was saying just the same thing. It turns out that her father had done that and now lives in a very nice house in East Sussex. When I pointed out that he would need to sell and downscale she was aghast, they loved the house and would never sell, she claimed. She wasn’t sure what they would do about a pension, though.

  3. Bloke in North Dorset

    “As this newspaper reported in May, Mr Haldane, 49, admitted that despite being one of the country’s leading economists and working at the Bank since leaving university, he could not make “the remotest sense of pensions” because they are too complicated.”

    There’s the problem. Chancellors have always messed about with pensions, none worse than Brown although Osborne gives him a close run. If Haldane doesn’t understand them then how can the rest of us be encouraged to take them out?

    Nice to see that tool for calculating draw-down gives roughly the same answer as my calculations, although the default of 4% is a bit aggressive, I prefer 2% in real terms as a base case. Also, I assume that as I age I will need less, I can’t really see me running a boat when I’m 70 and going on activity holidays, for example.

  4. The problem isn’t the people who keep buying properties, its those of my generation (60 later this year) who kept moving up the property ladder rather than save in a pension. I had numerous friends and acquaintances in my 20s and 30s who were taking this approach.

    Yes, I should probably have clarified: that’s effectively what they were doing, not buying a portfolio of properties.

  5. “Which is great until you suddenly need £30k and you’re aged 65: what are you going to do, sell off the kitchen and back yard of one property.”

    Well if you bought well, you’ll live off the rental income. But I’m not sure how the link between rents and prices is going these days.. I know it’s utterly fucked in much of London.

    Buying only for the capital gain is dumb idea in everything except hindsight.

  6. Well if you bought well, you’ll live off the rental income.

    Yes, but that still doesn’t give you the flexibility to stump up a large sum for something like an operation. The good thing about a pension is you can sell any number of the stocks, it is effectively liquid. With a property, you either need to liquidate the whole thing or not at all. It’s fun to point this out to those who advocate buying properties and not stocks.

  7. Bloke in North Dorset

    Further to Tim’s excellent point, selling property under pressure is never a good thing; timing is everything in the property market.

  8. Much of the fuss about pensions is based on the value of final salary pensions which are in deficit thanks to the ultra low discount rates, but are almost non existent outside of the public sector (from memory about 1.6m of which 600k are still in ‘open’ schemes.) My employers moved me to defined contribution schemes back in the mid 1990s and since then its been ISAs and SIPPs. Andy Holdene has his gold plated pension paid by us and hasn’t bothered with any other financial planning.
    What we are only slowly beginning to realise is that the recent collection of stupid policies designed to ‘allow young people to get on the property ladder’ have destroyed liquidity in an already illiquid market and completely screwed the property related pension schemes of middle England. (Incidentally, why no scheme to crash the equity market and allow young people to buy stocks on a good yield for their pensions?) The transaction cost of an already illiquid asset has gone up to a level equivalent to multiple years of renting while changes to CGT rules for overseas buyers mean that the attraction of BTL in all those new builds in UK cities has just got smashed – 2% yield before management fees, costs and voids and CGT on top when you could simply keep the money offshore in Singapore or Hong Kong in Stocks and bonds and rent off the poor captive UK owner who can’t sell and bears all the tax. It’s a new ‘Asset Light’ dynamic evolving and they can’t see it.

  9. There’s another point that I don’t think people have considered – a rental property to prove a pension income is all very well, but rental properties require work in order to get that income. People seem to imagine the rents just flows in without effort, which is far from the case. Whats going to happen in 20-30 years time when all these 40 and 50 somethings buying buy-to-lets now need their rental income to live on, but aren’t physically up to doing any maintenance on their property, and can’t afford to employ tradesmen to do likewise? Plus with everyone doing it there will be massive downward pressure on rents, so the income will tend to drop over time, in real terms if not actual.

    My guess for a good retirement would be to in invest in (or start) a firm that practically manages rental properties for oldies. Its going to be a growth area.

  10. “I can’t really see me running a boat when I’m 70.” Buy a gin palace and tootle about the rivers and canals. We passed a narrow boat the other day called “Mid Life Crisis”.

  11. “Yes, but that still doesn’t give you the flexibility to stump up a large sum for something like an operation. The good thing about a pension is you can sell any number of the stocks, it is effectively liquid. ”

    But that’s not the point of a pension. They’re supposed to be to provide an income. Yeah, it’s great if you can have something to provide in the situation you suggest, but that’s a secondary issue and something that was never an option for people with DB pensions or even people following the traditional DC model of saving and buying an annuity. Not that many people will be doing that for the foreseeable future.

    The lump sum on a retirement (from any scheme) can be set aside for emergencies, so if all savings are in property, even inside a pension wrapper (if that’s still possible?) then that option is tricky or impossible. But putting everything in a single asset class is stupid regardless.

  12. But that’s not the point of a pension. They’re supposed to be to provide an income.

    Well, maybe it’s just me, but I’ve always seen a pension as providing an income and being a lump of capital you can use as a last resort, e.g. for an operation.

    But putting everything in a single asset class is stupid regardless.

    Absolutely, and any decent pension plan will also involve property. My remark was more aimed at those who have seen that *at that point* property had been doing better than stocks and so decided to only invest in property and no stocks. I know a few people like this.

  13. Property, as a store of wealth, is a fucking horrible store of wealth.
    Ask yourself; if you need to liquidate that store of wealth, what’s the chance there’ll be a lot of people just like you needing to liquidate their store of wealth. For exactly the same reason you are. Because they’re people like you.
    Who you going to sell it to?

  14. Managing your own property is a pain in the arse. Managing a bunch of BTLs is a pain in the arse to the power of the number of properties. Plus property is really only good for the boom times. Maintenance costs don’t decrease when rental values decrease. The trouble is that the artificially manipulation around housing has fooled people into seeing it as virtually risk free instead of highly geared, with the gearing coming from maintenance

  15. But if you’re retired and still in good health, you have the time to pop round to your tenants’ homes and change their lightbulbs. So in many ways it’s an investment well-suited to the semi-retired or recently-retired. But when your health declines you should probably sell up and invest (and drawdown) in liquid instruments instead.

    As for this being any kind of leading indicator, I’ve had hairdressers and cab drivers telling me for well over a decade that you can’t lose in property. Brexit might do it, but the jury’s still out on that.

  16. Isn’t it at least in part about a hunt for yield when yield curve is very, very low? So an obvious choice is BTL (albeit yields driven down by too many numpties buying for capital growth) or maybe corporate bonds.

  17. As for this being any kind of leading indicator, I’ve had hairdressers and cab drivers telling me for well over a decade that you can’t lose in property.

    Indeed, there was a story I think on here about a Tesco checkout girl going into BTL property. It’s Ted Kennedy’s shoeshine boy giving him stock tips all over again, or at least it would be had the government not fucked over the whole country in preventing these idiots from feeling the effects of their stupidity.

  18. “Brexit might do it”: but London prices seem to have been declining before the People’s Plebiscite. I see reports that American prices are on the way down too, at least in areas favoured by the rich.

    Maybe it’s time for a big decline which will be blamed erroneously on anything to hand: Brexit, Trump, Hellary, China, Deutsche Bank, Italy, ……..

  19. “It’s Ted Kennedy’s shoeshine boy giving him stock tips all over again”: the yarn was about Ted’s vile father, not about egregious Edward.

  20. For at least 200 years my family’s pension plans included living in the house above/behind/round the corner from a shop and renting out the shop, with knowledge and advice passed down generations. Often preceded by running the shop before retiring.

  21. “But if you’re retired and still in good health, you have the time to pop round to your tenants’ homes and change their lightbulbs”

    And rod their drains, and fix their fence, and sort the dripping tap, and mend the broken roof tile, and sort the collapsed ceiling when a pipe leaks, and and and…………………I’ve got 40 years experience of watching my parents deal with their property portfolio. Its fine while you’re still fairly hale and hearty. When you’re less so, it’ll be a pain in arse, or very expensive, or both (tradesmen need plenty of overseeing these days or you’ll end up with a shit job AND a big bill).

    We all see what happens to old folks own houses as they age – they get dilapidated, because they can no longer do repairs themselves, and they can’t afford to pay tradesmen. Thats fine when its you living with the consequences, tenants won’t be so understanding.

  22. dearieme,
    That’s being blamed on the stamp duty changes, which threw a spanner in the works for high-value (i.e. London) transactions while leaving the rest of the property market unaffected.

  23. Jim: That’s why you can’t leap into it without the right preparation or long-term planning.
    My great aunts Hannah & Emma had their niece (my g-grandmother) living next door who took over their landlording responsibilities as they got doddery, then bought their place when they died, her daughter (my grandmother) took over her landlording responsibilities as she got doddery, and eventually inherited the place, her son (my uncle) took over her landlording responsibilites as she got doddery, etc. It also helped that – as with tradition – the let property was downstairs from the occupied property.

  24. “That’s being blamed on the stamp duty changes”: fair enough. But that it extends to Aspen seems unlikely.

  25. I put my London flat on the market in Sept 2013, the sale fell through three months later but by then prices had increased by 10%. I took it off the market and waited till things calmed down. When I finally sold last year central area prices had not really risen for a year. Three years ago it was hot money seeking a safe haven driving prices, which created a feeding frenzy that spread ever wider. But now: changes to SDLT etc. and a glut of new build flats is having an effect. Crash, correction, slowdown? Who knows? But a this moment the difference between what I got for my money in London and what I can buy for that in Somerset is probably about as good as it will ever be.

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