Why are Brits so obsessed with buying their own homes?
theguardian.com
theguardian.com
It must seem alien to most in the west the sheer lack of protection renters have in England (property law is devolved); it is based entirely in private contracts, and what law does exist is rarely if ever enforced. Just last week Parliament rejected an amendment requiring all rented property be "fit for human habitation". Rent rises are not capped and often used to evict tenants, the legal minimum notice for eviction is two weeks (this does not increase with time rented), the landlord is required to carry out repairs but notifying them of such can be grounds for eviction.
These may be the extremes of renting in England; however you can ask any renter about being charged outrageous contract fees, referencing fees and being screwed over on leaving over the deposit and "cleaning fees" (even when the property is left in a professionally cleaned state). There is little-to-no repeat custom in renting so they get away with it.
Little movement has come from either of the two main parties (Labour & Conservatives) to improve this, thus to have stable accommodation you have to look to buying.
Either way, if you care to live anywhere near a city, housing prices are astronomical. We make a decent living, my wife and I, but still don't have what it takes to buy a two bedroom apartment in one of the cheaper cities in the country. We've been house poor before, and I'd rather not be again.
I mean I get it - fixed mortgage means in 10-15 years my mortgage may be less than rent of something similar, but that's a long time to be house poor.
In many parts of the UK it's closer to 5-10 years. Which is great if you can afford the high price of entry.
Also great if you can afford a buy-to-let mortgage, because it means you can be profitable within a much shorter time, while containing the supply of purchasable housing and raising the average rental price...
Even adding in PMI, property taxes, a 30 year rate, etc, the mortgage of house should be about the same, and often less than the rent unless you just can't get a good rate. A landlord has to make money, including the costs of longterm upkeep, replacing things like the air conditioner, paying real estate agents their commission, etc.
If you can't make a 20% down payment I've seen PMI be enough to push it to a bit over what the rent would be at the house, but that certainly shouldn't take you 10-15 years to pay off and get out of PMI range.
The only thing I can figure is you have a significantly higher interest rate than people would get in the 'average credit' category
About the only places where I've ever seen this not be true is where rent control is in effect.
To buy my apartment (and this is just for the apples-to-apples comparison) would cost in the neighborhood of $485,000. If I put $97,000 down (about 20% to avoid PMI) I'm looking at around $2350 inclusive of taxes. However, there's HOA fees. Here they cover all (yes ALL) utilities, but they're $890/month for this apartment. Now I'm out $97,000 in liquid cash, my monthly payment is $3240 inclusive of HOA.
I can easily get the loan, but in the city, it's not always cheaper to buy.
I rented for nearly ten years, latterly/mostly in East London, moving house on average every 12 months. Had my fair share of shitty landlords.
Me & my girlfriend had circumstance/luck to thank; in 2012 (just before prices started climbing skywards again) we managed to save/borrow/scrape enough money together to get a deposit on a nearly derelict Victorian terrace and have been slowly doing it up since then. It's still not finished but it's mine and I love it. That it's increased in value is nice, but kind of abstract in that it's only money I will see if I ever decide to move, which I have no plans to. It's also totally secondary to it being _my_ home. I shut the door and the outside world ceases to exist.
Well said btw. Right there with you.
That article glossed over inflation, rents have changed a great deal in the last 10 years (double digit growth year on year). A mortgage is a fixed cost, the will actually become relatively smaller.
Plus, I doubt I will be in London for ever, but if and when I decide to leave I would have accumulated a nice a nest egg.
Even better, the real cost of mortgage payments keeps going down (thanks to inflation) while the real cost of rents keeps rising. My house would now rent for around 3x my mortgage payments, except I paid off the mortgage more than a decade ago so my rent is zero.
There's always a chance house prices could collapse, but that's unlikely in the UK. First, it's a small island with a rising population so there is real demand, mainly in the south of England.
Second, it's seen as a "safe haven" so foreigners are buying houses in the UK -- new developments are actively marketed in China, Singapore etc.
Third, if you buy a house and rent part or all of it out, the tenants will pay the mortgage for you, and they really have no choice. Governments supporting a "property-owning democracy" (a Conservative Party ideal) have made it harder to rent by selling off social housing, removing rent controls, giving tax allowances on mortgages etc.
Historically, on average, buying a house has been a one-way bet in the UK for around 50 years. It seems pretty much insane to imagine that this will always be true, but it has been true for my entire lifetime.
That which cannot go on forever, won't.
> There's always a chance house prices could collapse, but that's unlikely in the UK.
The population in Britain was 58.95 million in 2000 and is currently 64.04 million.[1] In the same time house prices have risen by an average of 153%.[2] It's reasonable to subtract baseline inflation from that at 55%[3], in which you STILL end up with a 98% increase. And I'm not ignoring the silliness in London; nearly every region of the UK has seen near-doublings of house prices since 2000, with a population increase of about five percent.
Simple supply and demand dynamics are not at work here.
> It seems pretty much insane to imagine that this will always be true
Yes, it certainly does. I'm sure there was a crisis not so long ago where lots of people were betting on house prices continuing to go up for the foreseeable future which didn't end too well.
Maybe, just maybe, the problem is too many people thinking of housing as an investment?
[1] http://www.worldometers.info/world-population/uk-population/ [2] http://www.nationwide.co.uk/about/house-price-index/house-pr... [3] http://www.thisismoney.co.uk/money/bills/article-1633409/His...
I think that in this case simple supply and demand is a pretty major factor. There has been consistently limited supply of new houses in the UK (policy driven, as I understand it), and at the same time there is a healthy buy-to-let market, where the buyers are both 'big' investors and relatively ordinary people (often from older generations who rode the wave of increasing house prices and so can afford second homes).
These two factors together reduce overall supply, pushing prices up further and making younger people stay renting for longer, thus reducing their available capital even more (relatively speaking).
Governments of all stripes are utterly dis-incentivised to address the issue in any comprehensive way because driving down house prices would completely screw over a large section of the voting public (i.e. almost anyone who currently has a house).
Mortgage prices are ridiculously lower than rents in this country - you could easily pay half as much in mortgage repayments as you do in rental costs for the same home, at least in the south.
It depends on your definition of "simple".
I certainly don't think it's possible to relate prices directly to shortage of supply, because things are not that simple.
I also note that, because so many overseas buyers want UK properties, demand is essentially infinite. This decouples prices from the local buyers' ability to pay.
> I'm sure there was a crisis not so long ago where lots of people were betting on house prices continuing to go up for the foreseeable future which didn't end too well.
It didn't end too well for some people who were forced to sell, for whatever reason. But the vast majority of home owners just sat tight and waited for prices to recover. They did. And so far, they always have.
There are obviously going to be local variations due to external events -- floods, factory closures, gentrification and thousands of other things. However, the overall trend is clear.
> Maybe, just maybe, the problem is too many people thinking of housing as an investment?
Maybe, just maybe, the problem is that they are absolutely correct to think that way.
As you point out, if you bought a house in 2000, you've doubled your money and saved a lot on rent, and with very little risk. With interest rates at current levels, where else can you get that sort of deal? (Serious question if you have a serious answer. My shares and savings haven't beaten inflation.)
>Simple supply and demand dynamics are not at work here.
Price curves aren't linear. If you have a market with inelastic demand, small shortages can produce huge price increases.
That is actually one of the secrets to a lower stress longer lasting life IMO.
It's a funny way to represent it, but there is one person missing from that cartoon. The person that refuses to go into debt, saves until they have the money to spend on whatever it is they want to buy. Another useful addition would be someone with a mortgage that they actually pay off on, their net worth would likely dwarf the net worth of the beggar.
Bingo. Never been in debt and glad of it.
There's another person missing from that picture - a person who has debt and has positive net worth.
Honestly debt is not a boogeyman, it can be very enabling and given the current economic situation, interest rates and economic outlook people saving are going to end up on the losing side in the long run.
That's me!
> Another useful addition would be someone with a mortgage that they actually pay off on, their net worth would likely dwarf the net worth of the beggar
And they're so old their body has given up and they spend their days sitting in front of the TV, thinking about all the things they wish they did in their life.
That is very much not necessarily true.
And if we get more productive disposable income will go up and that will feed into land prices.
All the rentier need do is wait.
edit: would love to hear the counter to this from whomever downvoted me - it's a fact that with our system productivity improvements flow into land prices therefore speculating on land sees you capture these gains.
I don't think home ownership is a decision to be made lightly and I disagree with the idea presented in the article that it should be done to make money, but there are definitely numerous benefits and the idea of a mortgage being somehow evil just because it's debt is extreme. As another commenter mentioned, debt is a tool which can be used poorly or wisely.
I have no issue with mortgages entered into by people who understand how to live within their means. There are lenders who prey on those who don't truly understand what their means are, sure, but that doesn't make the whole enterprise of home ownership a faulty one.
And before anyone nitpicks: yes, you do own the house you buy with a mortgage. It's security for the loan, and the mortgage gives the banks the right to take the property away from you to settle your debt. On well negotiated loans used to purchase property smartly, it can actually be an investment. One that may not pay as much as an index fun after 30 years, but in the meantime, you've had a place to live.
I would also suggest that many (not most, just many) people without a mortgage are unmarried and/or not parents. There is an intangible benefit to "setting down roots" and "making a home of memories" with a family. I, personally, have found that to be invaluable.
You'll need your house value to rise to at least ~225% of its initial purchase price over the life of your mortgage just to break even.
That doesn't count the time you spend on repairs and maintenance of your property that you never get back.
Here in the US, I have friends still under water from 2008, so house values don't always go up (and this is in the pricy DC metro area).
All investment is a risk. Never buy a house because you feel you should - do it because you want to. You want to put in the kitchen of your dreams, you want to live near family, you want your kids to grow up in one house their whole childhood.
If you make a profit in the end, wonderful! But don't do it for that. Rather, decide the kind of life you want to lead (do you enjoy moving every few years? Do you want to live abroad for 5 years? Do you prefer he flexibility and lack of responsibility that comes with renting?) and live that - if a house fits into it, great!
I bought this current flat (outside of London) primarily as an investment (gentrification is already happening here) and so the much lower "rent"/mortgage (than even renting in this city) is an upside. I wish I'd bought in King's Cross 10 years ago, but that's how life goes.
But I do get the social pressure to "own". Under 30s these days are screwed. I always thought London was overpriced, but it kept going up and up and up... At some point, the bubble will burst, but the Tories don't care about the future for anyone but themselves at all.
As an aside, my friend just finished off his <$100 quid a month mortgage he got in the 80s and his two up-two down is easily worth 200K now. I think he paid like 50K overall?
On a personal level, buying a house might be more than you care to take on. But with a mortgage, you can certainly predict what your payments will be for the next 10, 15, or 30 years.
And it can be renegotiated when interest rates drop.
Understanding this is what makes people responsible adults. What makes them irresponsible is buying things on a whim on credit and carrying large credit card balances. That is indeed a great way to ensure a stressful life.
American home prices only started rising, in real terms, after WWII [1]. This is driven by people wanting to drive more income to buying land, i.e. treating land as a superior good. Growing government intervention is also a cause.
In the long-run, real house prices appreciate at the rate of inflation. This effect is stable across countries, cultures, and centuries [2]. It vanishes in the short term amidst the noise of credit markets.
Can't find the source at the moment, but the most fascinating study on the subject looks at asset prices in Austria-Hungary and surrounding states. The story is uncomfortably familiar. Decade after decade, credit-fuelled gains were safeguarded in the form of development restrictions. This served to transfer wealth to the landed elites.
[1] https://www.dallasfed.org/assets/documents/institute/wpapers...
[2] http://www.amazon.com/Houses-Historical-Analysis-Property-Pr...
Some one should tell this to Canadians. Since the early-mid 2000s, house prices have been rising much quicker than inflation, to the point where people think homes are an 'investment' that will always rise, leading to a massive housing bubble (also propped up by foreign buyers, many of whom are using land to launder money gained through corruption, and Canadian banks/government just look the other way) and also unaffordable housing for young prospective buyers and tenants.
The thing to remember about that city is that incomes are pretty low (unlike sv)
CAD is cratering now and Poloz can't raise rates without tanking land prices, then all that BS about Canadian banks being well run goes out the window. Everywhere has well run banks when prices keep rising.
The UK ranks 37th lowest out the 46 countries included. France is nearly the same. Germany and Austria are the only two large European countries that are lower.
[1] https://en.wikipedia.org/wiki/List_of_countries_by_home_owne...
Maybe it's simply that owning a home lets you do more with than renting one. You can add extensions, remodel much of it, potentially demolish the entire thing and rebuild it, that sort of thing.
For example, landlords can enter your property by only giving you a 24-hour notice in writing. I have had real state companies entering my flat without prior notice to show it to potential new tenants several times.
Other countries in the EU would take these incidents very seriously. And I'm talking about expensive flats (>$2000 / month) and reputable companies, so I imagine it can get much worse.
Source: my sister is a landlord.
We had one representative from the landlord (Foxtons) pull this on us. After one angry email to this representative's supervisor, mentioning the Landlord and Tenants Act, it never happened again. I believe the supervisor's excuse was that they had an option on tenants account info that said they could enter without permission, and it was "inadvertently checked" on mine.
It's a totally toxic mix that is killing living standards.
Spain is also a Catholic country and everyone has always wanted to own a home, as in the UK. Lately there are more rented flats but the reason is sky-high house prices and low income, not that people like renting.
I had to rent for almost 20/years before I could afford the deposit on a house, but I'm glad I finally could because I simply couldn't afford to rent any longer, even though I would've quite liked to.
Contrast this with Germany's system - http://www.telegraph.co.uk/expat/expatlife/11417359/Germany-...
Estate agents are also a huge problem. They charge the landlord and the tenant to put an agreement together. Tenants are charged every renewal - sometimes £200 for what is essentially a piece of paper.
This builds a psyche whereby to own land becomes a social status.
Bring into that heady mix the likes of Maggie Thatcher's "right to buy" [1] scheme, whereby the lesser class (council house residents) are in a position to buy their homes at a fraction of their apparent worth, and suddenly you need to own your house or be seen to be less than those that do.
Then a new generation comes along and sees that their parents "foolishly" sold off a couple of houses years ago that would now have been worth a mint, and everyone must buy a house else be caught out like their parents.
Buy to let then brings in the mentality of "why would you give money to someone else to pay off their mortgage when you could be paying off your own?" and everyone must buy as early as possible.
Pure conjecture on my part.
0: https://en.wikipedia.org/wiki/Social_structure_of_the_United...
You can get by as a vagabond without a stable source of these - but let's assume that particular lifestyle doesn't appeal (I've tried it. Fun for a while.).
You can work, for an amount sufficient to subsist - and nothing more. A lifetime of work.
You can be independently wealthy. Not much to say there.
Let's say we're between 2 and 3.
How do you get towards 3, if you're in 2? Realistic options, no lottery wins here.
Well, you can save some of your income. Maybe that'll be enough, and maybe you'll eventually have enough to be able to rent until there's no more you.
You can try to improve your income. To do that, it helps if you're mentally fit. Having a table at home to eat at; having a computer setup if you're a remote worker; a nice bookshelf; whatever. Things help. It's hard to work for years on years in material discomfort to build a retirement fund.
So you own some of these things, and you rent.
Every so often, perhaps every year, all of that Stuff gets bundled up. Boxed away; sent in transit. You remove shelves; buff up floors; repaint walls. Then you sit and wait for the bill from the landlord.
Bugger, that's a hefty deduction. Next time, you'll be a bit smarter, I suppose. You won't drill that hole in the wall. You won't pester about the broken washing machine.
The cycle continues. Maybe you alternate material discomfort.
Eventually, though, you're probably going to get tired of it. Because fundamentally, you're doing all of this not because you want to, but because you have to - you can't rely on the landlord to provide you with stability.
What next?
Assuming that home prices can only go up is harmless when that mortgage is manageable. But holding on through several business cycles is problematic when debt service is a high proportion of income. If you miss a few payments you'll learn that you never really owned the home.
Again, the harmless part I mentioned applies to many places but certainly not London.
Edit: This is a US perspective but we've had the same question posed here.
Edit: The article's title is misleading. It conflates buying a home with irresponsible use of debt.
Read it. All of this and so much more is explained within. The history of money, credit, coin, slavery...they're all related. It's a life changing book.
But this may be true of Londoners.
Then, it's so ridiculous that it doesn't merit an answer. If they need help, there's tons of people from 2008 onward that can tell them all about the risk of the alternative.
An article sponsored by a bank trying to persuade you to get a mortgage. How original!
- Home ownership rates
37 United Kingdom 64.6
38 United States 64.5
39 France 64.3
Source https://en.m.wikipedia.org/wiki/List_of_countries_by_home_ow...
It's a little resigned and accepting that in a big city you can't afford it, but it's still expected that eventually you'll move to the suburbs and have a home.
That's not surprising though as owning a home is generally about two things: financial responsibility and stability (obviously desirable), and actually owning the place that you live.
"A place to call your own".
Now we debate if that last one is actually useful but it's not hard to understand it. At this point it's a cultural force too. Also understandable.
> you'll move to the suburbs and have a home.
That might be true for the whites, but I don't think that expectation exists for the blacks or hispanics or Koreans or Chinese or basically anyone. I've known affluent Koreans who dream of eventually being wealthy enough to buy apartment buildings, but I don't know any who want to move to the suburbs.
Wherever the location the desire is real
However, the "millennials are all moving to cities" meme seems to be much overstated. e.g. from fivethirtyeight [1] "Millennials overall, therefore, are not increasingly living in urban neighborhoods. Rather, the most educated one-third of young adults are increasingly likely to live in the densest urban neighborhoods. That’s great news for cities trying to attract young graduates and a sign that urban neighborhoods have become more desirable for those who can afford them. But the presence of more smart young things in Brooklyn is not evidence that millennials are a more urban generation."
I don't know much about Florida is particular. Anecdotally, I'd say that the cliche of retiring to Florida doesn't seem to apply to just about anyone I know. If anything, they're retiring to the desert Southwest if they're seeking a warm climate.
[1] http://fivethirtyeight.com/features/why-millennials-are-less...