The start of seismic change?

Panupreset said:

I have always felt since the credit crunch crash that it has never been realised that huge numbers of people struggle to keep themselves financially above water even in periods of economic growth. People do not have rainy day funds anymore.

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How much of this is down to genuine financial difficulty, and how much to personal extravagance?

6Gman said:

How much of this is down to genuine financial difficulty, and how much to personal extravagance?

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the million dollar question.

Current events may well force people to re-assess what's important, and getting the latest iphone etc is(or should be) quite low down the list.

Quite a startling contrast isn't it the last couple of months!
the other side of christmas,people were fighting in the aisles for the latest electronic gizmo's, now it's fighting over household essentials like bog roll.

I do hope that at the end of this,people will be a bit more considerate toward one another, but I have a feeling that it is not sufficiently painful yet to force that to happen...it will take a lot of "blood in the streets and food fights",over a prolonged period to get people free of the spell of me,me,me.


Some people never will, some people are programmed to survive at all costs- quite a high number if people are really pushed to their limits.
Some of these people will not learn that sometimes it is better to cooperate occasionally and have someone have your back,than purely go it alone and bully people to get your own way.
The readers of "how to win friends and influence people" will learn the hard way about establishing TRUE friendships,as well as honing their bartering skills to get stuff done/pay off potential informants-ie fresh produce,dairy,eggs and pasta shipment ETA at tescos courtesy of employee in exchange for a packet of amber leaf and some rizla's...maybe a staff canteen will over-order and keep a bit by for you,or potentailly assailants if not physically capable of confronting them,They could perhaps be bought off,or a potential bodyguard if they need a "dealer",and you need protection!

I'm using prison contraband as an example, but it could equally be applied to skills...ie my car's knackered,but I'm quite handy at plumbing,so if you fix the motor,I'll clear your bog out/fix your shower etc.


Not that I wish things to descend into chaos,but barring the odd break out,things have been quite orderly...aside from the odd few,people are still in general quite polite in the supermarkets.God forbid we ever get to the stage of armed guards on tesco lorries and people standing in line for their one 9 pack of andrex, only to get mugged at knifepoint as they drive around the corner.

hooverboy said:

the excess in the system is/was driven by excess credit and ultra low interest rates.
That's been the driver for the BTL market,it made sense having capital appreciation and yield,but capital appreciation is now close to zero,costs are increasing,and peoples ability to pay the extra is capped due to extra taxation,higher bills and wage supression.

as for foreign investment,that will go in search of higher yields pretty damn quickly,they will think nothing of liquidating a multi million pound portfolio on a whim, they generally have access to market information a lot quicker than joe public,and certainly don't have as much emotional attatchment to the investment as mr and mrs bloggs and their 2 flats..it is treated purely as one asset class, leaving the latter to carry the can as the stampede for the exits quickens.

Property for those guys is purely an asset class,much the same as stocks,commodities or bonds, if they don't perform or underperform they get cut completely or rationalised.
Mr and mrs bloggs will hold on for dear life,sliding down the slippery slope of hope,and then panic sell when they can't pay the bills or the house/flat has lost a significant value,just to add fuel to the fire for the "capitulation" stage

given the current situation,what's the betting that some of the big money hasn't already shifted out of property and into biotech/healthcare?
Even if covid 19 fizzles out,we still have an aging population globally to deal with,which will require pills and potions to keep operating and happy.

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There is too much of a shortage of property in many parts of the country to cause a collaspe. 25 million homes isn't enough for a population of 68 million with a growing trend of 1 person households. Small, older landlords who own their property outright won't care too much about depreciation, only about rent. If they take a hit on rental income, its likely to be fairly comparable to the loss of income from dividends being cancelled, had they invested in shares instead.

Everytime there is a crisis it becomes popular to think there will be vast economic and social change, that just happens to be against stuff that the individuals don't like about the modern world. For instance many people who don't fly seem to be sure that people who regularly flew will not return to holidaying around the med!

There are plenty of left-wingers confident (again) that this time it is the end of capitalism as we know it. In reality we have a Conservative government with a majority of 80 that will not call a general election until 2024.

Societal change is usually very very unpredictable, I am sure it will happen because of this crisis but people need to calm down and drop their pet issues for a bit.

Chester1 said:

There is too much of a shortage of property in many parts of the country to cause a collaspe. 25 million homes isn't enough for a population of 68 million with a growing trend of 1 person households. Small, older landlords who own their property outright won't care too much about depreciation, only about rent. If they take a hit on rental income, its likely to be fairly comparable to the loss of income from dividends being cancelled, had they invested in shares instead.

.

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You've just stated my point for me; they don't care about appreciation, only rent, so they will hang on and hang on until the bitter end until they become forced sellers to "get something back; after all that's my pension!"

There's no guarantee on the rents either, just check out what is happening with Air B'n'b.

A lot of them were floating their properties primarily for tourists, short term visits, now that market has dried up, they are seeking a more steady income stream, cue short term typical rental market.

So Mr and Mrs bloggs now getting clobbered by excess "private hotel" capacity which will be forcing rents down due to extra supply of properties on that particular market.

Best case scenario is they have to absorb the extra costs and keep rents static to keep a good tenant, but for property as a business that is lunacy. Costs need to be cut.

Everyone has a different breaking point as to when an asset is considered a liability.

As for the renters, some won't be able to -a lot I think, mostly single, and perhaps consider rent a room or cohabit, some will move back in with parents, some will keep up the pretence of coping and default ,and some will continue as normal. Whichever way you slice it, it is a much, much more risky bet these days.

Bletchleyite said:

The only way to have both is to build, including build-for-rent.

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You can’t build your way out of this. To build enough new homes to affect prices on top of the number needed to keep pace with population growth would be a monumental project that would require a lot of green belt.

Chester1 said:

One persons lifestyle is another person avoidance of poverty in old age.

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Someone who can afford a home and a rental property is not at the poverty end of pensioner lifestyles, let alone compared to young families.

Chester1 said:

There are plenty of left-wingers confident (again) that this time it is the end of capitalism as we know it. In reality we have a Conservative government with a majority of 80 that will not call a general election until 2024.

Societal change is usually very very unpredictable, I am sure it will happen because of this crisis but people need to calm down and drop their pet issues for a bit.

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I'm sure there are plenty of left wingers thinking it's the end of capitalism...I don't think that's the case.
I think the economy/society was seriously toxic and in need of a serious prune,which should have happened in 2008,but instead of cutting the branches back,the financial wizards decided it was a really good idea to give the patient a papercharged shot of baby-bio.
It never cured the rot in the first place.

as for the end of capitalism, I think new ways of doing stuff will be innovated,and capitalism will be at the forefront of getting these new ideas created and mainstream.
I would like to see the end of corporatism though,the people that brought us this crisis because they paid off lobby groups/destroyed competition to get the government(s) to do their bidding need to be shown their way was an epic fail.

The sort of capitalism I would like to see in it's place would be more in line with the joseph rowntree,cadbury(I'm very much a subsciber to quaker business ethics) social capitalism with a social conscience.
That means well funded decent local ammenities like good quality healthcare,just not centrally managed.

hooverboy said:

you've just stated my point for me. they don't care about appreciation ,only rent,so they will hang on and hang on until the bitter end until they become forced sellers to "get something back..after all that's my pension!"
There's no guarantee on the rents either, just check out what is happening with AirB'n'b.
A lot of them were floating their properties primarily for tourists,short term visits, now that market has dried up ,they are seeking a more steady income stream, cue short term typical rental market.
..so mr and mrs bloggs now getting clobbered by excess "private hotel" capacity...that will be forcing rents down due to extra supply of properties on that particular market.

Best case scenario is they have to absorb the extra costs and keep rents static to keep a good tenant,but for property as a business that is lunacy.Costs need to be cut.
everyone has a different breaking point as to when an asset is considered a liability.

As for the renters,some won't be able to-a lot I think, mostly single..and perhaps consider rent a room or cohabit, some will move back in with parents,some will keep up the pretense of coping and default,and some will continue as normal...whichever way you slice it,it is a much,much more risky bet these days.

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Airbnb landlords are not remotely average. If a retired couple have a couple of terraces or flats in a nearby northern town getting £450-500 a month each, they are not going to suddenly stop being able to rent out their property regardless of what happens with the rest of the market, including carnage. They may very well have to drop their rents for a long time but the market for many types of property is permanent. They are more likely to keep their rental property until they die than panic sell. People who have been greedy will be the most likely to sell up and its a great opportunity for young people who are ready to buy their first home. Past 10% drops they will flood the non London market and put a floor on price drops.

Chester1 said:

Airbnb landlords are not remotely average. If a retired couple have a couple of terraces or flats in a nearby northern town getting £450-500 a month each, they are not going to suddenly stop being able to rent out their property regardless of what happens with the rest of the market, including carnage. They may very well have to drop their rents for a long time but the market for many types of property is permanent. They are more likely to keep their rental property until they die than panic sell. People who have been greedy will be the most likely to sell up and its a great opportunity for young people who are ready to buy their first home. Past 10% drops they will flood the non London market and put a floor on price drops.

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such a retired couple may have their hand forced by other operators in the market.
I get they would like to,they may not be able to

as for the masses of youngsters waiting in the wings to snap up the properties.
1)do they have job security?..banks requiring several years of statements as proof of income stream
2)do they have a substantial deposit??..banks now reverting to more normal 15-20% deposit,and lower income multiples.

the people that really could afford it have gone of to pastures new in search of yield,they will be back when everybody is in distress and selling at 50-75% discount.

hooverboy said:

such a retired couple may have their hand forced by other operators in the market.
I get they would like to,they may not be able to

as for the masses of youngsters waiting in the wings to snap up the properties.
1)do they have job security?..banks requiring several years of statements as proof of income stream
2)do they have a substantial deposit??..banks now reverting to more normal 15-20% deposit,and lower income multiples.

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The requirements for new buyers would be less onerous if the prices were lower.....
There must be a high risk of a crash. A Covid recession might cause forced sales and there are a lot of BTL landlords riding the wave who will sell at the first whiff of a real downswing (like my sister - she would have been a mug to sell her own house when she moved in with new hubby as she could rent it for way over her mortgage payments, but would get out before a slump)

hooverboy said:

their hand may be forced by other operators in the market.

I get they would like to.

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How will they be forced? They are probably shrewd enough to bet they are better to go without rent (even at a temporary cost to their living standards) for a while than sell up in a down turn. I get dislike of buy to let mortgages and foreign investors but I see a dislike of small landlords who own outright as little more than envy. There is clearly a need for housing that is neither owner occupied or social housing. Its getting the % right.

hooverboy said:

I'm sure there are plenty of left wingers thinking it's the end of capitalism...I don't think that's the case.
I think the economy/society was seriously toxic and in need of a serious prune,which should have happened in 2008,but instead of cutting the branches back,the financial wizards decided it was a really good idea to give the patient a papercharged shot of baby-bio.
It never cured the rot in the first place.

as for the end of capitalism, I think new ways of doing stuff will be innovated,and capitalism will be at the forefront of getting these new ideas created and mainstream.
I would like to see the end of corporatism though,the people that brought us this crisis because they paid off lobby groups/destroyed competition to get the government(s) to do their bidding need to be shown their way was an epic fail.

The sort of capitalism I would like to see in it's place would be more in line with the joseph rowntree,cadbury(I'm very much a subsciber to quaker business ethics) social capitalism with a social conscience.
That means well funded decent local ammenities like good quality healthcare,just not centrally managed.

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I am not saying you are left wing, rather that there are a sizable number left-wingers who are persuading themselves that this time the revolution will come. Despite the fact this crisis is being managed by a Tory government with a majority of 80 who don't need to (and won't) call an election until 2024. For what its worth I think Tories will continue to be surprisingly flexible but they are going to limit change and maintain most of the status quo. Thats the price of Labour blowing the general election 4 months ago.

Meerkat said:

The requirements for new buyers would be less onerous if the prices were lower.....
There must be a high risk of a crash. A Covid recession might cause forced sales and there are a lot of BTL landlords riding the wave who will sell at the first whiff of a real downswing (like my sister - she would have been a mug to sell her own house when she moved in with new hubby as she could rent it for way over her mortgage payments, but would get out before a slump)

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I see BTL landlords in much the same light as tech share owners in the 1990's, and property owners in the 1980's when MIRAS was knocked on the head.
Covid looks like the catalyst that burst the bubble alright, but the pressures have been mounting for a couple of years.

hooverboy said:

I see BTL landlords in much the same light as tech share owners in the 1990's, and property owners in the 1980's when MIRAS was knocked on the head.
Covid looks like the catalyst that burst the bubble alright, but the pressures have been mounting for a couple of years.

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I don't necessarily blame them entirely either...it's been clear for a long,long time that the market has been "influenced"
Most people will naturally gravitate to ways of improving their standard of living,most BTL(typically in their 50's/early 60's now ..30's and 40's when BTL kicked off) were at the age where they already had a reasonable capital base,and decent income (mostly combined) stream behind them to begin with,and gordon robbed their pensions,so had to find somewhere to park their money.

loadsamoneyyyyy!!!!...now THAT makes me feel old!

hooverboy said:

I don't necessarily blame them entirely either...it's been clear for a long,long time that the market has been "influenced"
Most people will naturally gravitate to ways of improving their standard of living,most BTL(typically in their 50's/early 60's now ..30's and 40's when BTL kicked off) were at the age where they already had a reasonable capital base,and decent income (mostly combined) stream behind them to begin with,and gordon robbed their pensions,so had to find somewhere to park their money.

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That was probably one of the most financially stupid decisons made by a British government. When private sector pensions are bad value then people will move their money elsewhere and Gordon decided to put a rocket under that process.

Chester1 said:

That was probably one of the most financially stupid decisons made by a British government. When private sector pensions are bad value then people will move their money elsewhere and Gordon decided to put a rocket under that process.

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it's not been an entirely british phenomenon though. From a local perspective it probably had an impact, but that doesn't explain the property price booms internationally. pretty much every capital city worldwide went mental.
desire properties ,desired states like coastal stuff and so on also went nuts, and quite a lot only existed on an architects drawing board vis a vis off plan.

hooverboy said:

it's not been an entirely british phenomenon though. From a local perspective it probably had an impact, but that doesn't explain the property price booms internationally. pretty much every capital city worldwide went mental.

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I think the Tories would probably tolerate a 10% real terms drop in house prices over the next 4 years. It would put the propery market and rental market outside of London and the South East on a sustainable footing, helping many of their newer voters while being bearable for their home owning voters. They have been trying to chip away at the private rental market for 5 years now. However, more than 10% drops and they will likely throw the governments whole weight behind propping up prices.

Chester1 said:

I think the Tories would probably tolerate a 10% real terms drop in house prices over the next 4 years. It would put the propery market and rental market outside of London and the South East on a sustainable footing, helping many of their newer voters while being bearable for their home owning voters. They have been trying to chip away at the private rental market for 5 years now. However, more than 10% drops and they will likely throw the governments whole weight behind propping up prices.

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The balancing act they have been trying to do since 2008 is to not let the figures go negative, by any means, at all.; they are/were playing the wealth effect, meaning if you bury bad news, people keep spending, if you report bad stuff, people will draw their horns in and have a knock on effect to discretionary spending.

Simple "perception management" tactics, i.e. lying.

When things are good, you report the month-on month figure, or year over year, whichever is greater. When they are crap you revert to only year over year, because the changes take longer and look smaller for a good while, when it turns back positive you report that.

Chester1 said:

I think the Tories would probably tolerate a 10% real terms drop in house prices over the next 4 years. It would put the propery market and rental market outside of London and the South East on a sustainable footing, helping many of their newer voters while being bearable for their home owning voters. They have been trying to chip away at the private rental market for 5 years now. However, more than 10% drops and they will likely throw the governments whole weight behind propping up prices.

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A drop in real terms is probably the way to go. Reducing the actual number causes negative equity which can cause massive people. So what they really want to achieve is to keep a £250,000 house now costing £250,000 through a period of inflation - i.e. no increase in numeric terms for a long period so a reduction in real terms. That harms nobody and benefits almost everybody (except investors, but they'll just flog up and get out with the intended effect).

I suppose the issue for the Government would be no Capital Gains Tax as there would be no capital gains (unless from refurbishment or extension).

Panupreset said:

I think one thing that might happen after this is that ‘key worker’ jobs become more sought after. People who are in non key worker positions might not be keen to remain in those jobs in case of a further or similar outbreak.

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I don't agree.

Many key workers are effectively taking a risk with their own health to keep the country functioning while not being handsomely rewarded for so doing.

Bletchleyite said:

A drop in real terms is probably the way to go. Reducing the actual number causes negative equity which can cause massive people. So what they really want to achieve is to keep a £250,000 house now costing £250,000 through a period of inflation - i.e. no increase in numeric terms for a long period so a reduction in real terms. That harms nobody and benefits almost everybody (except investors, but they'll just flog up and get out with the intended effect).

I suppose the issue for the Government would be no Capital Gains Tax as there would be no capital gains (unless from refurbishment or extension).

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bingo!!

capital gains tax receipts can be garnered by altering the taper relief rates and period.keep a close eye on future budgets!

edit...I should add that the inflation measures ore crooked as well.
by hedonic adjustment you will miraculously be buying a 6 core 12 thread microchip and 8gb RAM(which was nice in 2017,but old hat and 1/3 the price in 2020 for the same spec items), 20 sterling cigarettes(£8-9 ish) instead of 20 b+h(£11-12-ish)- inflation stats still say 20 cigarettes,while your basics like gas and electicity etc will compensate for that massive deflationary effect..leaving a magic number of about +2%..which the majority of pay reviews will be based on

in some cases it's a quality drop,in others it's a technological change that hasn't been priced in, in all cases it's a relative drop in purchasing power.

smoke and mirrors!

PG said:

I don't agree.

Many key workers are effectively taking a risk with their own health to keep the country functioning while not being handsomely rewarded for so doing.

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I think that depends.

I'm getting quite a lot of inbox via linkedin and agencies at the moment from prospective employers!

hooverboy said:

bingo!!

capital gains tax receipts can be garnered by altering the taper relief rates and period.keep a close eye on future budgets!

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I did of course mean "massive problems for people" as I think you replied to. I don't think negative equity causes "massive people", rather eating too much and doing too little exercise

But yes, we don't want negative equity or a proper crash caused by people defaulting on mortgages, with an already fragile economy that would be terrible. We just need the number to stay the same for about 5-10 years while inflation catches it up.

Bletchleyite said:

I did of course mean "massive problems for people" as I think you replied to. I don't think negative equity causes "massive people", rather eating too much and doing too little exercise

But yes, we don't want negative equity or a proper crash caused by people defaulting on mortgages, with an already fragile economy that would be terrible. We just need the number to stay the same for about 5-10 years while inflation catches it up.

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I am sure that is the approach that was taken in 2008; Covid-19 is a bit of a curve-ball and exposed the fragility of such an outlook.

It could be used as an excuse to get the dirty laundry out; probably is in my opinion. It gives a focal point away from already inherent problems with the way things have been done that weren't properly addressed last time.

How much headroom is there before negative equity really bites?
Banks have been much tighteron deposits etc for a while now.
It’s also only a problem for those who have to sell, and not such a massive problem when interest rates are so low.

Meerkat said:

How much headroom is there before negative equity really bites?
Banks have been much tighteron deposits etc for a while now.
It’s also only a problem for those who have to sell, and not such a massive problem when interest rates are so low.

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I think that is ultimately at the discretion at the purpose of the domicile,and its owner.

back in the 1980's negative equity was a proper shocker,the housing market was going down anyway,but there was a short period when interest rates absolutely rocketed from 1989-1991, went from 7% I think up to 15% in the space of 3 years, went up 1.5% in the space of a day!!!

I guess you would have a similar effect now with someone leveraged to the hilt and the base rate rising to 2.5%-3% or something like that, going from 1.5% to 3% in a day or two.
not at all inconceivable,if we get some kind of oil shock like iran v saudi( in the 1990's it was iraq 1)

hooverboy said:

I think that is ultimately at the discretion at the purpose of the domicile,and its owner.

back in the 1980's negative equity was a proper shocker,the housing market was going down anyway,but there was a short period when interest rates absolutely rocketed from 1989-1991, went from 7% I think up to 15% in the space of 3 years, went up 1.5% in the space of a day!!!

I guess you would have a similar effect now with someone leveraged to the hilt and the base rate rising to 2.5%-3% or something like that, going from 1.5% to 3% in a day or two.
not at all inconceivable,if we get some kind of oil shock like iran v saudi( in the 1990's it was iraq 1)

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I remember getting 11.75% interest on my PO savings account! Those were the days!
I don’t think many mortgagees have really thought about it properly.
“Interest rates will only go up a percent or two....”
“Yeah but that could double your interest payments....”
“Oooh, oh bother”

Meerkat said:

I remember getting 11.75% interest on my PO savings account! Those were the days!
I don’t think many mortgagees have really thought about it properly.
“Interest rates will only go up a percent or two....”
“Yeah but that could double your interest payments....”
“Oooh, oh bother”

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Mortgage applications currently do have a ‘stress-test’ where they look at your ability to repay if rates increase.
I took out my mortgage last year as a 2% fix, but the offer also listed the potential repayments at the bank’s then standard rate of 4.24%, as well as an illustration of repayments if the rate rose to 10.74%

JamesT said:

as well as an illustration of repayments if the rate rose to 10.74%

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Bet that looked painful!

JamesT said:

Mortgage applications currently do have a ‘stress-test’ where they look at your ability to repay if rates increase.
I took out my mortgage last year as a 2% fix, but the offer also listed the potential repayments at the bank’s then standard rate of 4.24%, as well as an illustration of repayments if the rate rose to 10.74%

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That was about the rate back when I bought my first house in 1981, difference then was that you got tax releif on mortgage payments (MIRAS) which eased things a bit

If you look at how the Arab Spring occurred after the financial crisis of 2007-2008, and how in Europe the Enlightenment grew from the plagues and tyrannies of the middle ages, I see massive upheaval taking place in the aftermath of this crisis.

I am beginning to think this will result in an "arab spring" style series of revolts spreading the usual middle eastern and South American suspects: most likely IMO the BRIC countries (Brazil, Russia, India and China) that have boomed in recent years but suffer from inequality and totalitarian governments.

The fate of the USA, lets just say I think that is borderline.

China will use its ability to supply vast amounts of PPE and medical support to leverage political compliance and looking the other way whilst it strongarms its neighbours etc.
We really need to scale PPE production, ventilators, field hospitals so we can have spare capacity at home and protect our friends