Abandon All Fear

What nobody else seems to be saying…

Posts Tagged ‘house prices’

[Soul Searching] Vapours

Posted by Lex Fear on May 25, 2009

“Everything is meaningless,” says the Teacher, “completely meaningless!”

What do people get for all their hard work under the sun? Generations come and generations go, but the earth never changes. The sun rises and the sun sets, then hurries around to rise again. The wind blows south, and then turns north. Around and around it goes, blowing in circles. Rivers run into the sea, but the sea is never full. Then the water returns again to the rivers and flows out again to the sea. Everything is wearisome beyond description. No matter how much we see, we are never satisfied. No matter how much we hear, we are not content.

History merely repeats itself. It has all been done before. Nothing under the sun is truly new. Sometimes people say, “Here is something new!” But actually it is old; nothing is ever truly new. We don’t remember what happened in the past, and in future generations, no one will remember what we are doing now.

I, the Teacher, was king of Israel, and I lived in Jerusalem. I devoted myself to search for understanding and to explore by wisdom everything being done under heaven. I soon discovered that God has dealt a tragic existence to the human race. I observed everything going on under the sun, and really, it is all meaningless—like chasing the wind.

What is wrong cannot be made right. What is missing cannot be recovered.

I said to myself, “Look, I am wiser than any of the kings who ruled in Jerusalem before me. I have greater wisdom and knowledge than any of them.” So I set out to learn everything from wisdom to madness and folly. But I learned firsthand that pursuing all this is like chasing the wind.

The greater my wisdom, the greater my grief. To increase knowledge only increases sorrow.

Solomon, Ecclesiastes

A while ago I was discussing politics and the recession with a friend. I was doing what I considered my dutiful task of informing him of how all the decisions of Gordon Brown, since ZaNuLabour rose to power 12 years ago, have led to the bubble in house prices and the subsequent eonomic collapse. But my friend then asked a pertinent question which caused me to consider my very purpose.

If the Conservatives had been in power, would things have been different?

And the very truthful answer to that is, No.

It’s not just a political thing, it’s not just that ZaNuLabour stole Tory policies. It’s the old cliche that absolute power corrupts absolutely – greed, extravagance, gluttony, apathy,  envy, pride and anger. What have we not seen in recent days? There are very few people – and politicians are people – who did not fall into the trap of thinking the good times were never going to end. Everyone was happy to turn a blind eye to the injustices, to the corruption, the expense claims whilst the money kept rolling and the price of their house kept rising.

What would have been different? Nothing. And it’s this answer which has formulated my cynicism and means I will never have absolute faith in politics.

That’s not to say I don’t believe there are individuals who appear at times who see all this and really do want to change the system, but all too often they either fall to the dark side, or they find themselves being chewed up and spat out by a great machine which is fueled by the ignorance of man.

You think our politicians have learned from this boom and bust? You think things will be difference because they are putting rules in place to stop it happening again? Let me tell you that most of them don’t even know how to prevent it, or don’t really care, and of those rules they do make… they will be ignored by future generations just as we have ignored the rules and the lessons of the past.

So why bother even blogging about this, why bother discussing it? The most reward that any of us can get is the option to say “I told you so”, because we all lose. The truth about teamwork is that the team moves forward at the pace of it’s slowest member, and the same is true of humanity. For all our scientific innovations and discoveries, we cannot solve the problem sin. When I use this word, sin, I refer to human failings, things which are inherent in our nature which cause evil – deceit, selfishness, murder, greed, sexual desires, war… but instead of acknowledging these we redefine them. (The idea that someone would have sexual relations with a 10 year old disgusts us and strikes us as immoral, but the boundaries of sexual morality are being increasingly eroded. As adults fight for more sexual freedoms there is nothing to stop this becoming socially acceptible – all that’s needed is to redefine what constitutes being an adult. For instance at 10 years old in England, you can already be tried for a crime as an adult – why can’t you be considered sexually aware?)

But I digress. I have questioned why I should rail against something which cannot and will not be stopped as long as there is an unsanctified human race. A human race of which 1/3 does not even acknowledge God’s existance let alone as Lord. (And of those that do acknowledge and worship God, how many of them are truly taking a stand against corruption and not partaking in it?)

The truth is, I have lost the drive to blog about politics and world affairs, to question the system. I still hold strong political beliefs but since there is no longer any difference between man and pig, I no longer see a purpose in it.

Instead, I’ve taken some time to reflect on blogging, and I am going to go back to my roots in blogging about Christianity and experience – that means I’m still going to post the odd consumer post but I see my primary purpose in apologetics.

It may be something to do with having made my peace with the church.. or at least the church I now attend. It may be something to do with reading and listening to the arguments of atheists more.. which provides me a source of great mirth and sometimes deep thought.

Of course my co-author Hudson has a lot to say about politics and anyone else can be free to join and write for AaF about these topics, but I have said enough, and will now focus on something which is close to my heart.. and I guess, in that way, I’m being true to the subjects I’ve always posted on.. those that are important issues for me.

Posted in Absolute Power, Anecdotes, Apologetics, Bollotics, Financial Terrorism, Metablog, Morals & Ethics, Realpolitik | Tagged: , , , , , , , , , , , , , , | 4 Comments »

[Housing Market Myths] Low Interest Rates Means I Pay Less

Posted by Lex Fear on June 2, 2007

This Post Is Rated: M for Midly Offensive. Discussion of house prices which may cause home-owners to scoff or worry. Some people my be offended by my accusations.

Previously: Prelude, House Prices Always Rise

In the previous Housing Market Myths post, I presented facts, figures and observations proving that house prices do not always rise, and in fact overall house prices rise in cycles or peaks and troughs as it were.

I am now going to demonstrate practically why low interest rates have been bad for the economy, home owners and naive or amateur investors.

The last property crash in the UK saw interest rates rise to record levels of up to 15.40% (1 Mar 1990 – AWD Moneyextra). Despite many bankruptcies and repossessions, high rate was nothing new. Just has house prices have always spectacularly risen and spectacularly fallen, so have interest rates in the UK:

  • 5.50% 2007
  • 3.50% 2003
  • 6.00% 2000
  • 5.13% 1994
  • 14.88% 1989
  • 7.38% 1988
  • 13.88% 1985
  • 8.05% 1984
  • 15.13% 1981
  • 5.00% 1977
  • 15% 1976
  • 9.75% 1975
  • Source: Bank of England

UK Interest rates, as can plainly be seen, hit their low in 2003, anyone who bought in 2003 at the bottom will be feeling the heat of a 2.0% rise (over 50% increase in their interest payments) more than recent lemmings buyers. Not only that, the future does not look good according to recent news reports.

Regardless of whether the rates rise or not, it is important to realise the effects of low interest rates on the economy and especially on the psychology on average potential house buyers. I’m going to start by making an arrogant but informed blanket statement about people in the UK:

British people are absolutely crap at maths.

I say this because, if they were any good, we would not have the current situation where even key workers struggle to buy housing made for key workers let alone the rest of the population. The problem is the perception in the public and the media: low interest rate good, high interest rate bad.

Low Interest Rate, Good?

It’s easy to see where this perception comes from. If you’re going to take out a loan for £300,000 for 25 years at a rate of 5% then your monthly payment is going to be lower than the same deal at a 10% rate of interest. People see low rates, then they think to themselves “I can afford this”, so what happens is everyone rushes to get this loan. Thus the market is actually pushed up, as the stock gets lower, the prices go up.

This kind of bubble can be corrected easily: by raising interest rates, making the loans less attractive, which in turn lowers the price of the stock as demand falls.

Unfortunately, this is where the UK government (and specifically the current Chancellor of the Exchequer: Gordon Brown) and the MPC, have done recent homeowners a great injustice. Instead of taking control of house prices by raising interest rates before the prices went astronomical, Gordon pressed ahead with his unachievable 2% target and they continued to try and keep the base rate low. As more sheeple took advantage disadvantage of the lower rates, prices continued to spiral upwards, and more people were priced out. Those who have stretched themselves to the limit in borrowing leave themselves vulnerable to very small rate changes. As the interest rate creeps up half a percentage, they start to find themselves struggling to meet bills and basic necessities, until they bail out by declaring bankruptcy.

Low interest rates are not only bad for increasing the risk and level of personal debt, they are bad for savers. So even people who are financially astute are punished because they get little reward for their hard work.

Finally low interest rates and increasingly larger loan amounts have had a detrimental effect on Britain’s industries at home. More and more people have had to tighten their belts, which has meant that shopping has significantly lost appeal and supermarkets are reduced to selling crap whilst killing UK agriculture at the same time.

High Interest Rate, Bad?

It’s pretty clear that if interest rates ever hit 15% again, that many people are going to find themselves in a lot of trouble. But there are a number of groups that will benefit including:

  • Seasoned property investors (who will be able to buy at rock bottom prices)
  • Tenants (Who can still choose where to live, and can rent from the group above)
  • Savers (Those who have more in equity than they have in debt)
  • First time buyers (buying at rock bottom of the cycle)
  • Commercial industry (customers are be able to afford quality and luxury goods again)
  • Employees (higher wage increases)

Higher interest rates discourage borrowing and encourage saving. If less people are taking out mortgages, less people are seeking to buy housing. All it will take is a bit of seller panic to set in and it will drop like sack of potatoes. Even if sellers hold on, the market will stagnate before dropping more slowly whilst waiting for wages to catch up.

This is the maths part…

This section edited in red, thanks Emily (comments)!

Let’s imagine a house that is worth £300,000 at present.

  • You take out a 100% mortgage at a rate of 6% over 25 years
  • This gives you a monthly payment of £1,956.00
  • The total cost of your house is: £1956 * (12 * 25) = £586,800 (a 97% increase of original price)!

Now let’s imagine interest rates rise to 15%, bringing the value of the same property down to £100,000. If you took out the same 25 year deal your costs would be:

  • £100,000 at 15% for 25 years
  • Monthly payment of £1289.00
  • Total cost of your house: £1289 * (12 * 25) = £386,700 (a 287% increase BUT almost £200,000 less than the same property bought at £300k at 6% interest)!

Since you know you can afford the original £2000 monthly payment, we can actually lower the term for repayment of the original mortgage (which should be the objective, low house prices, smaller mortgages):

  • £100,000 at 15% for 10 years
  • Monthly payment of £1660
  • Total cost of your house: £1660 * (12 * 10) = £199,200!

Therefore high interest rates actually prevent growth in borrowing, create affordable housing and allow people to either pay off their mortgages faster and/or lower the rate of their monthly payments.

With lower monthly payments you have more room to maneuver around interest rate hikes, or with a smaller term, the effects of a rate hike are not going to be long term. It is also far easier to pay off £100k at a high interest rate than £300k at a low one, with high interest your money also goes to further and if rates then fall you are also going to do even better. (However if rate falls lead to high inflation it will take a while for your wages to catch up, in that time price of goods and services increases and you find the power of your money limited.)

So why doesn’t this happen in the real world? Herd mentality is one explanation. Back in the late 90’s/early 00’s everyone was beginning to learn how investors make money from property and wanted a go at it themselves. The problem is they didn’t know the first rule of investing.

The result was that many buy-to-let’ers found they had to reduce their rental rates to compete with the flood of rental properties on the market. At the same time, many newbies who bought a ridiculously priced property found that the rent was not enough to cover their mortgage repayments. The real winners are those that have sold to rent or who have been in the game a long time.

What happens next?

Many will quote that overused byline that the government won’t let it happen. Well guess what? The government (Gordon Brown) turned over control of interest rates to the MPC 10 years ago. This means that if things get out of control, the MPC will be used as the scapegoat. There is nothing to suggest in history that governments have been able to control inflation and there is nothing to suggest that they can control it now. The only tool that they have, outside of introducing new regulations to cap prices or forcing home-owners to lower their prices, is the base rate, which they can either lower or raise.

EDIT: Thanks Ian (comments)
If everyone learned this basic economic principle then sellers would be forced to haggle instead of taking advantage of naive buyers. The housing market would probably regulate itself invisibly capping prices, since buyers would actually walk away from overpriced deals. It also helps if buyers tool themselves up before going out looking for a property.

Take my advice, look out for lower rents, be prepared to rent for a while and wait for interest rates to rise and prices to fall before committing to a mortgage which will leave you with negative equity.

Read: Myth: House Prices Always Rise
Coming Soon: Housing Market Lies: Your Home Is An Investment

Posted in Buyer Beware, Financial Terrorism, Housing Market Myths, Property Market | Tagged: , , , , , , , , , | 8 Comments »

[Interest Rates] Home Spun Prophecies

Posted by Lex Fear on May 11, 2007

4 Years Ago

15 July 2003 – The Great Equity Raid

Egg warned that, as consumers take on mounting levels of debt against the rising value of their homes, personal indebtedness could become a serious threat to future stability, especially if interest rates started to rise again…

With the majority of homes now valued considerably higher than their purchase price, homeowners are feeling financially comfortable and ignoring the need to save elsewhere…

This is a dangerous mindset to fall into. A drop in house prices could leave many homeowners financially exposed.”

Read the rest of this entry »

Posted in Opinion, Property Market, Quoteyness | Tagged: , , , , , , | Leave a Comment »