Tuesday, 3 April 2012

To rent or buy, that's the question

It’s been a while since I blogged. With two family members in hospital and a pregnant wife, it’s just been a little hard to give a toss about banking. However prompted by news that our lease can’t be extended, landlord went bankrupt and I assume the receivers want to try to sell it, I have regained some interest in the property market. As I posted about previously, I like renting and being completely debt free, yes I don’t reap the rewards of property price inflation but conversely, I haven’t seen my personal finance completely implode with property price crashes around the world in the last few years. I suppose my careful approach reveal my continental working class background.

But anyway, being a retail banking expert of sorts and now homeless, I must care a bit about property prices. I guess if we were looking at a recovery in house prices one should consider buying something. Many analysts and several of my colleagues are indeed expecting a recovery, citing 'pent up demand' as the key reason. Their predictions are based on the fact that a lot of people haven’t been able to get on the housing ladder, mainly because of strict lending criteria. So the argument goes that when lenders start relaxing their lending criteria, more people will be in a position to buy and therefore prices will increase, it seemingly doesn’t matter that these people will be stretched beyond the maximum they can afford to repay, where there is a will there is a way, is the argument.

My view is this. We might see another short period of house price inflation followed by a long period of deflation. When government finally abandon the idea that increasing house prices are in some way good for the economy and give up subsidising it in every way possible, when Bank of England starts to increase the interest rate, and when the small private property investors (and by that I mean people with little or no knowledge of macro economics or property) start to realise that bricks and mortar are no longer a sure thing. I could be wrong, of course, but for me continuing to rent seem by far the safer option.

5 comments:

  1. Nothing wrong with a 'careful approach'! ;-)

    Sorry to hear about your hospitalised family members... never a good thing! :-(

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  2. Sorry to hear of the two family members in hospital - it affects everyone.

    I think your analysis of the U.K. housing market is spot on and for someone not wanting to settle somewhere for life renting makes sense - though it has always been anathema for me up to now.

    I would dearly love to be able to sell my house in rural France....but the way things are going there with mortgages ever harder to get I imagine we'll be passing it on to the family as soon as there is any prospect of a tax window making that a viable proposition.

    Under no circumstances would I let it, given French property rental laws.

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    Replies
    1. Thanks a lot Fly!

      I met with an old colleague recently. They have two Irish properties, their starter apartment and the semi-d they bought later, in negative equity. They have a kid who is VERY SMART and they are therefore trying to get him to a school that would suit him because there isn’t anything for him where they live (being smart isn’t always considered cool), but they just can’t move. Right now there must be millions of families like that in Europe, yet the UK gov still seem to pursue policies that will just create more of the same down the line.

      By the way, I'm not saying Labour is any better. Watching Ed's fumble is even more painful.

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