We decided to use the end of the school holidays to visit East Anglia. A joy of getting the work monkey off your back is you can take time to travel, so we staged the journey, first stopping off at Worcester where we would leave the M6. We went into the city to have a look around, and I was pleasantly surprised – unlike some British urban areas which seem to be in steep decline, Worcester was jumping, the High Street was reasonably lively and there were very few closed shops in the main drag. Indeed, I have been generally reasonably pleased with urban parts around Britain’s second city.
Liverpool used to be larger, until Thatcher’s managed decline after the Toxteth riots. I did some work in some of Liverpool’s schools in the less well-heeled parts of the city in the early 2000s. Let’s just say the place was edgy – rows of terraced houses boarded up with steel, and the security around schools impressed me, though I have since realised that all schools are treated like high-security prisons all over the country, with high-rise steel fences and access management. When I was at school you could just walk in off the street 😉 Containerisation, Felixstowe and the fall of Empire probably all did their bit for Liverpool, so now Brum it is.
I have never been to Birmingham itself, but the surrounding regions seem to have jobs enough, even if the council is bankrupt.
Hostile forces observed…
Worcester was a pleasant walk along the river, somewhat intimidated by the flotilla of swans which were at least on the other side! Flooding still seems to be a problem in that part of the country.
Flooding is a problem
Wilko was the poster child for the cost of living crisis and closing down shops, the exception to the general rule
Wilko-tasticWilko-tastic – this High Street fight is lost
A general air of civic affluence otherwise.
Worcester GreyfriarsWorcesterthere was a somewhat Masonic feel to the Guildhall and some of the stained glass windows. I didn’t actually find Joachim and Boaz inscribed on the two pillars
The work conundrum
I lauded our Millenial overlords last time, who seem to have the right approach to work, and today it seems to be the time of the over 50s to join the ranks of the shirkers, while also being lauded for their great unretiring. I was surprised to read the diagnosis of “You have stress-related heart disease” in that writer – while I had observed it enough at The Firm it seems that it has now become A Thing in the ten years following my observations. I managed to dodge that bullet at work, but I saw it impair people’s quality of life and saw it take three people out before they reached three score years, never mind and ten. As the study showed, work becomes less important as they age and leave the workforce – seriously, you get paid to say that?
I saw an interesting critique of why jobs have been becoming more shit as I went through my career. Obviously part of it is the increasing push to efficiency, which drives out some of the wrinkles that were more fun to explore, some of it is that globalisation means you are now in competition with the whole world which was not the case when I started work. But that piece drew out the specific case that if you have more opportunity to exercise judgement and/or the task is more varied this makes the job better in and of itself. Matthew Crawford picked that up a decade ago in Shop Class as Soulcraft, the case for working with your hands.
The trend towards outsourcing inherently tends toward defining the job via a prescriptive service level agreement, combining with the metrics and crap makes work more shit in and of itself. Still, if you think that’s bad, wait until you see what AI in the form of Microsoft Copilot can do for you at work
generative A.I. tools that make attending meetings, writing emails, scheduling travel, and catching up on projects vastly easier.
Am I the only one to think this is Not A Good Thing? White collar work is going to end up as some sort of expensive tournament between jousting AIs as people use the tools to raise their profile. I suspect a lot of meetings are performance art, but this will raise it to a whole new level. Given that AI has show a respect for the truth that put Donald Trump in the same veracity class as the apocryphal hatchet-wielding George Washington, our companies will seize up with duelling AI bullshit. Maybe we will need a new layer of humans to adjudicate the battle. It doesn’t sound like an obvious recipe for efficiency. The answer to too many meetings is to shoot the incentives that make people call too many, rather than skimming an AI enabled higher level of excess noise trying to parse it for a signal.
There’s a case to be made that AI will be the greatest cartoonist of the human condition ever, showing us a disastrous pastiche of our excesses. I don’t have Skynet fears about AI, it’s what it will do to people that I have a bad feeling about. Driven by the profit motive AI will pollute the information space of the world with so much shit that we’ll be unable to tell which way is up.
Rupert Murdoch hung up his boots at just the wrong time. He clearly got a terrific rush from bringing out our darkest desires, and AI is the chance to weaponise that – truly a boot stamping on a human face, forever. I am sure that his son will be able to carry on the good fight of feeding the darkness of the human soul with new! improved! AI! edge!
Newton’s Apple Tree
the manor house where Isaac Newton was born and did some of his work in the year of discovery
The dog days of summer drag on, we had the rioting in a minor way last month. Strangely muted compare to the summer of discontent ten years ago, Blackberry Messenger was a more effective spreader of sedition compared with TikTok, or perhaps we just got lucky this time. The greens of some of the leaves are turning brown, but this septic isle seems not to be a happy place, despite the sunlit uplands promised a few years ago and a late summer of, er, summery weather.
Compared with the mendacious clown and the mad cow dear Rish! seems to try hard, but I’ll leave it to the irascible Dominic Cummings to summarise the result – cascading clusterfucks. The air traffic control screw-up, apparently a failure to sanitise user input, the concrete lumps falling off public buildings which has been known about for decades, the inability to stop small boats while claiming the plan is working – in the words of Our Dom government is broken because the people aren’t up to it. I think he means the people in government, Dom’s not always charitable to the masses, despite his shtick.
Dom’s a nutter, but the Tory Lord Aschroft’s latest State of the union address says the same thing in a different way
After 13 years of Conservative government, things were not supposed to look like this. Strikes, inflation, record NHS waiting lists, a sluggish Economy…
Let’s hear it from another Tory minister, from when we saw this movie last time, hello Norman ‘green shoots’ Lamont in his valedictory transmission on the 9th June 1993
There is something wrong with the way in which we make our decisions. […] We give the impression of being in office but not in power. Far too many important decisions are made for 36 hours’ publicity. Yes, we are politicians as well as policy-makers ; but we are also the trustees of the nation. I believe that in politics one should decide what is right and then decide the presentation, not the other way round. Unless this approach is changed, the Government will not survive, and will not deserve to survive.
Ouch. That was thirty years ago, plus ça change, plus c’est la même chose
This is how Tory governments die, strangled by self-serving and internal inconsistencies. It’s really hard to conceive of one of the current crew saying
we are also the trustees of the nation
because populism destroys character. We should, however, fear the strength of character that follows, as the force is harnessed by those more competent who watched and learned from the failures of the first generation of populists. Perhaps there’s just something about the thirties of a century and bad moons rising. Something is rotten in the Kingdom.
We visited the city of Bath, to observe a Great British export in full flow. Mrs Ermine is more of a city person than I am, but I was quite taken with the hipster nature of it, not quite full on waxed beards and vegetarian kefir, but getting that way. I favour it over the much larger metropolis of Bristol, spirit of Samuel Johnson be damned.
I had a carmageddon experience of Bath years ago, approaching from the east along the A4. It had been some five hours running leaving Ipswich, and in the evening rush-hour I discover Bath hosted only one place to cross the river to join the A36 headed south. The whole world also wanted to do that 😦 The place hasn’t become any easier since then.
We parked at Odd Down, and befouled their clean air with a diesel bus instead, presumably First Bus pay the £6 and amortise this over a few hundred passengers. I’m generally with Thatcher on finding myself on a bus over the age of 25, but made an exception. Beats me why these things aren’t electrified if Bathonians as so damn precious about their air quality. Funny old world, your great grandfathers managed to run their double-deckers on electricity back in the day, but it seems the art is lost. A short, predictable run with plenty of real-estate at one end would seem an obvious win to swap all that ugly wiring for modern Lithium-Ion batteries. Indeed the form-factor of a double-decker bus could even facilitate swapping battery packs underneath rather than recharging in situ.
Your great-grandfathers electric buses By Ben Brooksbank, CC BY-SA 2.0, Link
Bath is a high-context place, no real directions for gormless outsiders, bar the helpful street maps, but it has the advantage of being compact and bounded by a river, so it’s hard to get seriously lost. The upside of Bath’s automotive hostility is that the pedestrianised bits don’t seem to allow cars in the daytime. Many British cities say pedestrian zone but let delivery trucks through anyway, which must be unsettling to European tourists who are used to pedestrian areas without vehicles. Bath just stops cars going down otherwise normal looking roads, without sharing the fact with pedestrians 😉
obliviously marching down the King’s Highway
There was nothing to actually say that it was OK to march down the middle of the King’s Highway, but this lot got away with it.
It was time to fortify ourselves with lunch, at the Scallop Shell. The prices on the sample menu are there to scare the impoverished, but I can’t argue with the meal deal, at £25 for the two of us – Mrs Ermine had the mussels and I have the fish and chips, both washed down with a mug of tea, top grub and ready to take a wander round the baths which give the place its name.
open-air Roman Great Bath
The Rough Guide tells us this was condemned in 1978 for bathing due to the pigeon shit which is presumably responsible for the bilious green algae colour , the thermal spa is elsewhere. The Romans, bright sparks that they were, kept the pigeons out with a roof over the whole thing. The tour is interesting, you get to see the sacred spring from whence the waters issue, which looks a little bit like a hellmouth with sulphurous whiff and yellow staining
The Ermine household favours holidays outside of school holidays, because I don’t want to have the pleasure of the company of your delightful rugrats, and I guess they don’t want curmudgeonly mustelids littering the landscape too. I also find even Blighty too hot in midsummer 😉 To me the obvious time to go to Spain is in the winter, I have never been there in the summer but it sounds like purgatory to me, whereas I recall it was T-shirt weather going to the bars in Madrid after a work trip in November…
We visited the north Cornwall coast near Boscastle. You have to be careful with northern coasts in the south of the country – presumably in the past all the toffs headed for the south coast, leaving some northern coasts to the less well off. That shows around Minehead, and particularly shows on the north Wales coast.
View over the coast from Boscastle
The bit of the north Cornwall coast around Boscastle is an exception to that, although Tintagel has a certain element of kiss-me-quick with a paganish influence. However, I hadn’t seen the site ever since English Heritage built the bridge across to the headland. From the picture I had imagined this to go all the way from the town to the peak of the headland, I was pleasantly surprised to discover that it wasn’t the ghastly Disney creation of my imagination
view of Tintagel bridge from the castle ruins headland
but altogether more discreet.
I had been to Boscastle years ago, before the devastating 2004 flood and it seems to have recovered in the decades since. The cause of the problems were the very steep valleys, and the Valency valley was a pleasant but steep woodland walk from our cottage to the town without running the gauntlet of the B3263 main road into the village. Mrs Ermine had researched dining opportunities, and had discovered the Rocket Store
The Rocket Store, Boscastle
before the Guardian listed it. We booked inside, because there is an increasing pestilence corrupting the restaurant scene, which is people’s lockdown dogs. Once upon a time we were generally aware that dogs were foul critters that didn’t belong anywhere near where food was being served to people due to their occasional predilection to roll in shit, but in Wiltshire recently I have been treated to watching a bunch of mouth-breathers actually feeding their dog at table with snippets of what they were eating, which I at least wasn’t having at the time. That’s just something you can’t unsee, so if a place is dog-friendly I consider it Ermine-unfriendly.
Thankfully the Rocket Store doesn’t permit hounds inside, which is quite bijou
inside the Rocket Store
You can see the kitchen and the cuisine is a sequence of many small dishes, so you get a great variety – there was the lobster at the start
half Lobster
And a sequence of courses that you could select from the menu
one of the sequence of about seven items, cooked fresh as they were served
Boscastle Farm shop was a fine place for breakfast, and has good access to the South West coast path
South West Coast Path near Boscastle
It also has the same enlightened policy to muttage indoors 😉
Tintagel was pretty rammed, though the price of getting to the castle thinned people out somewhat. It was still quite popular, I had to wait a quarter of an hour to get a gap in the throng of posers at the sculpture
Tintagel, sculpture and random tourist for scale
I did see a lot more of what was on the headland this time, probably because I wasn’t knackered from the descent to sea level and then the ascent. The headland has stunning views. If you want to visit Merlin’s Cave at sea level, however, you need to attend to the tide level, which we didn’t, but I was grateful for the excuse not to have to take the full descent, one for another time 😉
On the way back to Boscastle there is the charming St Nectan’s Glen, most of which you can visit for free, well apart from being rushed for parking. Sometimes you can park in the layby near the descent to Rocky Valley, but we sucked it up, as well as the charge to see the waterfall
St Nectan’s Glen
which is right at the end of the valley.
We went in the week when Glastonbury Festival was on, and it’s worth noting that a few shops, attractions, and restaurants were closed for that week. I don’t know if the locals just choose that week to get their R&R before the hectic summer school holidays, or if the festival sucks out a lot of tourism from the south-west in general, but if you are into attractions then it’s something to watch out for in the SW.
One of the things I discovered on leaving work was that international travel wasn’t as attractive to me as I thought it would be, and most of the problem has been the enshittification of air travel. I am old enough to remember air travel in the 1990s, and I would much rather pay more and have less aggravation.
As such I am not horrified by the Torygraph’s rabble-rousing net zero time bomb that will make holidays more expensive. Air travel should be a lot dearer than it is, because of all the externalities. And reducing the amount of it by 50% would also go a long way to making it less crap as an experience. Bring it on.
Flying is not the only way, of course, but everything I have read about sleeper trains (and experienced on the London to Scotland route) doesn’t fill me with a good feeling. I am somewhat heartened by Mortgage Advisor on FiRE’s description of joining a cruise ship to Norway.
Boarding a ship is much less stress than navigating an airport
I have never been on a cruise ship but perhaps an increasing intolerance of flying is why old gits tend to favour that, though it sounds like Princess Lines is one to avoid from Mortgage Advisor On FIRE’s experience 😉 I would have a much shorter journey to Southampton than Mortgage Advisor. With that job title I’d guess there’s a guy who really needs a holiday now, though perhaps not quite as much as his customer base. That sounds like a tough gig at the mo. As the valedictory sentence says
As always, if you are struggling financially contact your bank, mortgage lender, or an organisation like Step Change.
I recall that feeling from many years ago in the 1990s. Back then it was “stick your head between your knees and kiss your ass goodbye” 😦
there’s something rotten in the state of finance
First they came for the bond markets, then they came for your mortgage interest rates and your house prices, and now they are coming for the stock market. A foetid stench is rising from the financial system, that’s all the trash that has been buried ever since the GFC in 2007-2009, and covered over with low interest rates. It’s kind of bonkers to think that this situation has persisted longer than half of my working life. All this trash was stirred up and given a good kicking by the measures taken over the pandemic, so it’s rising to the surface. Now the zombies and the monsters from the Id are rising from the ground, and they’re after your brains and your soul. For perspective, the hullabaloo is about interest rates reaching 6.5%, which is about the historical long run rate of interest for the UK, pre the GFC. I paid that or more for 95% of my mortgage payment career, barring the very end when I only carried £1k for a while as I reflected on clear it or not. The more recent decade-plus of low interest rates is the anomaly, and possibly kneecapped the ability of capitalism to allocate value. If money is free, not only do dead men keep walking, but there’s less reason to prioritise where you do spend it. A return to historical norms has been on the cards for some time. A maladjustment that has built up over a long time tends to be a Big One, though I should put the counterfactual view from a better investor than I
It could well be that we’re still early into this great rate rout, for all that it feels late in the day.
A mustelid snout twitches, and scents that perhaps opportunity may come to pass over the next little while, because the smell of decay improves valuations. I feel less bad about the rather too much cash I have been carrying, which has been hammered by inflation, because with a bit of luck stocks will be hammered by more than that. The FTSE100 has given up all its gains from this year. VWRL, not so much, particularly for Brits’ banana-republic currency. VMID has sunk almost to the level of Trussonomics1.
Infrastructure trusts have gone down the bog, although some of my holdings like HICL are so old Quicken doesn’t agree yet. I have bought modest amounts of that, at lower and lower prices.
You have to start somewhere, even though it will probably keep on going down, deeper and down. Like so many things, you can only see That Was a Bear Market, rather than The End of The World as We Know it, when you look in the rear view mirror many months/years from now and see the bend in the road moving the other way.
Investors of all stripes have been carried out on their shields.
Yet for those with the appetite – and the dry powder – to sally forth once more, all this carnage also makes for opportunities.
I got dry powder to some extent, though it’s been burned by a year and a half of 10% inflation, and I had to pay tax on the so-called ‘interest’ offsetting that, so who am I trying to kid. This is gonna get a lot worse before it gets better.
Maybe Dear Liz was just a few months ahead of her time, Patrick Minford, who inspired her, was of the opinion interest rates should go up to 7%. How that squared with borrowing a shitload of money to fund the giveaways the record doesn’t say ↩
Some are screaming blue murder about the ‘unforeseen’ rise in interest rates. So I thought it might be worth a look back at what it felt like the last time I saw this movie. Many, many, years ago in 1989, I was that guy. I was paying 7% on a low-start1 IO mortgage with an endowment set against the capital. Unlike, it appears, many new mortgagees now, I had the temerity to ask how much will it be if interest rates double that?
The question shows I failed to understand how this method of paying back a mortgage works, but quick as a flash the mortgage arrangement flack said “your repayments will double, but it’s historically unprecedented that rates double”
I figured I could pay that if I sucked my gut in, so I signed on the dotted line, and wham – biggest financial mistake of my life. It’s not just me – Vicky Spratt is still in negative equity after 2017, and reprises the ‘worst financial decision I have ever made’ quote. And now I hear the fast-rewind chipmunks of the Revox A77s I was working with in the 1980s as we cue the tape up to replay October 1989 interest rates shocks all over again, and I see headlines like The Mortgage Crisis has Changed Our Lives. Back then it took less than a year for the Bank Rate to go up to 14.88% and the unprecedented doubling to actually happen to me.
In itself that doubling wasn’t such a big deal. It is what happened next that has given me a visceral hatred of Britain’s favourite asset class, residential real estate. The lesson history offers y’all is a harsh one, and one that very few people will take, because it runs against the narrative of a dearly-loved asset class.
That history, dear reader, is that if you are struggling with your mortgage now and you only took it out in the last couple of years, then ask yourself what you would think if your house fell in nominal price by 10%. With inflation running closer to 10% than 5%, that is a real-terms fall of 20% in a couple of years, but this is where today’s high inflation rates works for you, because the depreciation of Other People’s Money means the real value of what you have to pay back falls sharply as time goes by.
In that respect you are better off than I was, inflation was ~2.5% in 1992, and 2% p.a. 1992 up to 1999 when I had sort of cleared the negative equity. You could do better, provided inflation stays high for a few years, you stay employed in the teeth of the higher interest-rate induced recession, and that your wages sort of keep up with inflation. And you last that long… Inflation of 8-10% for five years would do you no end of good. If you believe that they will get inflation down to say 4-5% in a couple of years then you need to watch for the second shoe to drop – negative equity.
It took me ten years to break even after negative equity clobbered the value of that house. The right answer would have been to GTFO ASAP while people were still bitching about interest rates, and rent. Sadly your only opportunity to do that is in the phony war part of the fight, when the papers are full of stories about high interest rates. When they start featuring sob stories about negative equity, you have lost the battle. Negative equity is a crafty stealth killer, you only find out how little people will offer for your house when you try and sell it, whereas higher interest rates lollop into your life tooting their horn on the daily news.
History doesn’t repeat, but it rhymes
On the face of it 6% is less than 15%, which Jeremy Warner uses to say it’s not so bad this time. The Bank of England deconstructed some of the 1980s problems in this 1995 report.
I was one of far too many punters in prime first time housebuying age bracket, as it was then
One of them was demographic, there were 1.2 million extra stupid 20-29 year old twits like me coming to the start of their housebuying years, and then Nigel Lawson gave the market a fillip by saying ahead of time that he would restrict MIRAS to one person per household. Which was perhaps my cue to say quite frankly, I don’t give a damn because as a single man I was a household of one, and could wait. But I missed that trick.
It’s not as if people didn’t warn me, but eight years at the tender ministrations of Britain’s evil amateur landlord scumbags gave me tunnel vision, must must must HAVE NOW. Which is why I still hate Britain’s amateur landlords with a vengeance. No, not you, dear BTL landlord. You are a specialBTL landlord. It’s all them other lot, the bad guys over there. 99% of BTL landlords are self-identifying paragons of virtue not inspired by Peter Rachman, all I can say is that the other 1% sure as hell punch above their weight in misery generation in this septic isle.
The Telegraph’s Jezza W is right that some things were worse back then. If we take a look at the 2021 population pyramid, there’s a little bit of a hump in the 25-35 mark, but not a 15% heft. The attitude to repossessions was more robust, I saw it happen to both neighbours. But it took time – it’s a lot of aggravation, legal fees and bad press to repossess a house, so lenders don’t reach for that as first choice. Contrast that with the current government brokered extend and pretend grace period which by pure coincidence lasts very likely until just after the next election. I am shocked, shocked I tell you, to observe such synchronicity.
A war’s never over by Christmas
It took over ten years to make headway. One year ain’t gonna help you, particularly if the downturn cans your job. If you can’t afford it, then there’s a strong argument to GTFO now, like James in this article, before negative equity traps you for years. At today’s high income multiples, there may be a rational case for declaring bankruptcy if negative equity gets serious.
I did consider skipping the country and doing the Auf Wiedersehen Pet routine, but the trouble is that Germany went through a tough period then, as a result of taking over the moribund East Germany. It was easier to get away with leaving it all behind in those analogue days, but as it was I paid down the negative equity for years, and you, dear readers, have graciously put up with me hissing and spitting about it for a decade now.
I paid a bonkers 4.5 times my gross income for a house in 1989, but I had a 20% deposit, which brought the actual mortgage closer to the then prevailing norm of ~3.5 times gross.
People borrow a much higher percentage of their income nowadays. The trend is to pay about five times joint income, about 10x individual. Both employment and relationships are more fragile now, making the downside risk profile much worse. The Torygraph’s Ruby has some case that this is worse than the 1990s crisis, I guess the editor is on the beach so Torygraph editorial consistency has gone to pot. Bozza’s obviously got to his alma mater what with writing his pro Leave and pro Remain articles. Where he scored in an uncharacteristic display of competence was not publishing both of them on the same day in the same paper. You just can’t get the staff in this tight labour market…
Inequality was lower than it is now, it seems that the wage inflation the Bank of England is fighting is that of the better off City types, so expect everybody else to be on strike soon, if they aren’t already.
It’s a one-two punch – surviving high interest rates doesn’t mean you are out of the woods, negative equity is the slow, silent killer.
I had the experience of high interest rates and negative equity, but I was fortunate enough to be earning enough to be able to afford the higher interest rates, and retain my job through the interest-rate induced recession. It is the experience of ten years of paying down negative equity that was the real killer. Sure, paying higher interest rates is the immediate and present problem, but it’s the second punch that actually floors you. Particularly if you hang on to a marginal situation and the costs overwhelm you and you become a forced seller. The hazard of negative equity is much higher now than it was for the simple reason that income multiples are higher. Interest rates really aren’t the biggest danger
Buyers always get hurt when the government intervenes in the housing market, because in general government favours higher house prices, which shits on people wanting to buy a house. Some of the poor devils that bought a couple of years ago have a serious grievance to press on the government’s stamp-duty holiday, which has some similarities, in a history rhyming way, with the abolition of MIRAS for couples what was the gap I failed to mind in 1989.
The difficulty for the Bank of England — I mean, no-one envies them their job at the moment — is they have to therefore create a recession. “They have to create uncertainty and frailty, because it’s only when companies feel nervous about the future that they will think ‘Well, maybe I won’t put through that price rise’, or workers, when they’re a little bit less confident about their job, think ‘Oh, I won’t push my boss for that higher pay’. “It’s that weakness in activity which eventually gets rid of inflation.
I paid my dues in 1992. The Rt-Hon Norman Lamont delivered himself of this little gem, and indeed that Hansard piece is worth reading if you want to know how it will play out, the tape is cued and ready to roll, SOSDD.
Mr. Lamont : Rising unemployment and the recession have been the price that we have had to pay to get inflation down. That price is well worth paying.
The 2007 GFC was never paid down. It was bought off, and the historically low interest rates since then jammed the workings of capitalism, and a generation have grown up thinking this is the norm. There be much wittering about low growth in Britain, well, the deadwood hasn’t been cleared out for 15 years now.
I personally am grateful for that, I got the three years to run out of my decaying job and save enough to get FI. Perhaps I was the deadwood capitalism and globalisation would have cleared out ASAP had it been left to get on with the job. That is the point of having interest rates greater than inflation – borrowed capital has to be put to work generating real value, rather than chasing its own tail inflating asset prices, particularly unproductive assets like zombie companies. And housing…
I also benefited from the lift in asset prices, but not all of it is real, and those asset prices will fall in real terms over the next few years as the zombies are flushed out. That includes your stock market investments as well as mine, and it includes housing. Ten years plus of historically low interest rates have allowed monsters to grow in the dark. I have the feeling the next few years are payback time.
I paid more than the 6% current interest rates for the entirety of my 20-odd year mortgage term. But I paid that on a smaller capital amount, because having to pay interest on capital is what stops house prices from growing into the sky. No first-time buyer ever asks themselves ‘is this house worth this much money?’, because the backdrop is hateful BTLers screwing them shitless for rent, while occasionally trying to kill them to save a few bob on maintenance. That gives them tunnel vision of ‘anywhere but a BTL landlord’. What they actually ask themselves is ‘can I afford to pay the mortgage on it?’. If you have £500 a month to put toward a mortgage, at 10% interest rates that’s £60k you can pay for a house. At 1% that’s 600k. 2
The early 1990s interest rate peak was a result of the Bank of England losing the bet against George Soros to keep the pound in the ERM, and the bank rate dropped to < 7% by late 1992. It’s likely that interest rates will stay elevated for longer now, because fighting inflation is a marathon, not a sprint if we look back in time, and there is a decade of excessively low-interest rate excess to flush out of the system. The poster child for fighting inflation with interest rates is Paul Volcker, and Britain suffered those recessions too – I graduated into Thatcher’s second recession, it took me six months to find my first job, and the recession ground on for several years. The rhymes of history are there too, an energy shock, high inflation, low growth rising interest rates, an economy in coffin corner. There’s just not that many useful degrees of freedom.
It doesn’t matter who is in charge for the next few years, you will hear the basic sentiment of Norman Lamont delivered, because the only thing that fights inflation like a pro is a recession, as Karen Ward told us. Perhaps Labour will tax more heavily to raise benefits or snow parents with money like they did last time. But you’ll hear the words of John Major again, just like I did in October 1989
I understand the difficulties that many face with high interest and mortgage rates. But they – and the resulting slowing of the economy that we must see – are the means by which we will cure the problem. They are not the problem. […] So inflation must go. Ending it cannot be painless. The harsh truth is that if the policy isn’t hurting, it isn’t working.”
Young mortgage holders, like I was then, are particularly ill-placed for that because leverage is highest at the start of their mortgage journey, which amplifies the adverse impact of interest rates and negative equity. Nowadays renters in general, not particularly the young, are also exposed to the interest rates because so many ‘landlords’ are nothing of the sort. Back in the day, landlords actually owned their shitty hovels outright, because BTL mortgages weren’t a thing. Leveraged BTL exposes today’s renters to interest rates by proxy. Today’s amateur landlords don’t own their properties, they rented the money from a bank for less than the tenants could.
I do feel sorry for the people jumped into taking out a mortgage two years ago, against a background of an existential threat and a government desperate to keep house prices high, because their voters tend to be the sellers to these punters. The death of BTL – not so much. That’s investment for you, doesn’t always work out, particularly on margin.
Don’t fear the interest rates. Fear negative equity
In the meantime, remember that it isn’t high interest rates that kill you. It’s negative equity caused by higher interest rates. At the moment that hazard is lower because of high inflation, which writes off your mortgage for you in real terms without you doing a thing. But if inflation falls and those higher interest rates return to their long-term average, which is about where they are now, according to this mortgage broker, and my memory, then the ghost of negative equity will stalk the land again. If a third falls off the value of your house and inflation doesn’t help you out, that’s the equivalent of eight years of the four percent rise in interest rates we have had so far. I got to pay that down, year on sodding year for ten years, and that’s what gets you down. Oh and you can’t move until you have paid it off, else you now have a large debt following you around like a lost dog.
although low start/adjustable rate mortgages (ARM) are nowadays associated with the liar loans of the GFC this was a rational choice for me given I had taken the insane step to buy a house then. It gave me a chance to pay off the £10,000 MBNA cheque that formed a good part of my deposit, within the interest-free period, and I cleared the probationary period and my expected salary rose. So I was smart about the micro, and majorly stupid about the macro. Well done me. ↩
I have cavalierly ignored compounding and the necessity to pay down the capital by the time you retire, though people seem to be moving away from that quaint custom anyway. ↩
I use a Vanguard ISA for buying ISA shares these days, and have a large ISA with iWeb with most of what I accumulated since the GFC. Since Vanguard are a percentage-fee platform at 0.15% for small fry, every year I transfer the Vanguard ISA out to Hargreaves Lansdown (HL). They are also a percentage-fee shop at 0.45%, but if you eschew OEICs/funds, the percentage fee is capped at £45 p.a. Vanguard’s fee is £30 for one year’s 20k ISA, two years of that and they would overtake the cost of HL despite HL’s higher headline rate. HL has had this anomaly for many years, It will be a source of sadness to me if they change that cap on shares.
I like iWeb. No platform fees and £5 dealing charge. I have far too much with them, I would take a serious haircut if they went down particularly as I have my GIA with them. Which is why I use HL rather than iWeb to transfer to, so I get 1+1 redundancy and two lots of FSCS protection. HL has just crossed the FSCS limit, but they are reasonably big fish, the Boomers’ share platform of choice by the styling of their marketing.
With HL’s £45 cap, hold 10k or more with them and they are flat-fee as long as you avoid funds. I am an ETF guy for index stuff. So I hold ETFs in HL. HL’s £12 dealing fee compares poorly with iWeb’s £5 and particularly badly with Vanguard’s £0 if you accept a daily batch purchase. I buy the index ETFs in Vanguard, I don’t mind the daily batch in exchange for being able to buy itty-bitty amounts often.
Last year HL cocked up the transfer of VWRL, turning it into VWRD. They repeated the very same error this year. They fixed it fast enough and at no cost to me when I pointed out this had happened again. Seems a rum operation for a UK platform to convert the SEDOL to a USD variant that they don’t allow their UK customers to buy.
Over at Monevator, there is a thread on taxation that also holds a primal scream therapy session about the iniquity of taxation of Londoners these days. While I was born in the Great Wen, grew up there, went to university there and started work there, I fear my City of London passport has run out, so I shut my cakehole as far as London taxation was concerned. I am not clever enough to know if Londoners are overtaxed. London has over a tenth of the population of the UK1, although I suspect most of that population isn’t exercised by the tax issues in that thread. It occurred to me, however, to ask myself how much a lowly London-living mustelid paid in tax, and whether there was the same amount of steam coming out of his ears.
ermine at the BBC
I did try and find a BBC payslip, but it’s nearly 40 years ago, so an annual increment will have to do, £8412 in April 1985, to which we have to add the shift allowance2 to make £9352. The Bank of England tell us this is £27022 p.a. in today’s money, considerably below the median wage of £33,280, so this mustelid was obviously sleeping in a curl under Charing Cross railway bridge.
A sleeping mustelid
Not so fast young fellow, bear in mind this is 38 years ago. We were all much poorer then. You may bitch about the cost of living now but 40 years of globalisation and growth did count for something even if we did conclude we don’t need any more of that malarkey in 2016. When I computed the value of my first kitchen portering job it ended up considerably below the current NMW. People in work earn more in real terms than in the 1980s.
BBC TV payslip
The single person’s allowance was £2205 in 1985. The married man’s allowance was 3345, but I got 2205, so right off the bat you can see I was paying 30% (that was the rate!) tax on three-quarters of my pay. NI was 9%3. It’s always the devil’s own job to compute NI, so I am going to approximate this as a combined tax rate of 39% on three-quarters of my pay. That’s 2787, leaving me £6564, a composite tax rate of 29%. Times were tough back in the day, cue the Four Yorkshiremen sketch. If it makes the overtaxed primal screamers feel any better, nowadays you’d have to earn £68000 gross to end up paying a composite tax rate of 29%. That’s over twice the median wage. Even that young Ermine benefited from lower taxes through Thatcher compared to what the Beatles grizzled about in 1966.
No, I couldn’t afford to buy a house in London either, although this was before I thought of such things. I shared, first with ex-university friends, then as they slowly paired off, I ended in a bedsit in Ealing. I had gone up the greasy pole at the BBC, doing an MSc and returning on a higher pay grade at Designs Department. But I had gone down in my housing situation, because I hated paying rent, and I hated having to move because of other people’s changing circumstances. A bedsit with a shared bog is pretty much the last station before the park bench IMO, and this wasn’t because I couldn’t pay. I didn’t want to pay, because rent is throwing money away. Monevator would have approved of my bohemianism, but it was a ‘king miserable way to live. Continue reading “A high tax primal scream – it’s what you keep, not what you earn”
Mrs Ermine went to London to see the David Hockney exhibition with a friend, after we visited some friends in Suffolk. I carried on to Strumpshaw in Norfolk, to watch hawks. Marsh harrier, incoming, 12 o’clock.
I have no taste in the arts. I was considering going to see this at the Tate, but when both the Guardian and the Telegraph came to the same conclusion that this was shallow cheesy shite I figured the hawks would probably be a better use of my time than feeding the eternal sunshine of the spotless absence of artistic taste.
Mrs Ermine sent me this snap of a Tube ad as an insight into Millennial life. I don’t think it’s a subliminal message 😉
Ode to London Life: Realising you’re not dead inside
I haven’t got anything against Tinder, but it seemed an example of the disenchantment of the world that seems to be speeding up. As a genre the dating agency has a long history – there were ads for Dateline in magazines when I was a kid. I was surprised to see that the Big G tells be this still exists.
Back in the day using that sort of thing was viewed as a little bit desperate, for people who couldn’t meet up in the ‘normal’ way of social interactions. The world has obviously changed, so though I’ve never personally used that sort of service it appears people don’t meet through friends of friends and perhaps it’s infra dig to hit on other people at watering holes. Life and style and customs change over time, which is as it should be.
The punchline is pretty straight between the eyes, though. And it set off a messy train of thought, along the lines that what late-stage capitalism is really, really good at is disenchantment of the the world.
Weber concluded that this involved a loss of something essential to the human spirit. I am not clever enough to deconstruct the implication that the “irrationality that had been squelched by enlightened reason returned in the form of violence and barbarism.” When I look at social media in general and and the remarkable success of populist bullshit I am tempted to agree, but the yellow press has always been with us, it wasn’t invented by Fox News.
If Weber was right, and something essential to man’s search for meaning has been suppressed, then we are in trouble, because what is suppressed will out, and if it won’t rise through the conscious mind, the shadows will be projected in uncontrollable ways through the unconscious. That doesn’t tend to end well. There is magical thinking in many so-called rational areas – the Singularity, the fond hope of otherwise clever people that the mute matter cryogenics preserves enables reincarnation even though the head/brain/mind has lost all dynamic state. Personally I’d rather take my chance with Buddhism, you get a new body and if it doesn’t work at least you save the Immortalist Society premium 😉 Humans may be able to live forever, but they really gotta avoid dying first. Continue reading “the harvest that matters”
“When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’
Lewis Caroll, Through the Looking Glass
Monevator had a deconstruction of the potential of Jeremy Hunt’s new pension freedoms to knock £360,000 of the aggregate tax in a dynastic bequest. As a virtuoso performance of creative tax planning there was nothing wrong with it, but I venture the title was either provocative or ill-chosen, because the virtuoso performance was drowned out somewhat by the car-crash of multiple readers losing contact with the narrative. Because this was titled Pensions, the LTA, and IHT: how a middle-class couple can bag £360,000 for free and this crew were earning £160k each.
And that wasn’t how most readers defined middle-class, nor indeed how the dictionary defines it. I am at the end of my working life, so my definition of this was probably set two generations ago, and matches the dictionary version. For a more modern take on this let’s take a leaf from FireVLondon’s taxonomy of London salaries and apply a 30k p.a. malus to their £160k salaries to make it 2015 again.
Even in the rarefied air of London salaries they are almost one percenters. There is vigorous support for Monevator’s impoverished middle-class strivers, however, from the Torygraph which is right behind these poor strugglers.
“Very often high earners will be working in highly unequal environments where the people they network with earn about as much or more than they do, so they are likely to think their income is about average.
“People on £125,000 are relatively close to the top 1pc of earners (those on around £180,000 a year) in their workplaces and social networks, but the rungs ahead of them are further and further apart, so they don’t feel especially high up the ladder.
Diddums. For some reason the obsidian Ermine heart fails to bleed… There’s more love from the Torygraph for these dear folk who can find solace in a forthcoming book Uncomfortably Off. Having read the rubric on Amazon I have the feeling that our tragic Rich Kids of London might feel a tad out of place at the book launch in May, and possibly feel that they are surrounded by lefty snowflakes failing to genuflect to their desperate plight.
The Telegraph really ought to hire more competent interns. OTOH if the the byline writer Harry Brennan gets ChatGPT to write his articles then they only have themselves to blame. Or maybe they will spike the article before the end of May 😉
They say you shouldn’t let the tax tail wag the investment dog, but I would beg to differ in the, er, dog days of the £12300 CGT allowance. It’s probably more important in future as this allowance drops to £3k in a couple of years. Why is this?
First, if you are using your ISA, as I am, then no worries in that particular area. If you aren’t, then Monevator would like to know why the bloody hell not? Only hold investements in an ISA on pension? Stand at ease, as you were.
However, I have concluded that as I can live off my pension then it’s a little bit mad to retain the three years equivalent salary in cash-like savings that was there to prevent me becoming a forced seller into a down market when I was living off savings and then SIPP income with some earnings. The emergency didn’t come, and in Covid that savings crept up to about 5 years, what with spending less, earning a little more. Along with some luck and Covid shorting, so I have unwrapped holdings in a GIA as well as wrapped ISA holdings. It is the holdings in the GIA that exercise me here.
Gold has had a decent run of late.
I decided to give the gold holdings the order of the boot from the ISA, gradually selling them in the ISA, buying some equities in there with the proceeds, mainly VWRL, but at the same time as I sold gold in the ISA I bought that much and a little more in the GIA with some of the cash savings. Gold has had a decent run of late, sufficient that I sold all my SGLP to crystallise about 6k in CGT, to buy SGLN. Slightly over 30 days later I look at the SGLN and observe there’s another 5k in capital gain up for grabs, so I flog that and buy SGLP back. I also collected a profit of £2.7k in BP, which I have decided to get out of now, and find I have gone somewhat OTT on capital gains for this year. Never mind, I am prepared to eat a £500 loss in SMT and a £1k loss on LGEN. LGEN is softened by the £500 dividend paid, but I did time it wrong, never mind. The trend towards a tax free dividend allowance of £500 shows that having a GIA containing dividend payers is not such a good idea in future, but that’s another story.
I liquidated a few minor gains1 to get as close to the £12300 CGT for this year but just under. Obviously I get to eat the spread in the turn, I am not so sure I can get so excited about the £5 dealing fee in a seven figure total, but the turn is about 10 to 20 pips, and may be wider on actually doing it rather than a soft quote, which is getting on for at least 200 sods, so you don’t want to spin this wheel too often. OTOH the putative CGT saved is 10% of £12300, which is worth getting out of bed for.
Move along now. Nothing to see here, sir. Move along now. Strong and resilient Don’t Panic Capt Mainwaring
Now assuming that the banks really are strong and resilient as they keep telling us, despite SVB, First Republic, Credit Suissethen it’ll all come good. Probably will come good in a couple of years either way. In that scenario I expect that gold to tank, compared to my last purchase price and go down, by about 10k, less some sort of inflation, as equities increase. But in that case, the embodied capital loss is then able to be offset against any gains, so selling it and rebuying now gives me optionality in future. The gold is there as diversification, I don’t want to off it, so the recent gain is purely notional. What the market giveth with one hand, it taketh away with t’other in its own good time. Of course if I knew that ZIRP was going to return again and money would be there for free I would maybe hold off, but you never know. One day the GFC will have to be paid for…
There’s an asymmetry with capital gains, in that losses can be rolled forward for future use, but gains have to be used in the year. This year’s gain was particularly valuable, because it’s more than it will be in future – 6k next year, three after that. A GIA will be much less valuable in future – in a typical scenario of 7% average annual returns (assuming inflation of 2% as it used to be, hahahaha) a £12300 allowance lets you hold £175k before running into CGT on average. In the end scenario of £3k you get to hold about 42k before running into CGT. And, of course, inflation is 10%, though they all say that isn’t going to carry on. We shall see about that.
I will naturally use the £20k ISA allowance coming up, and perhaps the one after that if it’s on offer. After that, well, who knows.
Britain is a poor society with some very rich people in it.
It’s hard to see Keir Starmer weeping too many salty tears about capitalist running-dogs like FI/RE sorts, because as that fellow from the FT said, Britain is a poor society with some very rich people in it. The Atlantic summed it up better in How the UK became One of the poorest Countries in Western Europe
Britain chose finance over industry, austerity over investment, and a closed economy over openness to the world.
There’s a Panorama programme on how the accident happened, although they stop short of asking why it happened 2
the BBC’s Analysis Editor Ros Atkins asks why so many people are feeling so poor.
A: it’s because they are poor, seems to be the conclusion.
We have actually seen this movie before, well, those of us of advanced years have. When was that? Way back when, in the early 1970s my German grandmother cam to visit us in London. She was gobsmacked by the number of old bangers on the road then, you could almost see the thought bubble “But I though Britain won the war, what’s up with that”.
I think that sentiment was voiced over a bottle of wine that she had brought with her. Seriously, the 1970s were a terrible time Britain for quality in wine as well as cars, the stuff people drank was revolting. Even Blue Nun is probably better now. My grandmother wouldn’t have tolerated that in the house, never mind brought it over with her own fair hand.
Wonder what else happened around that time, when Britain was known as the sick man of Europe. Ah well, correlation is not causation, so that’s all right then. Like with the banks. Move along now. Nothing to see here at all. Britain is rich enough to laugh off a 4% hit in GDP as a mere trifle.
In particular, since ISAs are a key tool to enable the under 50’s to speed up their retirement then I wonder what the direction of travel will be in a few years’ time?
In the meantime use it or lose it – both your ISA allowance and should you be so fortunate as to have the need and the capability, your CGT allowance!
I was hoping to have enough GIA investment income to defray the increase in power bill but the Buzzard has shat on this idea somewhat with the upcoming £500 tax-free limit on dividends. Though if you are going to pay tax on income dividend income beats earning it or indeed pension income, as dividends are taxed at 8.75% for the lower orders. I was more generally so wrong with that post in its anticipated effect on me :( ↩
It seems to be regarded infra dig for the current government to find the BBC asking ‘how did the government fuck this [insert specific aspect of British life] up.’, although asking that specific question used to be the point of the fourth Estate. ↩
Simple Living In Somerset 