I’m in a bit of a pickle.
My landlord’s just told me he wants his house back in June, which means I’ve got to move out.
I was hoping to be able to stay there for another year or two then, with gold prices higher and house prices lower, buy the mother of all gaffs. Buckingham Palace, maybe. Or perhaps Apsley House, which has the best address in the whole world: Number 1, London. Surely it’s worth the price tag alone just to be able to say that every time the bloke from the call centre asks where you live.
But, sigh, that’s not going to happen. I’m still in the confines of overpriced tat in South London.
It comes to us all, I suppose, at some stage and it’s come to me now.
I’m sick of renting. So what should I do?
The Cheapest Asset on the Planet: Money
As regular readers will have probably gathered, I hate the housing market.
I hate the fact that houses in London are so expensive (or is it just that I can’t afford a really nice one?)
I hate what overpriced house prices have done to people. I hate the way that people have got rich by sitting in a house and watching the price go up, rather than doing anything productive.
I hate the way house prices have alienated a generation. I hate the way people put off starting families simply because house prices are too dear. It’s all a consequence of our stupid credit-based fiat system of money.
So it’s become a point of principle not to buy a house. And I almost feel like, were I to do so, it would be some kind of betrayal.
But I’ve had something like seven different addresses in the last ten years. I’m sick of moving. What’s more, rent in London is not cheap. And I can’t move further out. For various reasons, I have to be in London.
I’ve spoken to the bloke in the bank. I’ve spoken to a couple of mortgage brokers. It seems that, yes, banks are being more careful with what they lend and who they lend it to. But, if you’ve got a bit of equity and some earnings, I’m surprised how much you can still borrow. And I’m amazed at how little it costs to do so.
I can get a five-year fixed rate for something like 3.5% and a variable rate in the 2.6% area. In other words, it would cost as little as £2,600 a year to borrow £100,000; £13,000 to borrow half a million; or £26,000 to borrow a million.
Investors looking around for value often cite Japanese stocks or Berlin real estate, but if you want something that’s really cheap – it’s money. Money is probably as cheap as it’s ever been.
Keep Hanging on to Gold
The general consensus is that interest rates aren’t going anywhere for at least two years. And, unless we have a run on the pound (possible, but unlikely for now – we have southern Europe to get through first) or the economy suddenly turns round (yeah, right), I would agree.
The consequences of higher rates do not bear thinking about and the unspoken policy of governments and central banks is one of currency and, hopefully, by extension, debt devaluation.
This all makes me think: ‘borrow’. And, what’s more, don’t even fix the rate. Borrow at a variable rate for now and then, in a year or two, or whenever I start to get the faintest whiff of looming higher rates, fix for five years – or longer if possible.
The underlying asset could fall in value by 20 or 30%, but any falls are offset by the cheap interest rates. (It could also go up if foreigners keep buying central London real estate – I’m hearing, for example, that a lot of Greek buyers are registering with agents in Kensal Rise and Queen’s Park). What’s more, my interest repayments would be less than half what I pay in rent.
It all amounts to a pretty compelling argument to borrow and buy – exactly what various Western governments want me to do.
I would have to sell quite a bit of my gold to come up with a deposit. But I am confident that gold will go up annually by considerably more than the 2.5% to 3.5% rates of interest currently being offered by the banks. So I would want to sell as little as possible, although eventually, I would use my gold to pay down as much of the loan as possible. And, if I’ve any left over, buy that palace in Westminster.
By the way, if I could borrow money at 2.6% and buy gold with it, I would.
So, unless some reader offers me a fab pad to rent at a discounted price, it looks the world’s biggest housing bear – lured by cheap money, and forced by circumstance – may be taking some small steps towards buying a house this spring.
Should you go out and do the same? Borrow and buy?
It depends on your circumstances, of course. Maybe if the rental market in the UK made it viable to be a long-term tenant, I wouldn’t feel pushed into this decision. Nor do I have the faintest interest in buy-to-let, not least because of the jump from buying something that you have to rent anyway to full-blown property investor. What's more London and the rest of the country are different beasts.
I'm not bullish on UK housing, but I'm sick of being bearish. And, with fiat money this cheap, there are some compelling reasons to at least consider getting hold of some (if you can) and swapping it for a house.
Source: Money Week