When my brother and I first got on the property market ladder in the early 1980’s we were relatively early into the debt boom philosophy, early to exploit the new global phenomenon, the ability and willingness to borrow money. It changed everything.
Our parents stood aghast as we two fingered their frugal culture and bought cars they could never save up for, went on holidays that were the domain of James Bond movies and bought houses fit for Lords.
At first, they thought it was our success and they were proud of their sons, one doctor, one lawyer. But as I married for the first time and moved out of London into a house on a 95 per cent mortgage at five times my salary my Dad finally twigged what we were up to and was quick to hand down his warning.
He never was a fan of my first marriage so you should have heard my response to his suggestions that we might potentially be overextending ourselves, that we hadn’t considered the property cycle, that prices go down as well as up, that if interest rates stayed at 10 per cent it was going to cost half my salary in interest payments alone, almost all my salary once I had been taxed and if the bank put a 25 year timeframe on the loan there was no way I could mathematically live and ever be able to pay back any capital.
I seem to remember one narrow sighted comment about it being like putting on concrete boots and trying to walk on water.
What an idiot! Didn’t he know property prices only ever went up? Didn’t he know the stock market never went down? Didn’t he know we all drank Champagne at Corney & Barrow’s every Friday afternoon in the City? Didn’t he know how blinkered and old fashioned he had become?
It was early in 1987. The stock market crashed, the property market followed, interest rates went to 17 per cent and my marriage hit rocks. But what would a Dad know right?
Debt was the culture in the 80’s and amazingly, even despite the experience of an unpredicted global financial crisis, it still is today.
But as I emerge from it I have to ask, for the benefit of my children, will it always be this way? Is this the only way to live? Will the culture of debt ever stop? Will there ever come a day when some mortgagee throws up their hands and says: “That’s it, I’ve had enough!”
I’ve had enough of working to pay interest to the banks. I’ve had enough of the compounding of returns working against me, not for me. I’ve had enough of endless debt. I’ve had enough of living to work.
I’ve had enough of the lost time. I’ve had enough of interest free consumer items that turn into debt with no collateral. I’ve had enough of being imprisoned rather than released by money, money that is not mine to spend but I spend it like it is.
I really do begin to wonder what I should be telling my kids. I wouldn’t pay a million dollars for a dilapidated house in some crappy suburb miles away from my parents, so can I really encourage my kids to do the same?
Can I really suggest they get on the same treadmill that I have been on for thirty seven years? Will it always be smart to borrow to buy assets, or is there another formula?
I despair for my children, denied, as they will be, the opportunity to live near their support network, stress free, in a detached house, as a family, without taking a very material risk on the property cycle and on the cost of debt staying within their affordable boundaries.
Is it progress that the cost of owning a home is going to chain them to work, prevent them from taking risks in life and in business, lose them the flexibility to travel at will without responsibility, enslave them with the responsibility to repay the way it chained and enslaved me?
Have we not come up with any better prescription that after forty years of debt boom?
We have to. My oldest is twenty two. She is at University and holds down three jobs. She has a fantastic work ethic but I’ll be buggered if she’s going to direct the benefit of all that effort, education and qualification into paying interest to the banks.
There has to be a better way than putting those concrete boots on. I cannot encourage my children to follow in my footsteps.
We all need to stand back for half a moment and ask the question: “do I really have to borrow a lot of money to live a good life?”