Should Millennials buy property

My first car was paid for with the cash I earned cutting water cress in Whitwell for 10 hours a day, six days a week for ten weeks in the summer of 1979. I had to stand or kneel all day in water, bending up and down. Health and safety at work was a thing of the future. The car was a Deux Chevaux or 2CV6 as it was known. 600cc of raw French soft-top power. £500. It was all I could afford. I never want to see a blade of cress again in my life.

When I moved into my first rented flat in London I slept on a camp bed and sleeping bag until I could afford a bed. Furniture was a luxury. And as for holidays, Minehead in Cornwall, muddy beaches and a windsurfer. Skiing was the stuff of James Bond.

Those were the days. When if you didn’t have the cash you didn’t buy it, and if you really wanted it, you went and earned it first. There was a thing called “Saving up” in those days. Remember that? The pre-debt boom days. Frugal days, realistic days, debt free days. Glorious, simple, straightforward.

Then it all changed. I think it was when the yanks arrived in the financial sector of London in the 1980’s.  When the stockbroker I worked for offered me a company car I didn’t need and a subsidised mortgage I didn’t ask for. They had discovered an access to credit we had previously known nothing about and they handed it on to us. I went straight from a ten-year-old Mark 4 Cortina (which I loved) to a brand new Black Ford XR31 with fat low profile tyres and racing stripes (still the best car I have ever had).

I didn’t know what a mortgage was, but with a 5% deposit they told us we could borrow three times our salary. So we did. I moved from Brixton to Clapham. Clapham to Putney, Putney to Chelsea and had a stream of over-priced mortgages to match. The rat race had begun and for the next thirty odd years, I regret to tell you, I was enslaved by debt, paying a significant cut of my total earnings to a bank, on the wrong end of the eighth wonder of the world, compounding. Mortgages are compounding in reverse. No wonder the banks are the biggest institutions in almost every Western country, and no wonder the property markets in these countries are so huge, inflated, profitable.

Of course I could have paid my mortgages off much earlier if I had “saved up”, but it wasn’t fashionable, it was the 80’s. It was a time to live and debt was the lubricant. If I had taken money seriously in the 1980’s I would have been driving a 2CV6 instead of a Jaguar XJS, I might not have gone skiing ten years on the trot, toured Europe, raced motorcycles down the banks of the Seine, drunk Chateau Lafite at Chateau L’Evangile, heard the French Horns at the Insead Ball or driven the Le Mans 24 hours Grand Prix. And ones things for sure, without debt, and a relaxed attitude to debt, I would never have made a fortune in residential property.

Chickens don’t make money, and in a world that has seen nothing but property and equity price increases since I donned a suit and took out my first loan from the Lloyds bank in Pall Mall in 1985, debt has served us extremely well. I may have been on the wrong end of compounding, but I was also on the right side of the asset bubbles.

And that brings us to today’s dilemma. To my kid’s dilemma. To the Millennial dilemma. To my dilemma. Should we continue to borrow to buy property?

Why not is my conclusion. What else are you going to do, speculate on some asset class that doesn’t do anything. Like cryptocurrencies, NFTs or baseball cards? There is no value in these “assets” other than the price someone is prepared to pay for it.

Compare that to the real-world value a property delivers. Somewhere for you and your family to live, somewhere safe. Property does so much more than sit there. It provides stability, certainty, security, a home, and on top of that, it is an asset you can rent. Property has a return, property has value. Significant value, value that goes beyond what you can sell it for.

Cryptocurrencies, NFTs, baseball cards. They have no value to an investor other than their price. They are speculative asset classes. Not investments.

Property is an investment. It serves its owner in a way that almost no other asset class can, or does. And, laughably, property is more affordable now that it was in 1998. In 1998 I bought Glebeside Cottage in Henham in England for £210,000 (Google it). Interest rates were 15%. I was paying £31,500 per annum in interest. That very same house is now valued at £780,000 and at 2.8% would cost its buyer £21,850 in interest per annum. 30% less and since then the average wage in the UK has doubled.

Your risk in property is twofold, and many of you will give in to the fear, the fear that interest rates go up, or that property prices collapse.

Take it from someone who once paid 17% on their mortgage, interest rates are very low at the moment, but not only that, they are very stable and are staying low. They are not going anywhere. The central banks won’t allow it. Yes they might inch up, they might even double, but you can allow for that. It’s called borrowing within your means.

And as for a property market crash. Let me tell you. If it happens there will be a lot more wrong with the world than your property price. The world will have gone to hell in a basket, and if it does you will be in the same boat as the rest of Australia with a lot more to worry about than property prices. Like your job, the government, the War, the rubbish piling up on your nature strip. Its not going to happen. And even if it does, NFTs, Bitcoin and baseball cards will have dropped a lot more than property. And you can’t even live in those.

I once lunched with a very wealthy man who told me “I envy you. I roll out of bed at 11am without purpose and passion and to the sideways glances and obvious disappointment of my wife. You, on the other hand, have four kids a mortgage and a business. You bounce out of bed with purpose”.

It’s the liabilities in your life push you to be everything you can be. I wouldn’t let a little bit of debt scare you. Not at 2.8%.

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