Property Renovation Lessons II

Continuing where we left off, we’ll walk in the front door when viewing a potential house purchase. In part two I’ll cover what I’ve learnt to look for in general interior room condition.
Shut the front door

Before shutting it, take a look at it. It seems a bit odd, but much like shoes tell the story of a person, I reckon a front door tells the story of a house. There’s lots of different styles:

front doors

Look at the construction; is the door PVC/ composite/ wood/ metal? Is the style of the door in-keeping with the age of the property? White PVC doors are very common, because cheap, and if a prior owner has opted for a cheap door they may have opted for other cheap options in the house. Has the owner put a modern door on an old house, perhaps hinting at a major modern refurb. In an older property does it retain it’s original wooden door? If so, look at the state of the paint. Such doors can last hundreds of years with maintenance, but need periodic sanding and repainting to maintain integrity. Again you can learn a lot about the owners attitude to preventative maintenance.

Look at the locks and door furniture. As mentioned in Part I, many insurance companies offer preferential rates for BS 5-lever locks. Most PVC doors are safer as they will have a multi-point locking system. Don’t forget to change the locks when you move in. Look at the door furniture; it can hint at chintz inside. Front doors have changed dramatically over the years, they tell the history of a property, and are an easy way to improve kerb appeal (1, 2, 3).

Flooring

You’re in the front door so look down. Victorian and Edwardian builders knew the importance of first impressions. Older properties will hopefully retain the beautiful parquet or tiled flooring. This can be replaced but it’s expensive and I don’t think it ever looks the same (although we have looked at reclaimed parquet in the past).

Worn parquet can be sanded back and re-varnished, as can original floorboards. This can be a DIY job if you fancy a go, budget at least £150 for a sander for a weekend and varnish. There’s lots of guides and Youtube tutorials which can take you through the process (4). Cover everything in dust sheets. We’re still finding dust three years later.

When viewing houses we would find try to find a neglected corner of carpet, or a piece where it had already come up, and peek at the condition of the floorboards. We were lucky with our first property that the floorboards had been hidden behind 100 years of layers of carpet and were pristine. We also discovered a hidden terrazzo floor in a property we lost out on.

Terrazzo is a polished solid flooring, produced by pouring a mixture of resin/concrete and marble/ stone chips (5). It has similarities with polished concrete and resin floors, which are both very fashionable currently (6, 7).

Laminate and carpet

Both of these I could write entire articles about. Laminate can be beautiful when done well. It also offers a cheap DIY way to update and upgrade a tired space, with ‘click-clack’ self-connecting forms available from most retailers. On the cons, it’s loud underheel, and is used by slum landlords to hide substandard flooring surfaces. Engineered hardwood flooring is the step up from laminate where a layer of real wood is added to a ply backing. This can really make a difference to a space but is understandably more expensive (8).

Carpet again comes in all shapes, sizes and styles. Look out for damage to carpet, lifting, or the carpet moth that will munch it’s way through natural fibre (i.e. wool) carpet in darker spaces. Bare patches in corners with discarded casings and potentially larvae will point towards the moth. We stripped the carpet from our whole house and switched to synthetic fibre to try and eradicate our infestation (9).

Wall and ceiling coverings

Lets talk plaster, paint and wallpaper. We’ll start with that perennial favourite, woodchip. Used in the 60s and 70s to hide poor plaster and imperfections, it’s wallpaper will added chips of wood to provide texture. It’s one of the main things to put potential viewers off a house. It’s a bugger to remove, as those woodchips soak up attempts to chisel it off. It’s super messy, takes ages, but is cheap to do DIY (main cost being a £30 wallpaper steamer from Screwfix etc). There’s plenty of guides on the internet into how to tackle removal (10).

The texture and endurance of woodchip means it can hide a myriad of problems behind it. To an extent any textured wallpaper can do the same, and should be treated as such. Anyone can wallpaper a room, and it’s a quick way to refresh a room or hide problems. Don’t be fooled by Victorian anaglypta’s either, which can look stunning but hide issues.

Another covering you may come across is Artex. This is a further 70s product designed to hide poor plastering finishes behind a textured fascade. To make things even better, pre-1980s Artex was made with our old friend white asbestos (11). Undisturbed behind paint this is fine, but sanding or removal risks hazardous dust. The asbestos can be identified and the Artex removed by a specialist company, using steam or preparatory products (12). Some people tackle it themselves, which I would not recommend unless you are willing to risk Mesothelioma. The other alternative is to plaster over the top to produce a new flat surface.

People also deployed Asbestos (the wonder substance) in tile form on ceilings or where drop ceilings have been installed. This is mainly found in commercial buildings, but we clocked some hiding in a renovation project (a right dogs-dinner of a property) and ran. Again it really needs a specialist company to identify. Some people choose to remove it themselves with commercial-grade PPE, but I would not advise due to the health and legal risks (do as I say not as I do) (13). Asbestos has to be disposed of safely, and rules vary depending on your locality on whether your local tip will take it.

The only real mention I’ll make of paint is lead-based paints. If your house was built before the ’70s it probably contains some lead-based paint. This is only really an issue if the paint is damaged, crumbling, and you go around licking it or sticking it in your mouth. Kids do. It tastes slightly sweet (Darwin at work). Lead accumulation isn’t something to mess about with, so keep on top of it and don’t let your kids peel it off and chow down (14).

Plaster

With the exception of paint, all of the coverings above can mask potential plaster issues. This is one of the reasons in recent property searches I’ve tended to prefer properties where I can see what I’m dealing with. Plaster problems fall into three main areas:

  • Dead Plaster

This is more an appearance than a problem itself. Traditional construction techniques were to use thin lathe battens nailed to the structural upright stud wall or brick. Movement of the wall, damp trapped in the plaster or superficial damage can all cause the plaster to lift away from the lathe. Attempts can be made to repair this by pinning the surround plaster and patching, but often it’s easier to hack off and redo with modern plasterboard and a fresh skim. On a ceiling this can suggest damp ‘falling’ from above, so a leak in a bathroom or roof (see below).

  • Cracked Plaster

Smaller cracks caused by structural movement in the property or just general wear and tear can be dealt with filler and a scraper tool. It’s important to make sure this is not the above, by lightly pressing on the plaster. If there’s a ‘give’ and movement then the plaster may well have peeled away from the underlying lathe, requiring more significant attention (15).

  • Damp

Damp. The blank chequebook to a cowboy builder. You’ll smell damp as soon as you walk into a house, that mouldy, fusty odour. It’s nothing to fear as long as you remember one rule. Damp has to come from somewhere.

Actually two rules. Rule two: rising damp is a sales tool. Don’t believe me? RICS agrees (16, 17). While osmosis happens, water won’t climb up a wall in a warm home because it has to. There’s such a thing as gravity. Damp proof courses are a waste of money. There I said it!

I’m not saying it doesn’t happen, but ground and construction conditions have to be really specific. Rising damp requires hygroscopic salts to be present in the minerals used in the walls construction and surrounding soil to create an environment where water molecules can move through osmosis. They’ll often leave crystals on the wall. ‘Rising damp’ as a ‘diagnosis’ got big in the ’60s and ’70s as a way to fix the problem of damp inside houses, right around the time lots of poor quality houses were being built and older houses being renovated by caking them in impermeable concrete (18). Same goes for cavity wall insulation. Older houses built of brick, stone and lime mortar were permeable. They would absorb moisture, they could ‘breathe’. If a wall was facing the predominantly inclement weather it could get damp, but it would dry out when the weather was dry again. The Victorians and Edwardians solved this by having an air-gap cavity wall. People in the C20th didn’t like the fact that walls would get damp, so they covered them in impermeable concrete render or membranes, plus plastic wall paints. They then added double glazing without air vents. This kept the rain and weather out, but also kept moisture produced by general day-to-day living in. If you breathe on a cold pane of glass it steams up. Multiply that throughout your home and you get condensation. This is the main cause of damp in homes. Other causes include:

  • Insulation – (I look forward to the class action lawsuits in 30 years as swathes of government-grant retrofitted old houses succumb to damp damage)
  • Heating on/off – must be constantly ON, but low temp = 15 degrees C – heating and then cooling creates an environment for condensation
  • Ground levels outside higher than inside
  • Broken guttering or missing downpipes
  • Vegetation growing near the wall
  • Trees creating shade and moist air near a wall
  • Lack of ventilation – double glazing, no vents
  • Blocked chimneys – fireplace blocked up, no vents
  • Furniture against walls creating cold, damp areas (18)

The answer is (as always) preventative maintenance and taking a nuanced approach based on the buildings construction. If you live in an older home you cannot expect it to achieve modern standards of insulation. Ensure you use permeable materials to allow movement of moisture in renovation work. Appreciate your higher utility bills as a trade-off for period features and room sizes. As a slight aside here, if buying a new property ensure that there are air vents in the glazing, air bricks in the walls and plenty of opportunities for air movement. Amongst high-end architectural design the move is towards Passivhaus standards, where moisture, dew points and ventilation are carefully controlled as part of holistic approach to construction (19).

How to tackle damp?

Unsightly mould around windows (like above) or on walls (below)? Check for vents in windows and doors. Check the type of paint or wall covering used. Often this is down to people not opening windows or allowing ventilation in an attempt to keep heat in. Crack the window or buy a dehumidifier (20, 21).

Peeling plaster, cracked and lifting paint? The is more likely to be penetrating damp, or a leaking roof or bathroom plumbing if it’s the ceiling. This is often enough to scare off most buyers, but look carefully. Penetrating damp or a leak has to come from somewhere (22). Is the external ground level higher than the internal wall? Are there boundary walls abutting the internal wall? It could be caused by a sill or beam bridging a wall cavity. Go back outside and look externally for cracks in render, damaged, eroded or poorly pointed brickwork, absent flashing or leaking gutters. This is why it’s often good to view a house in heavy rain. If it’s on the ceiling is there a bathroom above? If so run all the taps and check for drips. Is the roof in good condition, and can you view the loft in rain to check for water ingress? We had penetrating damp in a previous house caused by a) a wooden sill which was exposed to rain which soaked internally, and b) an external garden boundary wall abutting the damp wall, with next-door slightly higher than our ground level. Solved by rebuilding the external wall with damp proof tanking. I worked on another house where a ceiling would get wet when the wind blew from the North-East, as it then forced the rain up a pitch through the roof so it could drip down. Had to put a new roof on to solve that.

Electrics

Fuse board

Fuse boards, or more properly domestic consumer units, are a must check. They ensure electrical safety in your home, preventing you getting shocked (/dying) and the house burning down every time something short circuits. They’ve developed over time with progressive regulation changes. Up to 2001 most homes were fitted with fuse boards like the older Wylex one pictured, containing individual rewire-able fuses plus a main circuit breaker/ isolation switch. Since 2001 regs have mandated individual residual current devices (RCDs) protection for circuits, offering extra protection (23, 24). Any new electrical work being done to a property will require an RCD system to meet regs. Budget £300-400 for installation of this alone. My garage is currently (not working) on an old 1940s cast iron splitter unit like the last image piggybacked off the main RCD. I’m exploring ways to retain the unit as it’s bloody cool (25).

Certificates

Sort of an extension of the above, but it’s important to ensure any electrical work that has been completed to the property has been done so by an accredited person. All work should be certificated and ideally marked as tested. Any changes to circuits like adding new sockets, adding new outlets, changing lighting circuits etc technically needs this (26). Ensure you get these certificates when purchasing the property and when you have any work done. It’s often a requirement for property insurance, it can be in the fine print in the mortgages, and you’ll need it to rent the property out (27). Work without certificates opens up a legal minefield, and can knock serious cash off the property value. Copy and paste this to central heating, gas work and plumbing.

Wiring

One to check out as you look around. First, is wiring (and plumbing) fitted with surface trunking, or properly chased into the wall? Trunking fitted to existing wall is quicker, cheaper but looks less attractive (to me). Chasing into the wall is harder, slower and more expensive, but the flush finish looks smarter (28). This will give you an idea of the costs the owner has spent on this sort of work and the quality they’ve been happy with.

If you can see exposed wiring (try next to the fuseboard or under-stairs cupboards) look at the colour of the wiring. Wiring since 2006 has followed European and Australian code; brown is live, blue is neutral, green/yellow is earth. Prior to that we ran red live, black neutral and green earth (29). Since the 1960s most UK wiring has been sheathed in PVC. You can age your wiring on what it’s sheathed in. Prior to PVC was vulcanised rubber (notable by being black), before that was lead (notable because it’s… lead), and before that it was all sorts of odd stuff including cloth and paper-wrapped wiring (30). The cloth, lead and rubber all degrade, so will all be due replacement.

300px-cable_colours_1179-5

We made a not untidy sum ripping out the rats nest of old wiring in a previous property. Once we’d turned everything off at the main breaker we found cloth-wrapped, lead-sheathed (£££) and 1960s wiring had all been run in parallel circuits under the floor. The joys of renovation!

Other things to look out for are old plug sockets like the one below, featuring the earlier circular three pin plug. There were lots of variants of plug prior to the adoption of the ubiquitous three-prong plug and socket in 1947 (31). This means you can reliably date your wiring and definitely decide it’s due a rewire. The UK’s socket design is the envy of the world (32), so embrace it! Brown bakelite junction boxes, on the other hand, are not something to run from. They’re still in production, still used and definitely serviceable (33). I really like bakelite as I think it’s retro, but then I’m a bit weird.

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586px-jbox_ashley_20a_4933-2

Plumbing

Where’s the stop cock? Check if there’s one in the house as well as one by your meter (if you have one) where it enters the property. You and your neighbours will thank you when you’re not screaming “How do I turn off the bloody water?” at 3am.

Pipes

The water pipe for your property is your responsibility from where it tees off the mains (34). Track it’s path throughout the house if you can, check for leaks and quality. Lead has not been used for pipes since the 1960s but most old houses will retain it somewhere (as it’s a pain to replace for various reasons). Most internal pipes will be stainless steel, copper or plastic. Old pipes may be iron. They all degrade over time (at different rates), so need periodic maintenance (35, 36).

Pipes in the UK for central heating are generally copper or plastic (often white). They come in various sizes. Size of pipe is an important consideration when fitting central heating, as you need to calculate the total thermal load on the boiler (the radiators) and the efficiency and flow rates (based on pipe diameter and water temperature) to ensure that your boiler has enough oomph to actually heat all the radiators (36, 37). There’s online calculators that can help you work out your heating requirement to spec this, such as here: https://www.plumbnation.co.uk/heating-calculator/ (38). Frankly, I just get a plumber.
Heating

While we’re on boilers, check if the property has one. There’s essentially two types of heating; wet and dry.

Wet

  1. Does the property have a wet system (i.e. radiators and a water boiler)?
  2. Is it gas, oil, coal, calor gas, solid?
  3. How old is it?
  4. Does it have a hot water cylinder or on demand?
  5. Has it been serviced?

conventional-boiler-explained

This is a whole other set of posts. Essentially most houses are on gas boilers, of which the most common is combi-boilers which do heating and hot water. There’s system boilers, which have a hot water storage cylinder (so are better for households that have multiple bathrooms and need lots of hot water at once), but are generally less efficient. Then there’s conventional boilers which have a water tank and a hot water cylinder (39, 40). Newer boilers across the range are generally much more efficient. Google the brand and model number and check the reviews. Older boilers can be very reliable if well maintained, so check for service record stickers. Budget between £1-4k for a decent replacement, and remember you really get what you pay for with boilers (40, 41). Budget more for a new install on a property without central heating.

Oil-fired boilers and calor gas systems are generally used for the estimated 4 million households that are not on mains gas. Oil is a bit more fuel efficient than gas, but can cost more to buy as the cost fluctuates and you have to store it in tanks (generally bunded green things) (43, 44). You can also run out if you forget to order more, or the roads are shut. Same rules apply re: servicing and replacement.

Dry

In the UK this basically means electric heating systems in rooms. Other countries and some UK commercial and old buildings will use a central furnace and hot air vent system, but they’re inefficient for our construction practices. Electric heating costs more to run than gas, and should really be considered only where gas is unavailable, where heating is infrequently required or where wet system installation is impractical. We’ve gone through various stages of electric heaters too, with electric radiant heaters (i.e. old bar electric bar fires), electric fan heaters, through night storage, oil filled and panel heaters. Fan, radiant and oil column filled heaters are usually portable and can be used to heat up the room you’re in at the time (45).

Panel heaters can be very minimalist and are therefore currently the fashion choice. They’re generally touted as ‘eco’, but given all electric heating systems convert electricity to heat what that essentially means is they don’t use much electricity as they don’t give off much heat. Night storage heaters look more like a radiator and work by heating up a ceramic brick during the night (when electricity can be cheaper if you’re on Economy 7/10 or similar) and releasing it during the day (46, 47, 48). They work much more like a conventional wet system, and get a room toasty warm. Budget £500 per heater.

There’s also ground-source or air-source heat pumps, solar thermal, district heating, underfloor heating, biomass systems and all sorts of others which I can go into in detail if people are interested (i.e. leave a comment to motivate me to do it!). I may do an eco renovation post in the future.

Summary

In part two I’ve covered most of the general building fabric and utilities considerations. This should give you an idea of what to look for on property viewings and in your own home. In part three I’ll cover room specific considerations (kitchen, bathroom etc), construction (chimneys etc) and layout.

The Shrink

References

  1. http://rockmystyle.co.uk/first-impressions/
  2. http://www.oldenglishdoors.co.uk/latest-news/doors-victorian-era/
  3. https://nonagon.style/the-easy-guide-to-exterior-front-door-styles-and-types/
  4. http://moderncountrystyle.blogspot.com/2016/02/how-to-sand-and-renovate-old.html
  5. https://www.doityourself.com/stry/how-to-repair-marble-floor-chips-and-cracks
  6. https://www.homebuilding.co.uk/polished-concrete-getting-it-right/
  7. https://www.allthingsflooring.com/2017/07/polished-concrete-vs-resin-floors/
  8. https://www.ambiencehardwoodflooring.co.uk/wood-flooring-guide/real-wood-or-laminate-flooring/
  9. https://fivestarfurnishingcare.co.uk/carpet-cleaning/do-my-carpets-have-carpet-moth/
  10. http://lusheclectic.com/woodchip-wallpaper-take-it-off-or-leave-it/
  11. https://en.wikipedia.org/wiki/Artex
  12. https://householdquotes.co.uk/removing-artex/
  13. http://www.asbestosguide.org/asbestos-ceiling-tiles/
  14. https://www.webmd.com/women/lead-paint#1
  15. https://www.homebuilding.co.uk/renovation-assessing-the-potential/
  16. https://www.architectsjournal.co.uk/home/-rising-damp-is-a-myth-says-former-rics-chief/5204095.article
  17. https://www.heritage-house.org/damp-and-condensation/the-fraud-of-rising-damp.html
  18. https://www.heritage-house.org/damp-and-condensation/managing-damp-in-old-buildings.html
  19. https://en.wikipedia.org/wiki/Passive_house
  20. https://www.which.co.uk/reviews/damp/article/dealing-with-damp/what-kind-of-damp-is-affecting-my-home
  21. https://www.theguardian.com/lifeandstyle/2008/mar/01/diy.homes8
  22. https://www.heritage-house.org/damp-and-condensation/types-of-damp-what-have-i-got/penetrating-damp.html
  23. https://en.wikipedia.org/wiki/Consumer_unit
  24. http://www.judgeelectrical.co.uk/domestic-electrical/explanations/about-fuse-boards.html
  25. https://www.flameport.com/electric_museum/old_equipment/revo_15_amp_splitter.cs4
  26. https://www.niceic.com/find-a-contractor/electrics-explained/what-are-the-different-types-of-electrical-certifi
  27. https://www.gov.uk/government/news/new-tougher-electrical-safety-standards-to-protect-private-tenants
  28. http://wiki.diyfaq.org.uk/index.php/Electrics,_Socket_Chasing_(Flush_with_wall)
  29. http://wiki.diyfaq.org.uk/index.php/Wiring_colour_codes
  30. https://www.electriciancourses4u.co.uk/useful-resources/history-of-wiring-colours-cable-sheathing-bs7671/
  31. https://www.plugsocketmuseum.nl/OldBritish3.html
  32. https://www.fastcompany.com/3032807/why-england-has-the-best-wall-sockets-on-earth
  33. https://www.cef.co.uk/catalogue/categories/junction-boxes-bakelite-junction-boxes
  34. https://www.ofwat.gov.uk/households/supply-and-standards/supply-pipes/
  35. https://www.homify.co.uk/ideabooks/564032/choosing-the-right-water-pipes-for-your-home
  36. http://wiki.diyfaq.org.uk/index.php/Plumbing
  37. https://www.diydata.com/planning/ch_design/sizing_pipes.php
  38. https://www.plumbnation.co.uk/heating-calculator/
  39. https://www.uswitch.com/boilers/guides/boiler-guide/
  40. https://www.hometree.co.uk/energy-advice/boilers/types-of-boilers.html
  41. https://www.lovemoney.com/news/12664/how-i-saved-1200-on-my-new-boiler
  42. https://www.boilerguide.co.uk/articles/what-size-boiler-needed
  43. https://www.which.co.uk/reviews/boilers/article/oil-boilers
  44. https://www.which.co.uk/reviews/home-heating-systems/article/home-heating-systems/oil-central-heating
  45. https://www.which.co.uk/reviews/electric-heaters/article/how-to-buy-the-best-electric-heater
  46. https://www.energywise.govt.nz/at-home/heating-and-cooling/types-of-heater/electric-heating/
  47. https://www.which.co.uk/reviews/home-heating-systems/article/home-heating-systems/storage-heaters
  48. https://www.cse.org.uk/advice/advice-and-support/night-storage-heaters
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Property Renovation Lessons I

Gather ye round students.

It’s a peculiarly British fascination that we own our homes. Your home is your castle.

The default setting for those with spare-cash in their middle-years appears to be adding to your castle, working up the property ladder or buy-to-let. Yet it’s a route full of pitfalls, and BTL is fast becoming a mug’s game. MrsShrink and I have been fortuitous in turning a £20k deposit in 2014 into a £52k deposit this year (~38% annual return). We did this by buying a fixer-upper and working our socks off in our spare time. MrsShrink comes from a family of serial renovators, and spent some time learning painting and decorating with a professional family member. I come from building trade stock, and have plied the hod and trowel. I know which end to hold a hammer. So here’s the lessons from along the way that we applied to our second house purchase and renovation.

Location Location Location

  • Buy the worst house on the best street in the best neighbourhood you can afford

Classic Sarah Beeny this one. Waiting for the rough looking house to come up can pay dividends, however there’s plenty of property developers also looking to do this who probably have cash on hand to swoop quickly (1). As an alternative look at what has been on the market a long time, work out why and knock them down for it if it’s overpriced. That unappealing quality avocado bathroom could be £15k off the asking price for a fed-up seller. The primary issue here is that due to Sarah Beeny, DIY SOS, The Renovation Game etc every man and his dog thinks they’re a property developer by ripping out a 30 year old fitted kitchen and banging in a Wickes’ budget MDF job (2). Shame that.

  • Check the location using Rightmove’s school checker, look for local shops and public services like bus stops, libraries, parks etc (3).

This again is partly straightforward. Even if you don’t have kids being in a good school catchment improves resale, although worth bearing in mind that schools can turn around quickly. Less thought about are bus stops; schoolkids yelling outside your house can pretty quickly turn a night shift worker potty. Likewise parks and outdoor sports areas.

  • Check the local streets on your councils planning portal and local area development plan

Is your neighbour about to be converted to an HMO? Is that spot of derelict land at the end of the road turning into a block of flats with no parking allocated. This is exactly what is happening a few streets over from us, and the next-door owner is currently selling up as their current uninterrupted view over the city is due to be replaced by six stories of students. Those planning applications may be the prompt for the sale. Also check your councils local area development plan (or equivalent). This may suggest (as for our current location) there are planned infrastructure, zoning or conservation changes which could dramatically impact the appeal of an area.

  • Check long term floodrisk maps

Published by the government, this shortcuts going through the purchase process only to find on your surveys that your new dream home floods any time we get fair-middling drizzle. For England see here, Wales here, Scotland here (4, 5, 6).

  • Google Streetview is your friend

Check the roof, neighbours gardens for a sense of upkeep of the local area, evidence of building work and other nearby extensions. Four doors up may have a single storey extension that makes getting your planning permission in five years time that much easier. What’s the rear access like? Does Streetview show the rear lane blocked by idle taxi drivers?

  • Check the street at rush hour and mid-evening.

This is a bit involved, hell some people buy houses without seeing them! However if you go to a house viewing at 2pm on a Saturday the quiet tree-lined street with great school access may be a different picture to the school-run mummy-chariot car park. Likewise mid-afternoon could get very different to mid-evening if your excellent local gastropub has less than polite clientele.

Kerb appeal

It’s not just about from this (1):

to this:

Though that first impression counts. If the house looks down at the heel then a clean and a coat of paint may do wonders. Here’s a short list of what else to look for:

  • Doors and windows – wood/ PVC/ aluminium?

Is the wood rotten? Is the PVC discoloured or warped? Is the aluminium corroded? Are the windows double glazed and if so what state are they in? If there is misting inside the windows, like below, it suggests the double glazing has ‘blown’, and is no longer sealed (7). This will still be warmer than single glazing, but lets less light in and obscures your view! Budget at least £500/window for decent replacements (8). Sash windows and wooden casements will cost more, but sash are more desirable and wood will last a lot longer if maintained. On older properties original sash windows can be retrofitted with double-glazing by specialist companies, and this can work out cheaper than having new units made (9). Finally, check the state of the external locks, as many insurance companies will give you better rates for a BS-standard 5 lever deadlock.

  • External walls – clad/ brickwork/ render/ pebble-dash/ stone/ other?

We’ll start with brickwork as in many ways it’s simplest, and most of it also applies to stone. Older and underburnt bricks can suffer from years of frost damage and degrade, a process called spalling, so check for evidence of failure like below (10). Stone will also erode over time (particularly limestone in acid rain, and sandstone mislaid with a vertical grain) (11)

Check for evidence of degradation of the mortar in joints which will require re-pointing (12).

Look for external cracking. In previous centuries lime mortar was used which allowed a degree of flex in the joints due to it’s softness, but as building has moved to stronger and easier concrete/ cement the joints have become inflexible and unyielding. Cracking can have multiple causes but it usually down to building settlement. A degree of settlement is normal over the course of a properties lifetime, and particularly after periods of heavy rain or prolonged drought when the soil underlying the foundations moves. Small cracks are nothing to worry about, but bigger ones may suggest faults with the foundations which can require costly underpinning work. When next to gable walls it may suggest the wall is pulling away from the rest of the house, requiring insertion of wall ties and structural work. If around windows/doors then it may suggest rotting, movement or inadequacy of the sill. If in doubt get a professional survey.

 (13) (14)

Render can have similar issues with cracking as above, but is utilised to offer a layer of protection to the underlying stonework. This was traditionally used where unfinished structural stonework was rougher/ cosmetically poor, or in exposed areas – coastal etc. Breathable lime-based renders were used on older buildings, and replacement with concrete can cause damp issues. Newer buildings have concrete render, which will usually last about 20 years. Certain areas of the country (in my experience Cornwall particularly) have issues with render staining which requires cleaning (15). Budget a couple of thousand pounds, plus VAT and scaffolding costs for a re-render (16, 17).

Pebbledash and roughcast are essentially a different form of render where pebbles are sprayed on or added into the render. It came to be used during the Arts and Crafts Movement, but is often associated with ’20s and ’30s housing where it was used to cover cheap and quick brickwork (structurally sound but not aesthetically pleasing) (18). It offers a greater degree of weather protection than standard render. Don’t write off a pebbledash home. Removal is time-consuming (read expensive), but painting can make a huge difference (16)

Cladding is it’s whole other separate post. Replacing cladding is a good way to bring an out-of-fashion exterior bang up to date. Cladding may require planning permission under permitted development rules, or further consideration in conservation or national park areas (19).

  • Check for cavity wall injection points

Cavity walls, where there is an air gap between the inner and outer skins of the wall, became mainstream in the 1920s (20). The two skins are tied together either with bricks placed perpendicular across them, stones, or now with metal ties. The original usage was to prevent the passage of moisture into the building from outside. Insulation in the cavity became compulsory in the 1990s. In older houses is became common to use an injection method to insert insulation into the pre-existing cavity, leaving behind tell-tale holes where drilled (21). Cavity wall insulation divides opinion. The added insulation can in principal save a fair amount on heating. I dislike retro-fitted cavity wall insulation due to the potential for air and moisture-bridging, especially across damp courses lower down in the wall. This allows moisture to track across where there was previously an air gap, or through osmosis past the damp proof course. In modern houses the damp proof course sits below the insulation as it is inserted during construction, and with the use of modern backed insulation boarding it is less of an issue. Do your own research.

What lies above?

  • Check the roof

I won’t go into different roof materials, again it would be a whole other post. Stand on the other side of the street and look at as many elevations as you can see. Are there any slipped slates/ tiles? Any missing ridge tiles? These can all be sources of leaks if the roof lacks underlay (22). Most tile roofs can last 50 years if maintained, while slates can last a hundred (23). Budget £5000+ for new roof. This could escalate if the underlying joists and rafters are warped, damaged or rotten, indicated by a sagging area of roof. If the whole roof appears bowed under weight then it may be less of a worry; this is usually the result of replacement tiles being heavier than the originals, gradual settlement over time, or the effect of weight following a period of heavy snow (24).

Damaged or degraded flashing is a common cause of a leaky roof. I would bring binoculars to look at the roof when I was viewing a house. Lead is generally used and is very durable, but can fatigue or come loose. More rarely zinc, copper, aluminium or galvanised steel has been used. Budget £1000-1500 as a minimum for remedial work including labour, materials and scaffold (25, 26).

Chimneys… where to even start? Apply all of the brickwork damage section here, particularly spalling. The heat expansion and freeze/thaw effects combine to result in rapid degradation. Check for mortar breakdown around flashing at the base, a common source of ‘falling damp’ which is water leaking down the chimney breast. Check for vertical cracks in the chimney, vegetation, nesting animals, degraded cement caps and loose chimney pots or cowls. All can cause problems (27, 28). We’re currently trying to have our chimney repaired as preventative maintenance, with quotes between £1500-2500. Getting the agreement of our neighbour as it is a party wall has proved troublesome (rented property). We can’t go ahead until we have their agreement, but hopefully they’ll go half.

  • Check the gutters, soffits and fascias

Again a multitude of materials and a cause for ‘falling damp’. Traditionally gutters were cast iron and painted. These with maintenance can last many, many years. For a short period there were asbestos and fibre gutters, before moving over to PVC or plastic forms. These don’t last as long but don’t need the maintenance (and are cheaper).

Firstly, check for vegetation or any signs of blockages in the gutters themselves. This causes rainwater to overflow (a cause of damp), but is easily remedied with a ladder (or if you really fancy get a bloke with a pressure washer). Then check downpipes and ground-level drains (gullys). Are they securely attached and are they all connected. Again a common cause of internal damp is a leaking external downpipe (29). I hired an aluminium scaffold tower for a week for £120 this summer and had a great old time digging years of rotting vegetation and a few carcasses out of our blocked gutters, before rodding out the downpipe and running new ground-level pipes. I also took the opportunity to repaint our soffits and fascias. Cheap fixes and maintenance preventing future problems.

Your guttering will be attached to the fascia, with the soffit covering the underhang (30). These used to be made of wood, which would need to be periodically painted. In more recent years they’ve been replaced with PVC. Sometimes this covers and is fixed to a wood board, or is fixed to the older fascia or soffit. Watch out for where people have covered a rotting old fascia with PVC to hide it, as it will continue to rot and the guttering will fall out.

The hidden costs

  • Check utilities services

What do I mean by this? Check where the stopcock and meter are externally if it’s obvious. Check where phonelines enter the building. Both can be a pain to track down. More importantly – check the drains! Where does the external surface water drain to? Are there obvious access hatches to inspection chambers? Learn from my error, when I spent a wintry December week breaking up our concrete yard and digging down two feet to expose a broken salt-glaze pipe containing 12 foot of backed-up liquid faeces. If you’re planning to rework a property then knowing where the utilities is essential for plumbing planning.

  • Check the garden for Japanese Knotweed & other pests.

Look for the plant below, Japanese Knotweed. The effect on the value of the property is massive. It’s an invasive non-native species which is classed as hazardous waste, and any land containing it is counted as contaminated. It’s difficult to get rid of, spreads like wildfire and grows up to 10cm a day (28). A survey by YouGov and Environet UK estimates that 5% of UK homes have Japanese Knotweed (31). Finding Japanese Knotweed will knock 10% off that value of the property (31, 32, 33). Also take the opportunity to spot for evidence of wasps nests, bats, rats or mice.

Finalement

So that’s outdoors briefly covered. In part two I’ll cover indoors, reflecting on what to look for in your first and second viewings when considering a house, and the mistakes we did and didn’t make.

The Shrink

 

References:

  1. https://www.telegraph.co.uk/property/buy/should-buy-worst-house-best-street-turn-ugly-duckling-swan/
  2. https://www.dailymail.co.uk/news/article-3114485/Want-make-money-property-Buy-house-avocado-bathroom-Artex-ceilings-quadruple-investment.html
  3. https://www.rightmove.co.uk/schools.html
  4. https://flood-map-for-planning.service.gov.uk/
  5. https://naturalresources.wales/evidence-and-data/maps/long-term-flood-risk/?lang=en
  6. https://www.sepa.org.uk/environment/water/flooding
  7. https://www.eygwindows.co.uk/lifestyle-blog/why-does-double-glazing-mist-up
  8. https://www.theecoexperts.co.uk/double-glazing-costs
  9. https://www.renovategreen.co.uk/building-fabric/retrofitting-double-glazing-into-old-windows/
  10. https://www.designingbuildings.co.uk/wiki/Defects_in_brickwork
  11. https://www.heritage-house.org/damp-and-condensation/types-of-damp-what-have-i-got/damp-problems-caused-by-cement-pointing-of-brick-or-stone.html
  12. http://www.loughboroughproperty.com/repointing/
  13. https://www.diydoctor.org.uk/projects/settlement.htm
  14. https://gharpedia.com/diagonal-cracks-brick-walls/
  15. http://www.colinsquire.co.uk/red-stained-walls/
  16. https://www.homebuilding.co.uk/render-faqs/
  17. https://www.thegreenage.co.uk/cost-of-external-render/
  18. https://en.wikipedia.org/wiki/Roughcast
  19. https://www.homebuilding.co.uk/cladding-new-facades-for-ugly-homes
  20. https://en.wikipedia.org/wiki/Cavity_wall
  21. https://www.fixmyroof.co.uk/videos-and-guides/pitched-roof/repair-a-slate-roof/
  22. https://www.roof-stores.co.uk/guides/tiles-and-slates/roofing-tiles-slates-lifespan/
  23. https://www.designingbuildings.co.uk/wiki/Flashing_in_building_construction
  24. https://www.homebuilding.co.uk/roof-repairs/
  25. http://essexroofingandfascias.co.uk/portfolio-items/damaged-chimney/
  26. https://www.karnakcorp.com/roof-conditions/damaged-flashing/
  27. https://www.homebuilding.co.uk/repairing-gutters/
  28. https://www.jjroofingsupplies.co.uk/blog/what-are-soffits-and-fascias/
  29. http://surveyingproperty.blogspot.com/2018/#.XAATl9v7SM8
  30. https://www.independent.co.uk/news/business/news/japanese-knotweed-house-prices-property-value-mortgage-insurance-how-to-treat-a8557971.html
  31. https://www.telegraph.co.uk/property/uk/property-buyers-sue-50000-japanese-knotweed-problem-homeowners/
  32. https://www.moneywise.co.uk/news/2018-09-28/japanese-knotweed-blight-has-slashed-uk-house-prices-20bn

 

 

 

Musing On… Motivation: Are you running from or running to?

What motivates your financial choices?

Reading a variety of FI and finance writers, it has occurred that those who blog are a rag-tag bunch. You have to be a bit different to move away from the credit-to-the-eyeballs herd. The reasons to go down the various financial paths, and then write about it are even more nebulous. A scientific mind led to attempts to discern some patterns among the noise. One such pattern is the writers motivation, and where the drive to save/ live frugally/ be financially independent arises.

Running from

For some, it seems the drive to be frugal is innate, inherited, learnt behaviours from early childhood. LittleMissFire talks about it as leaving the ‘shop floor mentality’, the mindset of a household living week-to-week, month-to-month, without financial planning (1). The crux of her post about the ‘shop floor mentality’ is the drive to better oneself, and leave behind the stress, envy, anguish and heartache of poverty (1). Understanding financial planning and making frugal life choices are just a short psychological hop from FI, and there seems a lot of overlap between frugal living and so-called ‘lean-FI’.

This drive to leave behind an unpleasant situation also appears prevalent on the FI forums I frequent, but here it’s less about a memory or experience of struggling for money, and more miserable working environments. For example (2):

And an example reply (2):

Small talk, alarm clocks, office politics, performance reviews, managers talking about you behind your back, tracking metrics, spreadsheets, deadlines, cubicles, dress code, meetings, daily existential crises, passive aggressiveness, emails with manager cc’d, scrum meetings, being taken advantage of, erosion of self esteem, etc. Etc.

I assume it was among those so miserable in their work that the term “Fuck You Money” arose (3). You’ve built up enough cash to say “Fuck You” to that miserable environment and walk away… but what then? How do you adapt your austere lifestyle out of work, with it’s focus on minimising all outgoings, to your new-found freedom (4):

Running towards

I sort of class myself amongst the running towards school-of-thought. I enjoy my job, to the extent that I am happy to go into work every day to perform it (especially after a slight change into a less front-facing role). I would probably keep doing it to some extent even if I wasn’t paid, because it is my ‘ikagai’ – a Japanese word whose closest translation is ‘the reason for which you get up in the morning’ (5, 6). Despite this I think the world is full of wonder, and I could spend whole other lifetimes doing different things. There are too many things to do and not enough time to experience them all whilst also working to support myself. FI, as The Frugal Cottage puts it, “gives you the option of spending your limited time however you want” (7, 8).

Just enjoying the run

This seems to be the final stage in FI nirvana fulfillment. Some suggest that by it’s nature, being frugal has a sort of contrarian cool (9). An echo of the counter-culture in a rejection of consumerism (10)More hippy than hipster I hope. Some bloggers, like TEA, enjoy the journey to FI and beyond because they developed an enjoyment of “the process of wealth building” (11) TEA writes about learning to enjoy these things by using conditional rewards; a big juicy carrot for the FI stick, training your brain to associate putting the financial graft in for a reward (11). Or writers like FIREvLondon, who enjoy the writing about their process, discussing ideas, commenting on experiences (12). This is a far better path to happiness, where any goal you set or any target you make can bring you fulfillment. Enjoying the process of blogging, the sharing of knowledge and community.

Why does it matter?

Understanding your motivation is inherently tied to your ability to complete the goals you set yourself for financial independence and frugal living. If your goal is off from what you truly want you’ll lack motivation, and if you’re motivated for only a specific purpose you may find yourself unfulfilled and lost when you reach that goal, or unable to reach it altogether. As I’m setting my goals, I’ve been noticing many are around things I’d do after being FI. I risk that there will always be one more goal or target. It’s time to think about my enjoyment of the pursuit, and I would urge others to ask, why do I want FI?

References:

  1. https://littlemissfireblog.wordpress.com/2018/03/24/do-you-have-the-shopfloor-money-mentality/
  2. https://www.reddit.com/r/financialindependence/comments/8ogyp8/people_who_are_trying_to_reach_fi_because_they/
  3. https://theescapeartist.me/2018/07/24/the-art-of-wealth-preservation/
  4. https://www.reddit.com/r/financialindependence/comments/94kmku/first_day_of_retirement_at_40_yo
  5. https://www.telegraph.co.uk/health-fitness/mind/finding-ikigai-japanese-secret-health-happiness/
  6. http://monevator.com/weekend-reading-what-is-your-reason-for-being/
  7. http://www.thefrugalcottage.com/everyone-early-retirement/
  8. http://thefirestarter.co.uk/early-retirement-in-5-years-in-the-uk-is-it-possible/
  9. https://www.psychologytoday.com/gb/blog/the-eclectic-professor/201102/the-psychology-thrift-why-not-frugal-cool
  10. http://thefirestarter.co.uk/about-me/
  11. https://theescapeartist.me/2018/02/13/get-rich-with-the-process/
  12. https://firevlondon.com/about/

 

 

The Full English Accompaniment – On Brexit, social psychology and market timing

What’s piqued my interest this week?
I’ve been reading Tim Hales Smarter Investing over the last couple of weeks, which appears considered essential reading by most FI/ passive investment sources (1). It has prompted me to write down a philosophy and a draft set of goals for my investment plans. One of the cautions is against market timing, because it’s very statistically difficult to be good at it, incorporating not a small amount of luck. Much better to go Bogle, and buy then hold a low cost tracker (2). So far, so sold.
There’s another section of the book which documents how one of the most important, most overlooked parts to a portfolio decision is target country allocation. This is where I’m currently stuck, as Brexit presents a big hit of unknown outcomes, and is turning my market timing milk sour. Oh look, another r/UKPersonalFinance post triggered me (I’ll cut out all the Reddit relevant-only bits)…

Everyone, put on your tin-foil hats and join me on a journey considering a Brexit scenario…

I’ve personally suspected that Brexit is being pushed along despite it outwardly, appearing to be in no-one’s interests perhaps as a textbook example of Naomi Klein’s ‘Disaster Capitalism’ but maybe just as a way for massive money to be made from the lurches in exchange rate and FTSE etc.

So one outcome I suspect is that the pound will stay relatively weak to the EUR/USD etc, keeping the FTSE reasonably high, until we suddenly hit a point where it gets revealed we’ll basically stay in the EU (or EEA), perhaps after a 2nd referendum, so…

If the timeline of this is the next 6 months, how will the politicians and their chums be looking to maximise the person financial benefit to themselves? Assuming a, say, 15% increase in the value of the pound, and 10% drop in the FTSE 100, would they be looking to sell most investments, have cash and then be ready to re-invest after the correction?

What would you do in this scenario if you had this inside information? (3)

This is a little tinfoil hat brigade, although the murmuring the Nigel Farage shorted the value of the £ when he found out the result of Brexit before it was officially released could provide some evidence (4). An ex-investment banker wouldn’t call up his mates still in the industry with privy information would he? The main issue I have with the above is that it appears to go against the political wind and public opinion polls. The Conservatives and Labour are both loath to go back on the stated plan to exit (would be seen as weak?), and YouGov’s last poll in July found that a fraction greater percentage thought Brexit was the wrong decision than didn’t (5). Opinion polls may be a pretty poor judge, but they’re not so bad as to miss half the nation suddenly decided they do want to stay in the EU, after all (6).
Brexit therefore represents a challenge to the efficient market hypothesis (7). Pre-Brexit vote, a commentator in Forbes discussed how the referendum would represent an excellent testbed for efficient markets (8). It truly did, as the unexpected (to the city) voter decision was integrated into share prices in a number of hours. The fact that the referendum result was unexpected and therefore prompted such a dramatic shift in the markets challenges the efficient market hypothesis, and specifically what makes it efficient. The efficiency relies upon the sum of all the traders individual access to information. To bring it round to psychological terms, it is a form of social Gestalt theory, where the individual chaotic pieces of information/ action contributes to a total pattern (9, 10). Market traders were unaware of the depth of feeling in favour of Brexit prior to the vote (those pesky polls again), and were suddenly exposed to it and integrated it into the markets on referendum day.
But why were market traders so unaware? I wonder that the possibility of a Leave vote did not comply with the collective conscience of market traders and ‘the city’ and therefore was not appropriately considered by the markets (11). To go back to Durkheim’s original use of collective consciousness (very separate from Jungian collective unconsciousness), it is the ‘general feeling’ towards a position, experienced and perceived by the individuals in the collective (11). A shared unconscious understanding of social norms. In the city, it was a social norm to be pro-EU. In the general populace, not so much. Therefore the true risk of a Leave vote to the markets was a Rumsfeldian ‘unknown unknown’. To be pro-Leave in London pre-Brexit went against social norms, it didn’t fit with the social reality constructed in that environment, even if it did fit with the social norms and social reality of the wider UK (12).
Which brings me to my market timing and allocation conundrum. The market is efficient when it is integrating information which makes sense within it’s system; IPOs, sales data, quarterly returns etc. It appears less efficient at integrating popular opinion and behaviour. The market is vulnerable to collective psychological effects (herd behaviour etc), and changes in the market are made by people. The people who change the market (traders etc) operate in a different social world (‘social reality’) to the general populace, by nature of their social interactions. Yours is visible in day-to-day life in your twitter or social media sphere, which may differ from general public opinion. The markets will therefore be generally running on the market traders social reality, whilst the rest of us live in a slightly different social reality. Politicians span the divide, but take their lauded mandate from the general populace’s social reality. The difference comes to the fore when the market has to integrate decisions which are made by the wider populace that didn’t fit with it’s reality, e.g. Brexit. The reddit comment quoted above appears to sit well within the market reality bubble; we’ll stay in the EU in the end, it’s all a sideshow. My concern is that the general populace appears fairly relaxed about a ‘No-deal’ Brexit. Knowing that we’re a few short months out of formal Brexit, do I choose allocations based on that worry which insulate against this outcome. Does even thinking about this represent market-timing, and I should just bung my cash ‘somewhere’ and sit it out. Your opinion welcome here…
Have a great week,

The Shrink

Side Orders

Other News

Opinion/ blogs:

What I’m reading:

Smarter Investing 3rd edn – Tim Hale – essential reading

Religio Medici and Urne-Buriall by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor. This is turning out to be real heavy-going.

Enchiridion by Epictetus – Bedside reading for a bad day

References:

  1. https://www.amazon.co.uk/gp/product/B00GAYHH8I/ref=as_li_tl?ie=UTF8&camp=1634&creative=6738&creativeASIN=B00GAYHH8I&linkCode=as2&tag=thefireshrink-21&linkId=5a8bfccf506245d47fbac2d871c70c47
  2. https://www.bogleheads.org/wiki/Getting_started
  3. http://www.reddit.com/r/UKPersonalFinance/comments/9cnsqj/the_potential_effect_of_a_massive_shift_in
  4. https://www.theguardian.com/politics/2018/jun/25/nigel-farage-denies-shorting-value-of-sterling-on-night-of-brexit-vote
  5. https://yougov.co.uk/news/2018/06/23/eu-referendum-two-years/
  6. https://www.nature.com/articles/s41562-018-0330-7
  7. https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp
  8. https://www.forbes.com/sites/timworstall/2016/02/22/brexit-uk-financial-markets-and-the-efficient-markets-hypothesis/#31ab82161667
  9. https://www.britannica.com/science/Gestalt-psychology
  10. https://en.wikipedia.org/wiki/Gestalt_psychology
  11. https://en.wikipedia.org/wiki/Collective_consciousness
  12. https://en.wikipedia.org/wiki/Social_reality
  13. https://www.thisismoney.co.uk/money/pensions/article-6130445/Will-council-force-sell-house-cover-dads-care-bills.html
  14. https://www.thisismoney.co.uk/money/cars/article-6138267/A-1979-Lada-Niva-estimated-sell-75-000-goes-just-4K.html
  15. https://www.theguardian.com/money/2018/sep/07/house-prices-rose-at-fastest-rate-in-almost-year-says-halifax-august-north-south
  16. https://www.theguardian.com/uk-news/2018/sep/05/thinktank-calls-for-major-overhaul-of-britains-economy
  17. https://www.thisismoney.co.uk/property/article-6106049/A-downstairs-family-bathroom-lowers-property-value-6.html
  18. https://www.thisismoney.co.uk/money/news/article-6080099/Are-Monzo-Revolut-Starling-Transferwise-safe-bank-with.html
  19. http://monevator.com/10-things-you-can-do-today-to-reset-your-life/
  20. http://monevator.com/weekend-reading-what-is-your-reason-for-being/
  21. http://thefirestarter.co.uk/my-5-years-are-up-how-did-i-do/
  22. http://thefirestarter.co.uk/august-income-expenses-report-a-bit-of-an-odd-one/
  23. https://thefireeng.com/net-worth-update-august-2018/
  24. http://www.msziyou.com/yes-i-am-rich-now/
  25. http://www.msziyou.com/net-worth-updates-august-2018/
  26. http://www.mrmoneymustache.com/2018/09/05/what-really-goes-on-at-mmm-headquarters/
  27. http://theirrelevantinvestor.com/2018/09/04/gold-what-is-it-good-for/
  28. https://www.ukvalueinvestor.com/2018/09/sold-senior-plc-after-recent-share-price-gains.html/

 

The Full English Accompaniment – The neuroscience of a frugal mindset

What’s piqued my interest this week?

In a throwaway conversation this week MrsShrink said something which I’ve subsequently been ruminating on. In running our household I do most of the shopping, but MrsShrink does the toiletries. She remarked that she actively enjoyed going to browse in Savers, Home Bargains etc, as she enjoyed spending money she knows she has to. She’s learnt to be frugal, to penny-pinch, and spending is a treat. She gets a hit out of buying things most of us wouldn’t think twice about because to her it’s a forbidden joy.

Attitudes and behaviour towards money are learnt in childhood by observing your parents. On a structural level, the dopaminergic mesolimbic ‘reward’ pathway develops through your childhood and adolescence (1). This is the time when your brain is most sensitive to it’s reward system, and is setting down the pathways for a lifetimes use (2). The way I explain behavioural modelling to patients is to think of it as a parallel to learning your first language. As a toddler you observe your parents using sounds as language, try it out, see what works, gradually accumulating your understanding without consciously being aware of the process. Other behavioural processes also follow this unconscious accumulation process, including financial attitude. If you model your child’s behaviour at this time (consciously and unconsciously) you lay down the pathways for a lifetime of reward processing.

Hundreds of websites and blogs have signed onto this, offering to teach us the ways we can consciously train our children to be better financially. This doesn’t have to be as intense as paying your child through an investment account, or making them buy fractional shares in Netflix as some would recommend (3). The piggy bank, pocket money, weekend job development path will work just fine (4). I clearly remember learning the value of money calculating how many penny sweets I could buy with my 50p pocket money. The pre-frontal and frontal cortex projections of these pathways continue to develop into your teens and early 20s, forming your conscious awareness of pleasurable responses as you grow into adulthood.

The unconscious processes are far harder to model, alter or change. These are the deep cortex projections close to the archaic midbrain structures, projections which develop during early childhood through modelling. These are learnt through observation of those around you. This is why teaching your child to be a spendthrift can only go so far if your own approach is spending all you have to keep up with the Joneses. This is also why, in my opinion, people such as Little Miss Fire struggle with her Shop Floor Mentality (5). If you have grown up in an environment of thrift as a necessity of poverty the rewards from saving, investing and watching wealth grow are not hard-wired in your cortex. There is no unconscious drive for these goals. The Stanford Marshmallow experiment on delayed gratification is a case in point example, and potentially a way of teaching your child the benefits of patience (6).

Which is where I bring things full circle. Many rich people are innately frugal; look at Warren Buffett (7, 8). These winners derive their pleasure from the process not the outcome. MrsShrink is innately frugal as she was brought up in an environment where frugality was a necessity. She observed her mother being able to afford the things they wanted by saving wherever possible. I secretly suspect she is much more likely to become FI than I because of this innate drive, but will be hampered by her mistrust of investment vehicles. She has no desire and gains no pleasure from making non-frugal choices. Consciously training thought processes to be the same way is far harder.

Have a great week,

The Shrink

N.B. There won’t be a Full English Accompaniment next week as I’m on holiday AFK.

Side Orders

Other News:

Opinion/ blogs:

What I’m reading:

An exam textbook

Religio Medici and Urne-Buriall by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor

Enchiridion by Epictetus – Bedside reading for a bad day

References:

  1. Walker et al. Adolescence and Reward: Making Sense of Neural and Behavioral Changes Amid the Chaos. The Journal of Neuroscience (2017)
  2. Galvan, A. Adolescent Development of the Reward System. Frontiers In Human Neuroscience (2010)
  3. https://www.marketwatch.com/story/how-to-teach-your-kids-to-be-better-with-money-than-you-are-2017-07-26
  4. https://www.independent.co.uk/money/spend-save/how-to-teach-money-children-kids-personal-finance-tips-guidelines-property-a7789381.html
  5. https://littlemissfireblog.wordpress.com/2018/03/24/do-you-have-the-shopfloor-money-mentality/
  6. https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment
  7. https://www.psychologytoday.com/gb/blog/how-do-life/201503/why-many-rich-people-are-frugal
  8. http://time.com/money/4861261/billionaires-spending-habits-frugal/
  9. https://www.bbc.co.uk/news/business-45194019
  10. https://www.bbc.co.uk/news/business-45201155
  11. https://www.theguardian.com/technology/2018/aug/17/elon-musk-says-past-year-has-been-excruciating-and-worst-is-yet-to-come
  12. https://www.bbc.co.uk/news/business-45216551
  13. https://www.bbc.co.uk/news/world-asia-45199034
  14. http://www.thisismoney.co.uk/news/article-6064685/Fears-grow-house-prices-fall-fastest-rate-financial-crisis.html
  15. https://www.ig.com/uk/shares-news/mining-in-the-uk-and-ireland-is-well-and-truly-alive-180815
  16. http://thefirestarter.co.uk/can-we-afford-an-electric-vehicle-lets-run-the-numbers/
  17. https://www.bbc.co.uk/news/business-44953607
  18. https://www.ukvalueinvestor.com/2018/08/ted-baker-dividend-growth-stock.html/
  19. https://www.ig.com/uk/commodities-news/is-investment-in-renewable-energy-drying-up-180809
  20. https://www.etf.com/sections/index-investor-corner/swedroe-determining-esgs-nature
  21. https://firevlondon.com/2018/08/13/recalibrating-my-portfolio/
  22. https://firevlondon.com/2018/08/09/july-2018-the-trade-news-sweetens/
  23. https://simplelivingsomerset.wordpress.com/2018/08/13/there-be-a-rumbling-and-a-sound-of-clucking-chickens-in-the-air/
  24. http://eaglesfeartoperch.blogspot.com/2018/08/garden-gate-repair-and-new-fence.html
  25. http://monevator.com/weekend-reading-funny-money/
  26. http://monevator.com/taking-more-risk-does-not-guarantee-more-reward/
  27. https://deliberatelivinguk.wordpress.com/2018/08/13/savings-rate-revisited/
  28. http://quietlysaving.co.uk/2018/08/12/phone-free-day/
  29. https://www.mrmoneymustache.com/2018/07/25/the-twenty-dollar-swim/
  30. https://www.theatlantic.com/magazine/archive/2018/09/cognitive-bias/565775/

Musing on… Long-term care costs and financial savings

This post has been mulled over for a long time, trying to discern and distil a direction. It began (as these trains of thought often do) with an idle r/financialindependence post. If you’re not familiar with that, it’s a subreddit for FI-types, predominantly populated by Yanks (Reddit being a sort of forum-cum-meta-aggregator of internet waffle). In this post a group of our ex-colonial cousins were discussing long-term costs (1):

So far, so not our problem. The UK may have significantly higher tax rates (ignoring ISAs etc), but it pays for (in theory) the NHS and social care, the cradle-to-grave support system for when times are bad. The NHS and social care system are what makes FIRE and any sort of fuck-you to working possible in the UK. Check out the video and post TEA and Rhik Samadder did on the matter (2).

National, personal cover

As we celebrate the NHS’ 70th birthday, it’s worth reflecting on where this all came from. Before the birth of the NHS all doctors services were private in the UK. If you needed something, you went to your local doctor, hoped they had been trained adequately, paid your money, got your treatment, hoped it worked. There were no guidelines. There was no standardisation. This worked fine for the wealthy, who could afford the best, but for the poor would die from an inability to pay the doctor. You can find plenty of stories from that time, but if you read one, I recommend the recollections of the wonderful Harry Leslie Smith (3). He remembers a doctors visit costing half-a-weeks wages, which they sadly did not have (3). This private price has scaled with inflation. A 15 minute private GP consultation will set you back £70 (4). As a profession we remain a rare commodity, and on an open market our hourly rate is such. The NHS affords the government a position of power and collective contractual employment which, despite press vilification, means we still come relatively cheap.

In the days before the NHS, workers would club together to pay for ‘self-help’ organisations, to provide medical care for one another. Beginning in the late 1800s, the Tredegar Workmen’s Medical Aid Society was one such successful organisation (5):

By the 1920s, the society employed the services of five doctors, one surgeon, two pharmacists, a physiotherapist, a dentist, and a district nurse. For an extra sum each week, members could also benefit from hospital treatment.

During the inter-war depression, the society continued to provide services to unemployed people, even though they could no longer afford to pay a subscription. By the mid-1940s, the society was providing medical care for 22,800 of the town’s 24,000 inhabitants.

Aneurin Bevan, who was born in Tredegar, took the Workmen’s Medical Aid Society as his inspiration for the NHS, saying: “All I am doing is extending to the entire population of Britain the benefits we had in Tredegar for a generation or more. We are going to ‘Tredegarise’ you.” (5)

The fragmentation of the NHS, gradual privatisation and reduction in care available deserves a separate post. For now, with a sense of perspective, we can look across the pond and be smug about our NHS (6). Cradle to grave cover, in our most frail years, maternity and care home. Isn’t it marvellous. Except… have you ever been in an NHS care home? And how much do you think that care home costs?

Who wants to live forever?

Time and again bloggers discuss their financial plans, how they’re 50 now, and they see themselves having 30 more good years. They fall into a common trap, recent research shows 8/10 of those over 50 underestimate their life expectancy (7). Most people guess they’ll live to 82-ish, whereas the data says more like 88 for men, and 90 for women*. We have got much better at keeping people alive for longer. Those aren’t necessarily going to be good years though, and so people trot out those bleak jokes; “oh just roll me off a cliff at 80”; “I’ll just head off to Switzerland”; “I’ll just pop my clogs then”. Except those are all to varying degrees illegal/ unethical. We doctors can’t just settle you off in a dignified way when you decide you’re not much use or aren’t enjoying things anymore. How do you decide when that is? Death is so very final. As a culture we have developed a fear of discussing or even considering our own mortality.

(*N.B. You can’t actually use ONS life expectancy at birth figures for this. Infancy through to teenage years (and early adulthood for young men) still have higher mortality. Once you pass your mid-20s your life expectancy actually statistically increases to accommodate for this.)

So for our friends the FIRE-savers, that’s an extra half decade of savings to account for. Suddenly retiring at 55 with a 4% SWR estimating a 30 year retirement isn’t quite enough (8). Life expectancy has increased in the 20 years since the Trinity study was published (9). A 45 year-old sitting down now and estimating for a 4% withdrawal starting at age 55 may well have a good 40 years ahead of them. It’s not just the %withdrawal that’s a variable in this calculation, it’s the duration too. For some really interesting drawdown calculations, check out RIT’s recent post (10).

The final splurge

How much do you think your living costs will be too? The common practice appears to be to take roughly your current living expenses, and times that out for the number of years you need. Some people estimate less, as they figure their homes will be paid off. An interesting piece of research by investment firm Schroders casts doubt on that. It found that savers underestimated their living costs in retirement by 15% (11). Only half of people surveyed had enough to live on comfortably (11).

Coming back to people facing their own mortality, and a decline into frailty, did you include the care home fees in that cost? The answer to the previous question is that the average care home price per year in the UK is £29,270 for a residential home, £39,300 for a nursing home (12). That’s average too, as with everything the South is more expensive, and we all like to imagine ourselves in our twilight years in a beautiful peaceful home, and not being roughly manhandled by someone on minimum-wage with no dignity or care, before being hauled up on a CQC newspaper expose (13). If you want to see what it’s like in your area, the UK Care Guide has a number cruncher and area analysis (14). You can decide to stay in your own home, but there the costs can mount up too. 24 hour care can be more than £150,000/year (13). And again for perspective, your life expectancy from a diagnosis of dementia in your 60s – 6.7 years, in your 90s – 1.9 years (15).

Where’s my cradle to grave?

Too right, where’s the NHS and social care system in all of this? Broke, that’s where. Historically there were jobs that provided care and nursing homes for their retired workers as part of their payment plan (although I can’t imagine anything worse). Now the burden falls on the social care system. The boomer population is ageing, and everyone is living longer. Social care reform remains a political football as no side wants to try to tell people that their lifetime of NI contributions and tax wasn’t enough to pay for their care (16). The “squeezed middle” baby boomers (le sigh) are already paying up to £10k a year to look after their ageing parents, and this will only get worse (17).

To try and at least partially cover care home fees, the central and local Govs have created an Orwellian masterpiece of committees with opaque criteria to make decisions about who gets support and who doesn’t. It’s called NHS Continuing Healthcare when the NHS is involved, i.e. if there is ‘sufficient medical need’ (17). If you can’t qualify for that you get means tested by the local social care trust/ provider (18). AgeUK make a fair stab at explaining it on their website (19). I’ve seen people die before any decision on who will pay has been reached.

http_com.ft.imagepublish.upp-prod-eu.s3.amazonaws

The final stretch of this little essay is about the means testing that social care can use. It’s not actually free at point of care. The system used is fairly complicated in it’s own right, but the Money Advice Service has a good page breaking it down (18). Your income and capital are assessed. If you live alone, and in certain other circumstances, your home will be counted as part of your capital (18). The local authority can and will sell your home to pay for the fees, even if you don’t want them to (20. 21).

If the local authority deems you have deliberately disposed of assets, for example by gifting your child your home, to avoid paying means tested fees, it can claim them back. This quietly introduced piece of legislation is called Deprivation of Assets (22). The rules have subsequently got much tighter around gifting any asset; housing, jewellery, money, objects (23). As always, do your own research.

We can’t take it with us

To summarise, as a culture we fear death and avoid considering our own mortality or old age due to the association. This is a shame, as people are more active in their old age and living longer than ever before. We underestimate the costs and expenditure we will have in retirement. Old age will cost more than we collectively think. The last few years cost A LOT MORE. Don’t ignore your final years, embrace those calculations, and spend them in luxury if you can.

Have a morbid time!

The Shrink

References

  1. https://www.reddit.com/r/financialindependence/comments/8fyu65/do_longterm_care_costs_factor_into_your_fire_plans/
  2. https://www.millennial-revolution.com/freedom/early-retire-uk/
  3. https://www.newstatesman.com/politics/2014/10/hunger-filth-fear-and-death-remembering-life-nhs
  4. https://www.bupa.co.uk/health/bupa-on-demand/gp-services
  5. https://www.theguardian.com/healthcare-network/2018/may/22/south-wales-town-forged-nhs-points-future-tredegar
  6. https://www.reddit.com/r/financialindependence/comments/8zx7iq/health_insurance_as_a_barrier_to_fire_in_the_usa/
  7. https://www.ftadviser.com/pensions/2017/11/28/most-over-50s-underestimate-life-expectancy/
  8. https://www.madfientist.com/safe-withdrawal-rate/
  9. https://en.wikipedia.org/wiki/Trinity_study
  10. http://www.retirementinvestingtoday.com/2018/07/sobering-retirement-income-drawdown.html
  11. https://www.moneywise.co.uk/news/2018-07-03/savers-vastly-underestimate-the-cost-retirement
  12. https://www.moneyadviceservice.org.uk/en/articles/care-home-or-home-care
  13. https://bit.ly/2OiBuIN
  14. https://ukcareguide.co.uk/care-home-costs/
  15. https://www.bmj.com/content/341/bmj.c3584
  16. https://www.independent.co.uk/life-style/health-and-families/nhs-social-care-uk-reform-aneurin-bevan-health-poverty-andy-burnham-a8429571.html
  17. https://www.moneyadviceservice.org.uk/en/articles/are-you-eligible-for-nhs-continuing-care-funding
  18. https://www.moneyadviceservice.org.uk/en/articles/means-tests-for-help-with-care-costs-how-they-work
  19. https://www.ageuk.org.uk/information-advice/care/paying-for-care/paying-for-a-care-home/
  20. https://www.ft.com/content/34c336e8-3e5c-11e8-b7e0-52972418fec4
  21. https://www.telegraph.co.uk/finance/personalfinance/insurance/longtermcare/11441163/Why-you-WILL-have-to-sell-your-home-to-pay-for-care.html
  22. https://www.ageuk.org.uk/information-advice/care/paying-for-care/paying-for-a-care-home/deprivation-of-assets/
  23. https://www.which.co.uk/elderly-care/financing-care/gifting-assets-and-property/343063-what-are-the-rules-for-gifting-assets

Musing on… the future’s bright, the future’s green

A recent Grauniad article got me musing on energy futures (1).

MrsShrink works in sustainable energy and has had various roles from industrial purchasing to consultancy in the last 10 years. It’s probably the only thing she’d blog about on here, but for now I’ll lay some opinions on you with a big statement. Offshore power could be Britain’s next north sea oil. However, currently it is mainly overseas company investing, creating jobs and getting stuff done on the ground. See the massive investment by Siemens in the Humber region, which has made it ‘the envy of the world’ (2, 3). MrsShrink finds it barmy that as an island nation we can’t be energy independent using the resources around us. For a nice AV update, here’s a recent episode of Fully Charged News that covers some of the current investment:

I’m a great fan of Fully Charged, and plan to become a Patreon for all the hard work Jonny and Robert are doing (4).

The nuclear conundrum

This makes the recent decision by the government to invest massively in new nuclear power stations a bit bizarre. The new Wylfa power station on Anglesey will be built by Hitachi for >£15billion, requiring at least £5billion, but more like £9billion, of UK government money (5, 6). This is on top of the recent strike price of £92.50/MWh and investment in Hinkley Point C, run by EDF, which has been dubbed “the dreadful deal” (7, 8). This is not an argument against nuclear, per se. There is a defence argument for maintaining a number of active nuclear reactors to have the ability to produce military grade munitions (don’t let MrsShrink here me saying that). Hot off the press is commendable investment into new nuclear technology, to the tune of £200m (9). This includes £86m into a UK fusion programme (probably to replace our investment in the EU ITER, ejits), £32m for advance R&D for construction, £30m for supply chain, and commitment to clean up ‘legacy’ sites (10). Intriguingly, it will also see £56m for R&D into ‘advanced modular reactors’, seen by many as a move toward U-batteries; small reactors designed to operate intermittently or independently to decentralise supply (11, 12)

MrsFIREShrink deals with plenty of civil servants who are aware of and pushing for a decentralised grid. She was involved in recent R&D funding pushing the current decrease seen in wind cost /kwh to the grid, with a strike price of £50/MWh achieved (13). While this is likely a temporary artificial low, it follows a decreasing curve in renewable energy prices /kwh and cost for installation. International R&D is driving this. The losers here are UK based ‘big-6’ energy companies, who are mainly invested in traditional power supply methods and only now coming round to renewable sources. Interestingly ‘the city’ is fairly evenly split, probably due to the split of UK-based and world-based investment. The disconnect at a political level is between the current politicians in power and the civil servants. I wonder why…

The issue of baseload is often touted as reasons for energy not to be fully renewable. Hydro and pumped storage are one element of the reply. Building pumped storage plants like Dinorwig will provide robust, large-scale storage back-up (13). More of these are being built in abandoned industrial quarries and workings (14, 15). However this continues to follow a traditional power supply train of thought working with a centralised grid. The energy infrastructure and supply field is changing tremendously quickly, and so 10 year old articles don’t cut the mustard.

The current focus of R&D and rapid development is battery storage to solve the cyclic demand for power. Tesla have opened a massive powerbank in Aus (16), however Tesla gets lots of fanboi hype despite being considered the world leader in energy density for batteries. This work is also going on in California, and with more energy dense Li-ion and potentially solid state batteries in the pipeline, the technology is moving as fast as it can be installed (17). The grid and suppliers are struggling to keep up.

Bring the system down

The wider move to decentralise the grid, utilising the smart grid and home/ industrial supply makes sense from cost to the consumer/ company, and from a strategic point of view. Hard to blow up the power supply to an area if every home and factory is contributing. The top end consumer market is moving to home PV and wind coupled to battery storage. Again the excellent Fully Charged show covers this (18):

It’s difficult to find a clear graph to demonstrate just how fast PV costs have reduced. Most data is based on US, Asian or Australian costs, which says something about uptake. These graphs are taken from submissions made by Friends of the Earth to the old Department of Energy and Climate Change (19). Biased, but the data they’re based on is factually correct:

1605vw06.gif

1605vw07.gif

Wind:

REW_Chart3.png

What’s the picture on the ground?

The actual amount in use is again difficult to calculate. The graphs below run to 2016, and since then the Government has been playing around with the feed-in tariff, reducing and dis-incentivising (20). Capacity can be assessed on the amount of feed-in tariff being utilised and the supply being provided to the grid (21, 22):

As prices come down it will make increasing sense to have a bit of solar PV on your roof and a battery in your house to decrease your energy cost from the grid. This is limited but not prevented somewhat by our old house stock. Industrial energy use is changing more rapidly. To briefly summarise it is currently cheaper for many offices to retrofit solar PV and wind, with a hookup to the grid for peak demand, than to just buy from the grid at standard rates. For larger consumers, Combined Heat and Power (CHP) and microCHP plants running off natural gas with grid electricity sell-back is cheaper and more efficient.

The future?

So to get back to the original point, we are reaching a crossroads where either the ‘big 6’ or others recognise that offshore wind coupled to onshore solar PV and battery storage are most cost effective over lifetime of installation than traditional power plants for supplying grid baseload. The cost cross-over is nicely demonstrated when looking at long-term solar PV changes (23):

To date experts have been astonishingly bad at predicting the uptake and use of renewable energy (24):

IEA Solar Predictions for Global Installations

I like graphs

What we find interesting is who is going to invest in this and when; is it the ‘big 6’ (E.On are starting to), is it foreign energy companies, or will it be a smaller network of UK based suppliers (25). The government can’t seem to decide, but is erring on the big companies side; vis Hinkley C’s strike cost of £92.50/MWh for EDF vs solar PVs £50/MWh strike cost and offshore winds £57.50/MWh (8, 12, 26). Big oil companies like Shell are starting to clue up and get in as a way of surviving the death of fossil fuels (27). We’re looking at using a small renewable-only energy supplier for our home. It’s a time of huge change and potential for the energy industry, with lots of great opportunities for investors and new companies. We just hope the UK can find a way to lead the change again.

Have a great week,

The Shrink

References

  1. https://www.theguardian.com/environment/2018/jun/19/huge-mistake-britain-throwing-away-lead-in-tidal-energy-say-developers
  2. https://www.bbc.co.uk/news/uk-england-humber-43808806
  3. https://www.hulldailymail.co.uk/news/business/siemens-boss-says-humber-become-1513169
  4. https://www.youtube.com/watch?v=HYr7aGf0-wA
  5. https://www.thetimes.co.uk/article/taxpayer-bankrolls-15bn-nuclear-plant-at-wylfa-in-wales-0p7dnxfhq
  6. https://www.theguardian.com/environment/2018/jun/04/uk-takes-5bn-stake-in-welsh-nuclear-power-station-in-policy-u-turn
  7. https://www.ft.com/content/00be1bc4-64c2-11e8-90c2-9563a0613e56
  8. https://www.theguardian.com/news/2017/dec/21/hinkley-point-c-dreadful-deal-behind-worlds-most-expensive-power-plant
  9. https://www.gov.uk/government/news/new-deal-with-industry-to-secure-uk-civil-nuclear-future-and-drive-down-cost-of-energy-for-customers
  10. https://www.bbc.co.uk/news/uk-wales-politics-44634580
  11. https://www.theengineer.co.uk/nuclear-industry-sector-deal/
  12. https://renewablesnow.com/news/solar-pv-gets-lowest-strike-prices-in-uks-cfd-auction-465462/
  13. https://en.wikipedia.org/wiki/Dinorwig_Power_Station
  14. https://www.theengineer.co.uk/first-new-uk-pumped-hydro-scheme-for-30-years-given-go-ahead/
  15. https://www.theengineer.co.uk/pumped-hydro-storage/
  16. https://www.bbc.co.uk/news/world-australia-42190358
  17. https://www.theguardian.com/sustainable-business/2017/sep/15/californias-big-battery-experiment-a-turning-point-for-energy-storage
  18. https://www.youtube.com/watch?v=Ym8emBsYdMs
  19. https://publications.parliament.uk/pa/cm201012/cmselect/cmenergy/1605/1605vw34.htm
  20. https://www.theguardian.com/environment/2018/jun/27/uk-home-solar-power-subsidies-costs-battery-technology
  21. https://www.r-e-a.net/member/uk-solar/feed-in-tariff
  22. https://www.solarpowerportal.co.uk/news/exclusive_uk_installed_1.553gw_in_q1_2016
  23. http://ramblingsdc.net/Australia/SolarPower2.html
  24. http://www.visualcapitalist.com/experts-bad-forecasting-solar/
  25. https://uk.reuters.com/article/uk-rwe-renewables/rwe-ceo-eyes-15-billion-euros-annual-investment-in-green-energy-idUKKBN1JJ00R
  26. https://utilityweek.co.uk/orsted-orders-turbines-record-breaking-offshore-wind-project/
  27. https://www.edie.net/news/10/Shell-collaborates-with-Carbon-Trust-to-drive-lower-offshore-wind-costs/