Merryn Talks Money – UK Housing Jitters, Market Moves, and "Psychic Wealth"

Episode Date: November 14, 2025
Host: Merryn Somerset Webb
Guest: John Stepek (Bloomberg Senior Reporter, author of Money Distilled newsletter)

Overview

This episode focuses on the interplay between the UK housing market’s current stagnation and wider investor sentiment, delves into the true state of UK equity markets, and explores the concept of “psychic wealth” in periods of economic and market bubbles—especially within the context of the AI-driven rally in US equities.

Key Topics and Discussion Points

1. The State of the UK Housing Market

Timestamps: 02:40–08:18

• Sentiment and Activity:

  • Both buyers and sellers are hesitant ahead of the upcoming UK budget, leading to delayed decisions and a subdued market (03:00).
  • The recent RICS (Royal Institution of Chartered Surveyors) survey reflects widespread nervousness, especially among estate agents.

• Interest Rates vs Prices:

  • John notes that house prices are fundamentally driven by mortgage rates, which have been falling slightly as markets expect Bank of England rate cuts (03:45).
  • “House prices are driven by one thing, and that's the price that somebody can get a mortgage for.” – John Stepek (03:54)

• Budget Uncertainty:

  • Merryn emphasizes that uncertainty—particularly around potential property or wealth taxes—contributes significantly to the market’s pause, especially for higher-end properties (04:15).

• Inflation Adjustment:

  • Even if nominal prices rise 2.5–3% as forecasted, inflation means real prices are flat or falling (05:36).
  • The last few years have seen a marked drop in real, inflation-adjusted UK home values, even as other assets like equities/gold performed strongly.

Notable Moment:

“My equity portfolio never phones me up and says the toilet’s broken… it’s a low-maintenance kind of business running an equity portfolio.”
— John Stepek (07:41)

2. Buy-to-Let’s Waning Lure

Timestamps: 05:57–08:18

• Landlord Realizations:

  • John discusses a LinkedIn post from an amateur landlord, detailing how stagnant capital gains and changing taxation made buy-to-let a deal less lucrative than investing in equities (05:57).
  • Merryn highlights that when there is no capital gain, the hassle of property management often isn’t worth it.

• Changing Mindset:

  • Both speakers identify a generational shift away from the “property is your pension” mentality that dominated British investing (08:18).

3. UK Equity Market Moves

Timestamps: 08:18–10:56

• FTSE 100 Outlook:

  • The FTSE 100 may soon cross 10,000 but, Maren cautions, this is less impressive in real (inflation-adjusted) terms (09:13).
  • “Round numbers are exciting, but they don’t always tell you the whole truth.” – Maren Altman (09:44)

• Stock-Specific Risks:

  • 3i Group’s sharp drop (down ~15%) on new results spotlights risks in ‘star’ constituents, especially those concentrated in single holdings (09:44–10:31).

4. UK Economic Malaise and Policy Risk

Timestamps: 10:56–14:36

• Stagnation:

  • John dismisses the latest GDP figures as lackluster and perennially revised; real growth is nearly flat (10:56).
  • Recurrent mismanagement over successive governments is blamed for the lack of momentum.

• Budget Jitters:

  • Rapid, unpredictable shifts in fiscal policy—ranging from pension tax changes, income tax bands to salary sacrifice regs—fuel uncertainty (11:25–13:41).
  • “[The] fiscal Overton window has been blown wide open… someone could come in and just make something up and you still wouldn’t know if it was actually going to happen.” – John Stepek (12:19)

• 2-Child Benefit Cap:

  • Discussion of the complexity and political sensitivity of the UK’s benefit system, and a recommendation for entitledto.co.uk for listeners to check entitlements (13:41–14:26).

5. US Markets: AI Bubble and the "Psychic Wealth" Concept

Timestamps: 14:36–22:16

• AI Bubble Fears:

  • Discussion of Peter Oppenheimer’s (Goldman Sachs) report projecting US equities will lag other global markets over the next decade: 6.5% in the US vs 10.9% in EM (14:36).
  • Both agree that the US tech/AI rally has classic bubble characteristics.

• Structural Risks:

  • Energy Infrastructure: Data centers’ power requirements are growing, causing bottlenecks in the US and UK.
  • Hardware Depreciation: The necessity for continual investment in expensive but quickly obsolete AI chips makes balance sheets potentially fragile (16:52).
  • Circular Dealings and Debt: Complex relationships and off-balance sheet debt in tech infrastructure create systemic opacity and risk (16:52–18:12).

  Memorable Explanation:

  “For AI to work, these companies need to keep investing in very expensive microchips. And the issue is that these things have an uncertain shelf life… the ones you spent billions on three years ago are no longer as valuable on your balance sheet.”
  – John Stepek (16:52)

• The Bezzle / Psychic Wealth:

  • Merryn introduces J.K. Galbraith’s “the bezzle”—a period when embezzlement or inflated values go undiscovered, leading to a net increase in “psychic wealth” (18:52).
  • This extends to modern accounting trickery: overgenerous depreciation, vendor financing, and bubbly assumptions—not necessarily fraud, but fueling asset inflation and future disillusionment (19:37–20:43).

  Notable Quote:

  “It's the stuff you can get away with because everyone wants to believe.”
  – John Stepek (20:43)

• Skepticism and Reality Checks:

  • John underscores that while AI is genuinely reshaping some industries, euphoria can lead to markets outpacing reality, potentially triggering a correction akin to the dot-com bust (21:32–22:16).
  • “It is like the dot com boom all over again. Something big is going on, but simultaneously we can also have a big market crash simply because we priced in too much too soon.” – John Stepek (21:32)

6. Psychologically Inflated Wealth: Housing Parallel

Timestamps: 22:16–23:41

• Merryn compares US equity holders’ “psychic wealth” today to UK homeowners’ persistent belief that their own homes’ values are immune to price drops—highlighting human denial in asset bubbles, referencing a favorite (but now lost) survey from 2009 (22:27).

  Notable Anecdote:

  “Everybody said house prices are falling across the UK… but they're not going to fall in my neighborhood because we have a special community or a really great pub or a marvelous market or the best school… people went into a period of time of absolute denial about their own houses.”
  – Maren Altman (22:27)

Memorable Quotes

• “Really, house prices are driven by one thing and that's the price that somebody can get a mortgage for.” — John Stepek (03:54)
• “My equity portfolio never phones me up and says the toilet’s broken.” — John Stepek (07:41)
• “Round numbers are exciting, but they don’t always tell you the whole truth.” — Maren Altman (09:44)
• “The fiscal Overton window has been blown wide open… anything goes.” — John Stepek (12:19)
• “It's the stuff you can get away with because everyone wants to believe.” — John Stepek (20:43)
• “Something big is going on, but simultaneously we can also have a big market crash simply because we priced in too much too soon.” — John Stepek (21:32)
• “People went into a period of time of absolute denial about their own houses.” — Maren Altman (22:27)

Timestamps for Major Segments

• UK Housing Market Sentiment: 02:40–05:57
• Buy-to-Let Investment Woes: 05:57–08:18
• UK Equity Markets and Stock Risks: 08:18–10:56
• Policy and Budget Uncertainty: 10:56–14:36
• US Markets, AI Bubble, and Psychic Wealth: 14:36–22:16
• Human Denial in Bubbles (Housing Parallels): 22:16–23:41

Tone and Style

Friendly, lightly humorous, occasionally sardonic, but always grounded in deep market experience. Both Maren and John balance wry skepticism with practical insights, and their repartee makes complex economic realities feel accessible and engaging.

Conclusion

A rich, timely conversation for anybody interested in UK housing and market sentiment, wary of investment hype, or curious about the real risks hidden behind market optimism, this episode gives both seasoned and everyday investors practical food for thought about “psychic wealth”—and the very real dangers of believing your neighborhood, or your “favorite” sector, is forever immune.