The property game

Posted on: 12 September 2014 by Steve Wanless

Steve Wanless examines the value of property and cautions against making a rash financial investment that will haunt you.

property pitfalls for older investors

1981 was a memorable year…the wedding of Prince Charles and Diana, the Brixton riots, Rupert Murdoch’s purchase of “The Times”, the capture of the Yorkshire Ripper, the first London Marathon, the launch of MTV, the opening of “Cats” and Botham’s “Ashes”.

Britney Spears, Zara Phillips, Joe Cole and Serena Williams were born, while Bob Marley and Bill Shankly passed away.

But perhaps the most interesting fact from that year was the average property price in the UK rose by a mere £666 to reach £23,954.

Three sixes may also be the Number of the Beast, but the risks of diving into the housing market are easily demonstrated by the rollercoaster of average property prices since Margaret Thatcher came to power in 1979.

Property finished the 1980s at £61,514, but subsequently fell and did not reach that previous high until 1998; average prices had almost trebled by 2007 reaching £181,364.

The financial crisis and latest property slump mean that we have only just got back to those levels and this year’s average price is now £182,334.

Small wonder potential house buyers, especially those getting involved for the first time, need specialist advice. An Independent Financial Adviser (IFA) will not only help you get a mortgage, but make sure it is not a financial investment that will come back to haunt you.

Timing is everything. There are no guarantees the value of the property will not fall, this reducing your equity; it may be several years before your share returns to its original value, let alone increases.

Provided you have been advised to buy sensibly, within your budget and future expectations, it’s a home, not merely a gamble to make a quick buck, then biding your time will mean you should eventually be sitting pretty, according to all statistics.

If you had bought in 2007, you are just about balancing the books; if you had bought in 2009, you are about £25,000 ahead. It has always been that way.

If you have bought in 1989 and sold in 1995, you would have lost out by over 17%; if you had bought in 1995 and sold in 2002, you would have doubled your money.

However, if you had bought in 1980 and are still in the same property, your investment has grown nearly eight times in the intervening 34 years.

There are always winners and loser in the property market, but using an IFA will minimise the risk of becoming a property loser.

There have been so many headlines about the London property boom in recent months that it is easy to forget the downside of the recession, which has seriously impacted on large areas of the UK.

Rather than focus on the increases of the last year, which according to the Office of National Statistics have affected the whole of the UK (from 19% in London to 3.5% in Wales), a more relevant figure is the change since the pre-recession high.

London is up by 35.6%, areas close to London also show gains. Every other area of the UK is still behind those heady days of 2007.

Many, like the South West, the East and West Midlands and Scotland are almost there, but others still have some way to go.

All are in single-digit decline, other than Northern Ireland, which is a staggering 47.4% down, at an average of £137,000, on the 2007 highs. That highlights the problem of a massive drop in house prices when even the tactic of waiting for the market to recover seems futile.

The prospect of a rate hike, even a small one, to those in negative equity is daunting. For many, there is no option but to stay where they are, other than handing in the keys and walking away, which brings other social and economic problems for the family as well as the community.

The property market has slowed again. No surprise after the introduction in April of the Mortgage Market Review (MMR) and its “affordability” criteria and other action from the Bank of England (BoE) regarding lending criteria relating to times an applicant’s salary.

As there is with health, there is clearly a housing post-code lottery in the UK. Many feel that those in the South East enjoy a special advantage on the housing ladder, but do not get too envious.

The latest round of increases for commuters buying their season tickets into London announced recently is only part of their rail agony. Despite annual costs of over £4,000, there is no guarantee of a seat or arriving on time or the train turning up in the first place.

Rail fares have already increased by over 25% since David Cameron’s Coalition came to power in 2010; there are many whose salaries have not increased at all in the past four years because of austerity measures.

The Minister of Transport, Claire Perry, was soon ducking for cover after declaring that: “What we have got to do is make sure that rail passengers – who could be forgiven for saying: ’What on earth am I getting for these rises that I’ve seen over the past decade?’ – start to realise they are paying rail fares for comfortable commuting.”

There was a barrage of complaints about the commuting experience, including a marketing director Paul Guichard: “I would like to see the minister on the 07.45 to Paddington. At peak times, I am lucky to get a seat.”

When the Minister was asked if it was fair that a London to Manchester ticket cost £160, she replied: “only if you don’t book in advance.”

Rather reminiscent of Marie Antoinette’s “Let them eat cake” response to the starving peasants having no bread. She lost her head – the worse that could happen to Miss Perry is that she loses here parliamentary seat.

For a free, no obligation initial chat about your individual finances, call us on 0800 0112825, e-mail or take a look at our website

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