Whether you’re a home owner or a property investor, you can’t help wondering which way house prices are going to go. For investors it means the difference between a good investment and a bad one. For home owners the value of your home may decide your future by enabling you to move home, or borrow more money for things like debt consolidation, your dream wedding or a pension pot for your retirement abroad.
When speaking to potential property investors, I always tell them to err on the side of caution. Although the optimist will tell you that property prices will rise, when exactly this will happen is not certain, and could still be a long way off yet. Although it goes against the general consensus, it is possible that property prices have some way to drop, still before they go back up. It is easy to feel as if prices have reached their low point, but if you imagine walking down from the top of a hill backwards, you can’t tell how big that hill is until you’ve reached the bottom. So perhaps we’re only half way down the ‘house price hill’?
Although last year, a lot of people said prices were due to rise, according to the land registry’s house price index, property prices fell 1.9% from November 2010 to November 2011. Add to that the 4.8% rise in inflation over the same period and an investor is looking at a real capital loss of around 7%. For some buy to let investors, this loss is easier to chew than others. If you’ve been paid your rent on time, have a stable tenant, and were able to obtain a good deal on your mortgage, you may not be too disappointed, and you may still have a rosy outlook for the future. For others, who have had a few bad tenants, countless fees and repairs to pay out for, and a mortgage you’re having to service out of your wages, that 7% will hurt a lot more as it only adds to your losses.
Although you may have a feeling property prices are going to rise and you can make a quick buck, you really need to consider whether you are ready, and financially stable enough to take the hit if things go wrong. For the last 20 years I’ve had the feeling Liverpool are going to win the Premier League, but I’ve not gone and put all my money on them doing so, because sometimes a feeling just isn’t enough to make something a good idea.
Now looking at the other side of the market, if you are a home owner, relying on gaining equity in your home for your future, maybe it is time to make a backup plan. In the case of those hoping to be able to debt consolidate and have been holding on for years now, you need to either knuckle down and pay off those debts, or seek help in order to manage your debts more effectively. Gone are the days where you can sit around and wait for a solution to appear in front of you. If it has always been your dream to retire abroad, but are finding it hard too see if things stay as they are, then don’t leave them dreams to chance, start saving and take your future into your own hands.
For those who are waiting for property prices to bounce back before they sell their home, you may need to reconsider how much that move means to you. We are all in the same boat, and we all have to accept that our homes are worth less today than they were five years ago.
Whatever your needs or circumstances, it is always best to speak with an independent financial advisor so they can give you an impartial view and guide you to the right mortgage for you. Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Jason Hinde DipPFS
23rd January 2012
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