In reality, your house as an investment or nest-egg building vehicle is not so attractive as it was for the twenty-year period between 1998 and 2008. If you bought early then you have been very lucky and should be thankful that your property is now worth so much more, out-performing almost all other forms of investment.
Before the 1990’s, house prices in the UK did generally rise year-on-year, steadily and on average ahead of inflation, and everyone seemed comfortable with this state of affairs. Houses were largely bought and sold not simply to make profit, but because owners were choosing to move, up the property ladder or in employment.
Most house sales did release some equity and house buyers were usually able to buy the extras or do something special with a little extra, after a new mortgage on the purchased property had been negotiated. But in the twenty years up to October 2007, houses and house sales became much more part of an investment market with a new language – buying to invest; buying to sell; a good investment opportunity; buy to let, etc.
Commentators have variously described what happened to UK property prices in 2007 and 2008 as ‘a slump’; ‘the bubble bursting’; ‘the party coming to sticky end’; ‘the wheels coming off the wagon’. Whatever flowery language we use, the outcome was the same; prices tumbled as banks beat a hasty retreat from easy lending.
We could describe current house price forecasts as hesitantly optimistic, with a uniformly small percentage change hovering above or below the line of profitability. The Centre for Economics and Business Research (CEBR) has predicted house prices will rise by 15 per cent over the next five years, as a shortage of homes counteracts economic gloom.
However, if house price do rise 15% over that period, this would be an average of 2.8 per cent annually, a far slower rate than the 20 year ‘boom’ period to 2007.
Perhaps such forecasts will more sensibly return our expectations closer to a reality where houses are what we live our lives in, expecting our investment to be inflation-proof, rather than to be purchased and then sold on for substantial profit. The housing boom years made a lot of money for some of us, but have also contributed significantly to the difficulties faced by anyone trying to get on the property ladder as a first-time-buyer.
If you want to find out more or need advice about property purchase or sale, contact Richard Johnston or Steve Amison who will be happy to help.
Sources: www.halifax.co.uk; www.nationwide.co.uk; www.cebr.com
