Whether we own property to live in, have it as an investment as a buy to let or as part of our portfolio in our ISAs or Pensions, the fortune of the property market is very important to our overall wealth.
This was compared to the previous year when 43% of those polled expected prices to rise.
In addition, The Halifax has stated that UK house prices have increased on average 10.6% over the last decade. The Nationwide quote that the average house price is now £168,500. This is 6 times the average wage, whereas in 1989 the average house price was £62,800 which was 4.8 times the average wage.
The Economist reviewed this subject in 2005, and found that from 2000 to 2005 (in the developed ecomomies), the total worth of residential property rose by $30 trillion to $70 trillion!In other words, this increase is equivalent to 100% of those countries' combined GDP.
This is bigger than the stockmarket boom of the late 90's, where there was an increase over 5 years of 80% of GDP.
So is this a big bubble ready to burst? What can we identify as contibuting factors to these amazing increases in value?Well, if we look at the UK there are several factors which have contributed, some of which are:
- Lower interest rates
- Lack of confidence in equities in 2000
- The easy availibility of credit and mortgage finance
- The popularity of buy to let
- People opting for interest only loans, making the monthly payment less
- Lack of supply
No one has a crystal ball with any type of investment, although when we look at history property prices have shown a healthy above inflation increase in value (although those of us who have been around a while would always point out the cyclical nature of investments - remember house prices drops in 1989 and into the early 90's?)"Let the buyer beware" is always quoted when you buy a house. What we would certainly recommend when looking at property as an asset class to invest in, is to limit your exposure here to "reasonable" levels related to your overall attitude to risk. These levels would typically be 5-15% of your portfolio. The Financial Tips Bottom Line:
If you want to invest in property, other than going down the buy to let route, make sure that as an asset class it is part of a risk assessed well diversified portfolio.
Check what exposure you have already to property in your ISAs, Unit Trusts and Pensions and then make sure you know which type of property fund you are investing in by doing the necessary research.
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Wikipedia describes compound interest as: Compound interest arises when interest is added to the principal of a deposit or loan, so that, from that moment on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding.
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It's sad that some people do die young, either through illness or via external factors such as an accident. Whilst you may not wish to think about premature death right now, I do think it's a responsible person who leaves their affairs in an orderly manner as possible so that their next of kin, who have the pain and grief to deal with, do not have to deal with a financial mess.
