House price surprise – do you need financial advice?
Charles de Lastic, Managing Director of Bluebond Financial Planning, explains why you may need financial advice as house prices continue to rise.
It might surprise you to learn that house prices continued to rise in May and are now just 9.5% below the October 2007 peak, according to figures from Nationwide.
Why is this so surprising?
This is even more surprising as higher unemployment is usually bad for house prices. When people lose their jobs, they find it difficult to keep their homes. Higher repossessions and worsening bad debts for banks is one reason why the banks don’t want to lend money to lots of people right now. If you are in a difficult position at this moment, do seek professional financial advice.
So why are house prices still rising?
Basically, the number of sellers has dropped. This increases competition between buyers for those properties that are on the market.
However, this situation is unlikely to last. As more sellers join the market and interest rates rise, prices will begin to drop over the next year. The coalition government’s capital gain tax rise for higher rate taxpayers means some second home owners and buy-to-let landlords may decide to sell before the higher rate is introduced. This could alter the supply/demand balance to move in favour of buyers and ease the current upward pressure on house prices. If the new rates are effective immediately after Budget day on 22nd of June, then potential sellers will not have time to react and this will be one factor that doesn’t then affect housing supply.
Another reason why house prices have stayed high may be that real long-term interest rates – measured by index-linked gilt yields – have been low. A low index-linked yield means that investors expect real short-term interest rates to be low in the future, which means people can afford to take on higher mortgage debt. Or a low long-term real interest rate means the net present value of future rents is high, which should mean house prices are high.
‘No real answers then’
This is the cry I hear from you all. And to be honest, no there isn’t. But I don’t think this rise in house prices is likely to bring about a repeat of the early 2000s boom as this would need index-linked yields to fall sharply. As they are already under 1%, this is not going to happen – thus eliminating one factor behind a house price boom. However, I do believe house prices are now ‘bottoming out’ except for a short-term blip relative to the new CGT implications. Buy-to-let might now be worth looking into. As always, if you are considering buy-to-let as an investment opportunity, do seek independent financial advice first.
Do you need further financial advice?
If you are thinking about buy-to-let investments or investment opportunities of any kind, you should seek financial advice from an experience independent financial adviser. You can contact Bluebond Financial Planning via our website. We’d be happy to give you tailored financial advice.
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