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Article contributed by Peter Upton
Prices can go down as well as up is a phrase we have all heard and have probably used it ourselves when talking to our friends. However, this has usually been in connection with stock market investments rather than property. Property prices have shot up during our lifetimes - I can remember my parents buying a nice house in the sixties for £4,000 and the same today would cost nearly £400,000. It has not just been a series of increases though. There was a slump in prices from 1990-94 and a crash in 1973-74.
British people have had a much higher percentage of home ownership than almost any other country in Europe throughout the last century. "An Englishman's home is his castle" has long been heard. "Buy to let" has been the rage for the last ten years as people try to cash in on the perceived increase in property values when compared to other investments.
This British love affair with their houses has even distorted the UK tax system. There would be such a furore if it were decided to tax us on the profit on the sale of our houses that no Chancellor would dare to extend capital gains tax in that way.
Increases in values have a down side as well. Rental incomes that can be achieved from domestic properties have not increased at the same rate as the value of the properties. This means that the return on the investment is lower than before and, at present in the South East, it is in many cases below the return that can be made from an instant access bank account. Borrowing from banks becomes more difficult too since they usually demand that the rent receivable is more than the repayments to them.
The wisest investor is often the contrarian investor. Sell when everyone else is buying and buy when everyone else is selling. You would have made money by buying property in the slump of 1990-94 when prices were falling. Rental values did not fall by the same amount so the return on investment for landlords improved at that time.
In recent years the values of properties in the South East have not changed very much. There have been dire warnings of an impending crash but this has not happened. It is unlikely to happen while interest rates remain lower they have been for many years and while earnings continue to increase at a reasonable pace. Until average earnings catch up in relation to house prices there is not likely to be a massive surge in values either.
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