Published in on Monday, May 04 2009 by Ideal Debt Solutions
The ethos in the UK over the past decade or so has been to somehow equate economic success with rises in the value of houses. This misinformed view has contributed hugely to our current economic woes and the fact that so many people are now struggling with debts, mortgage arrears, and rent arrears.
Now, news that the growth in mortgage lending is likely to continue, according to figures from the Bank of England, has led to optimism that the housing market will recover. Prices are 20% down from their July 2007 peak, and with mortgage rates at record lows, quite a few pundits are speculating that it’s time to get back into property. This is a very dangerous game.
It’s true that there are some excellent mortgage deals around for those who can afford to stump up the 25% deposit required. And this may well be an ideal time to consider re-mortgaging if you can; particularly as you can benefit from current low base rates for up to 15 years. But the average price of property remains way out of kilter with average earnings when compared to all the historical data available. The long term average has been for the average house price to be around 3.5 times the average salary. Even after the recent house price falls, the current figure is around seven times. And that’s with interest rates at anomalously low levels as the Bank of England tries to encourage some confidence. What will happen when interest rise even slightly as they surely will?
Add to that the fact that around a million people seem likely to lose their jobs this year, and you can quickly see what’s more likely to happen to house prices.
On an investment basis, property still makes no sense, on the whole, whatever the pundits say. One of two things is required before property makes sense; either wages will have to rise quickly, or prices fall.
If you’ve been drawn into the kind of erroneous thinking that states that property always goes up, don’t get suckered in again – but do do everything you can to hang onto your house and job.
On this site, you’ll find a wealth of advice about getting yourself into the black and staying there – or about the different ways of dealing with your debt problems, even if they seem insurmountable. But don’t trust property as a way out – certainly not yet anyway.