Is Property A Good Investment In The UK Right Now?
If I was asked this question last year, convincing people to invest would have been much easier! But circumstances have changed and investors need to look at the big picture first before deciding to go all in with their money.
UK house prices increased at an unbelievable rate in the first nine months of 2014. Record house prices were being set almost every week and everyone wanted to get in the property market. In London alone house prices grew from 12 to 20 per cent depending on the type of measuring index you consult.
Good times don’t last forever and market conditions have changed drastically in just a year’s time. The Land Registry reported London house prices are now lower compared to their peak in August last year.
The bad news, unfortunately, doesn’t stop there. Industry analysts expect the trend to continue, and it may even fall even further in the next couple of months due to lower demand for houses.
So what’s causing this lower demand for houses in the UK? We’re supposed to be obsessed with property, right?
The desire to buy property hasn’t waned down, per se. It’s just that more applicants are having a hard time buying property because of stricter lending rules. The Financial Conduct Authority implemented stricter rules on mortgage applications about a year ago to prevent incidents similar to those experienced during the 2008 financial crisis.
Latest figures from Bank of England reveal that actual mortgage approvals for house purchases are at their lowest level in three years. In fact, they are 25 per cent lower than last year’s volume of mortgage approvals.
There’s no better example for this downward trend than the phenomenon experienced in Chelsea, Kensington and Westminster.
It can be remembered that the trend for ballooning house prices in London started out in these areas. Homebuyers who were priced out of these neighbourhoods found other properties in more affordable areas and, in turn, displaced other buyers who were aiming to buy a house in the places they chose.
At the height of this craze, the areas of Clapham, Chiswick, and Kilburn received the nickname “new Chelsea” since homebuyers priced out of Chelsea flocked to these neighbourhoods.
This domino effect appears to be in action again, but we are seeing price drops instead.
According to LSL Property Services, prices in Kensington & Chelsea have fallen by 7.2% over the past year and this may be a peek into the future of other areas in a few months.
There is, however, a dissenting opinion to this negative prediction.
A writer for Money Week, Matthew Partridge, claims that house prices may stay afloat due to lack in supply of houses. Partridge claims that it took him almost 18 months to find a flat for sale in his area, because sellers are choosing to cling to their properties until house prices return to profitable rates.
So what do we make of all this? While current conditions make it difficult for people to buy property, the simple fact is that all people need shelter. Regardless of economic conditions, property will always be a need. If people can’t buy, they end up renting. Either way, there’s still demand for property.
As an investor, it’s up to you to spot the opportunity by being able to supply the need. So while things may look bleak from an economic stand point, I feel strongly that property will always be a good investment, You just need to know how to position yourself in changing economic conditions.