Help for First Time Buyers

Is Property Still a Sound Investment? April 2008

It's no secret; a lot of people who have bought a house in the last ten years have made a killing. Since 1995, the average house price in Britain has soared some 185%, making returns on investment incredibly attractive, while you also get somewhere to live without the pain of a landlord. With such excellent figures as a backup, a recent BBC survey found that 53% of respondents viewed property as ‘safer than cash.' This sentiment flies in the face by the views held by most financial experts, and it appears that the market has got carried away to some extent. Many experts now believe that the UK property market will be ‘subdued' during 2008. Over the long term, however, house prices might still be a strong investment.

When investing in property, it's likely that you'll have to take on quite a considerable amount of debt in the shape of a mortgage. With that in mind then, you'll probably be paying at least 5% APR a year on the size of the loan. That means if you're going to make a profit from your property investment in one year, then you'll have to see at least around a 5% rise in equity over the year as well.

One way to cut the problem of mortgage repayments when investing is to buy specifically in mind to let the property. If you do this successfully, then you can gain enough money from the tenants to meet your mortgage repayments, and then wait until the value of your home to go up. Despite some reports to the contrary, it appears that the buy to let boom is still continuing, with or without the credit crunch. The Council of Mortgage Lenders recently reported that the number of buy-to-let mortgages went up by a quarter last year, taking the number issued to 1,038,000. However, there's another question to ask yourself before you get involved with buy to let this year - will the value of your home go up at all?

While some analysts, such as Housepricecrash.co.uk, are predicting widespread falls in house prices, most commentators agree that house prices will be flat over the coming year. However, it's common legend that house prices double every seven years – so what are you waiting for?

In actual fact, it's not guaranteed that housing prices double every seven years, while it's also not entirely true. Take the seven year cycle between 1991 and 1998 for instance, according to Halifax's house pricing index there was only a gain of 9% - hardly a doubling. Worse still, between 1989 to 1996 property values actually lost 4%. If you take a look at a graph and work out the mean price over the years, then it could become apparent that property has doubled in average price ever seven years for the last two decades, but why should this be guaranteed to continue?

In reality we should be considering that with a fall off in first time buyers, a slowing in the economy and the credit crunch, house price growth is likely to be stunted in the coming year, and possibly further. Judging from the feverish rise of the market over recent years, it's not too hard to see where a prediction of a 20% fall, such as that stated by David Kuo of the Motley Fool, in average price comes from. In many areas, things have got too expensive for the time being.

If you're thinking of investing, it's important to exercise caution, but take a look at Alliance and Leicester for buy-to-let mortgages, while Fish4 is a useful website to begin your property search from.