Assetz® News - Ups and downs for UK property investment

Ups and downs for UK property investment

19th June 2009 |

To observers with an eye to longer term trends, it may appear that the property market in the second half of this decade has been like a yo-yo. At first prices seemed to rise inexorably and now they are dropping back down again.

Of course, a very long term view will recognise that there are more ups than downs, which may make such an analogy redundant. But what may not be so certain is whether the sort of steep rises and falls seen of late will repeat themselves in the future.

The possibility of a future plunge in house prices is likely to be based on wider economic issues, given the way that the steep declines in house prices over the past 18 months and in the early 1990s coincided with periods when the country was struggling and much of this time was spent in recession. Thus those who buy with long term gains in mind may wisely factor in that doing so over a period of many years will counteract any future times of economic crisis when prices may fall as the economy contracts.

In the meantime, two questions may interest those considering buying now or very soon. The first is how much more prices might fall and secondly whether the recovery will see another boom or - quite unlike a yo-yo - the upward path is more gradual.

Head of mortgages at Bestinvest Peter O'Donovan is convinced that, as with the recession, the worst of the downturn is past. Rejecting the notion that more price falls are on the way, he stated: "The two main indices, the Nationwide and Halifax, are starting to come together. There have been slight increases month-on-month for a couple of months."

This, he suggested, could be married up with other recent positive data, saying: "Whilst overall it's still a big downsize on last year, there seems to be a lot of buyers on the market and these sort of figures [indicate] that purchases are increasing, people are considering selling and moving on and the properties will start to come back on the market."

But if all that is indeed true - which would be good news for those who buy now as it would suggest the bottom of the market has arrived - the issue of new booms may need to be addressed. Whilst it could be that a large drop in prices is the symptom of recessions - or shares a common causal factor such as a lack of affordable credit - the issue of a large rise and its impact on affordability will concern those who hope the difficulties faced by some buyers before 2008 do not repeat themselves.

Entering the debate this week was Matthew Taylor, the chief executive at the Royal Society for the encouragement of Arts, Manufactures and Commerce. Addressing the Chartered Institute of Housing Conference and Exhibition in Harrogate, Mr Taylor argued: "We need an explicit commitment by the government to manage asset inflation as well as price inflation. Imagine a message sent out from government that actually it is an explicit goal of monetary policy that we don't allow future housing bubbles."

Of course, that may interfere with other economic priorities and it may be argued that such a move would have negative consequences elsewhere. In the absence of such a monetary policy commitment, however - and no political party is giving one - those who invest may yet find they benefit from another boom. But, for those buying in the long term, the gains should be there with a boom or a gradual rise.

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/4845.html. Alternatively, please see our full press release archive.