dothesums blog

Link: http://www.dothesums.co.uk/blog

For most people a house is the largest purchase they will ever make and along with their pension, is the biggest asset they will acquire.
It should be part of a sound and balanced approach to personal investment, including pension provision, savings and cash.

It goes almost without saying, that our houses should be primarily our home and should be chosen on that basis. Why be unhappy living in a property you have only chosen for investment purposes? We choose our own houses to enjoy, but we also recognise that we are investing a considerable amount of capital and cash in it. Capital that we have worked hard for, and as such we need to protect it from and if possible, get it to grow over the longer term. If you don't want to do this consider renting, it is much simpler.

House buying is not to be entered into without some care, consideration and financial analysis; a process usually referred to as ‘Due Diligence’.
Due diligence is the process undertaken by a potential buyer to analyse and assess the desirability, value and potential of an investment. It serves to confirm all material facts prior to purchase.

Ideally it should be carried out alongside the physical surveys, valuation and legal searches and certainly before any exchange of contract. Not to do so, risks future problems with value and resale. It is too late to avoid mistakes, once the property has been purchased.

Obviously getting the best financial deal is important, but this does not necessarily mean buying the cheapest. Buying for VALUE in the long term produces financial reward. This will depend to a large extent on the value growth patterns in the selected locations.

We cannot eliminate risk altogether, but we can make our financial future safer by guarding our capital carefully.
Firstly to preserve capital we should select wisely at the time of purchase through careful analysis of the available data.
Secondly the value of the asset and its alternatives should be monitored regularly.

These two strategies should really be followed for all of our major personal assets such as, pensions, savings, houses, cars and investments.

One fallacy of the property market is that there is one market in the UK. In this country the property market consists of a large number of micro-markets, loosely connected and which don't all behave in the same way. Even at this time in the second quarter of 2009 there are areas where property prices are increasing. [See article by Lucy Denyer in the Sunday Times of 5th.April.]

The principal influence on price is supply and demand, which mostly operates on a very local basis.
Currently demand is being regulated by the banks and building societies, through their various lending policies. But in terms of the physical capacity, the UK has been about thirty five thousand house short of the number of new households being set up and is probably worse than that now, because of the near collapse of new building resulting from the economic recession. The long term average of house price value is about +6.5%, or +2.9% above inflation. The current falls in value are a return to that long term average, following a sustained period of much higher increases.
In the same way that buyers assess a potential purchase by checking nearby planning applications, or whether the property will be subject to flood, buyers will seek to safeguard and defend their capital through a property due diligence examination.