dothesums blog

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

At the beginning of a new year and following a period of what can only be described as 'testing', we still are generally in favour of owning residential property, provided it is for the long term.

Yet there is the prospect, probably later this year, of higher interest rates to be faced.  It is principally a matter of cash-flow and making provision for increased outflows, either by reducing other spending, or by increased inflows, if possible.  Latest figures suggest that many people are reducing debt and therefore saving on costs, credit card balances is a good example, in preparation for the time when more realistic interest rates return.

Many property owners have coped with lower values and consequent reduced equity, by concentrating on the long term.  And so they should.  Property  should be viewed as a fixed asset with long term potential.  We generally think of say three to five years  minimum, which enables annual variations in value to be absorbed into a long term appreciating trend.

However, there is one nightmare which even we are worried about.  And that is the horror of higher interest rates and simultaneous falling values.

Most of us can probably deal with one or the other, but the prospect of paying more and more, for an asset which is worth less and less is scary.  Especially if this situation holds for some time.  The horror of these two combining and consuming all of the owners' equity and trapping them in a property because of negative equity say, is almost too awful to think about.  But it has happened and it will happen again.

There is little an individual can do about rising interest rates.  Fixing can be expensive, even if it can be achieved.  Growth in the economy and higher inflation almost guarantees it now.  However, the UK property market is an imperfect one and choices can be made in terms of location, which can probably ensure that growth in value will be achieved, given time.

So choose where you buy carefully,  in a location where even modest growth is probable, if you want to sleep peacefully.