Protection against a house price slump


The property market has become confused. Halifax reported that UK house prices fell by 2.9%.  According to the Nationwide, house prices rose by 0.4% in February. The true picture may be that although prices are rising in some areas, in others, such in central London they are falling.
This may just be a correction in some areas which have become overheated, but with Brexit worries and the change of tax rules prompting many buy-to-let investors to unload their property portfolios, there are real worries that house prices in general may start to fall.
Is this possible – and what can you do about it?

House prices do fall – sometimes

The unstoppable rise in house prices in recent years has made many forget that prices can and do fall. They did in the financial crisis of ten years ago, and in the recession of the early 90s.

The economy seems to be in good shape.  If interest rates stay low and employment rates remain at record highs, people will have little difficulty paying their mortgages.

So even if prices were to fall, you might be able to simply stay put and wait a year or two until house prices recover. The spectre of ‘negative equity’, where homeowners find they owe more than their home is worth need never materialise.

There is no reason for panic selling. In fact, with an underlying shortage of homes means there may be no reason for prices to drop – but what can you do to protect yourself if they do start to fall?

Buy where prices are rising

Prices may be falling in the South East, but the markets elsewhere remain buoyant. Property analysts Hometrack’s index of British cities shows that prices in Edinburgh rose 6.8% in 2018 while Liverpool saw 6.3%. Cardiff and Nottingham all ended the year 5.9% higher.

Moving yourself and your family to an entirely new location will probably not be an option. However, if you are buying for an investment and hoping to enjoy some potential capital growth, it may be worth looking at areas where there may still be room for prices to increase.

No improvement

Prompted by a plethora of TV property shows, you might be tempted to renovate or extend your property to boost its value. Investing in extensions or other works to boost the sale price is probably not a good idea in falling market.

They might make your home larger or more comfortable, but they probably will not do much for its value. They would simply mean that you would be paying for the home improvements that someone else would be enjoying.

Get a cheaper mortgage deal

Perhaps the most important change you can make to protect yourself against a possible fall in house prices is to be certain that you have the best mortgage deal. Mortgage rates are still at close to historic lows, meaning that you can protect yourself against potential interest rate rises by locking into a cheap deal now – fixed rates of up to 10 years are available from some lenders.

If you are on a lender’s standard variable rate (SVR) this could lower monthly payments significantly and keep them low. You might then afford to overpay your mortgage each month. This will reduce your costs in the long term by helping you pay off your mortgage years early and in the short-term help reduce the risk of negative equity.

Not all lenders can offer the lowest rate, and if you are an older borrower or self-employed, you might need help to find the right mortgage for your needs.

It pays to get some expert advice. A call to Continuum could offer it.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Property is a specialist sector it can be volatile in adverse market conditions, there could be delays in realising the investment

It may be difficult to sell or realise the investment, or obtain information about its value, or the extent of the risks to which it is exposed.

Book a free initial consultation

Book an initial consultation with one of our independent financial advisers or call us on 0345 643 0770 if you would like to discuss further.

Sources:

telegraph.co.uk – Five ways you can protect yourself from the Brexit house price slump – 14th February 2019

theguardian.com – Brexit fears dampen spring property revival as asking prices fall – 18th March 2019

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