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News: UK property still a good investment

Mon, 26 Nov 07

Investing in London property in the UK might look like a bit of a risky undertaking just now, with the slowdown in the housing market since the last rate rise in July, uncertainty about when interest rates will come down again, the credit crunch and a fall in UK mortgage borrowing...

House price inflation is a particularly uncertain area at the moment. It has seemed clear enough in the last few months that the market has slowed down, but alarm bells began ringing in some quarters this week when October house price figures from property website Hometrack showed a 0.1 per cent fall in prices in England and Wales.

This, combined with the Council of Mortgage Lenders' (CML) prediction of a rise in repossession and a drop in mortgage lending in 2008, plus recent International Monetary Fund warnings of a possible crash, painted a somewhat gloomy picture.

Yet something very different showed up today when Nationwide published its October house price figures. Not only was the figure up from September's 0.7 per cent, but it reached 1.1 per cent, the joint highest figure for the year along with June. The building society's chief economist Fionnuala Earley said the figure was a "surprisingly strong increase". After the Hometrack figures she might not have been the only one surprised.

Long term performance

Ms Earley did emphasise that the results for October were "unlikely to mark the start of a new upward trend", as the annual rate of house price inflation would drop unless November and December saw a strong performance to match that of the market in the last two months of 2006. But undoubtedly the figures will have clouded the picture further.

Yet one might ask the question: does this all matter? Not in the long run is the answer given by property investment company Inside Track. Head of communications Pierre Williams said the negative headlines seen of late were not "borne out by reality" - citing the Nationwide figures as an example - but said what really mattered was not the short-term fluctuations in the market but how it performed over greater periods of time.

In this instance, he said, the conditions remained in place for the property market to be sustained over the longer run, even if short-term conditions were not so good: "The key to the UK property market is the fact that we've got a growing, worsening undersupply situation [while] the overall economy remains buoyant. Those two factors are going to underpin prices."

Damaging slowdown

Not only that, he added, but the fact that there has been a slowdown is far from damaging to the property market as an investment product. Instead, he said, the situation has come as "a relief", since the market in its high inflationary state was "not sustainable".

Mr Williams predicts a "steady" rate that will suit the market well. Perhaps inevitable given the gloomier headlines to which he referred, some predictions are not so optimistic. While the CML has tipped a one per cent rise in property prices, Capital Economics has said there will be a three per cent price fall in 2008 and again in 2009. But even two years is not what most would call long-term, so if the conditions remain ones that will underpin longer-term growth, investors should still be able to plan ahead with confidence.

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