08/06/15My Beautiful Neighbourhood
The Band Space wrote a song in 1996 called ‘Neighbourhood’ so while listening to that tune, I thought about this blog post.
This is a picture of my street. Honestly it is, in fact I’m at the end of my drive, looking left. So why post this? well…..
Dependent on your neighbourhood, house prices have rocketed in recent years. My own house has increased in value by 30% in the two and half years I’ve owned it. Up and down the UK we are seeing huge increases in property values, due to a mixture of lengthy low level interest rates, Mortgage tightening, & demand outstripping supply and as long as huge swathes of the UK remain green and our rolling countryside to remain as such, interest rates remain low and very slowly increase (as expected) and mortgage lending remains under tight controls (as expected) we can expect more of the same. At this point the well used phrase of ‘If you always do, what you’ve always done, you’ll always get, what you’ve always got’ doesn’t seem so bad, does it? hence the huge drive for people who have significant equity in their house, bank account, ISA’s or pension to invest in property. (Now before I go on, this is not a property bash post, this is an awareness and my opinion-that’s all.)
I can fully understand the drive to property. We are a unique country that strives to own its own house and not only that, continue to move (around 8 times is lifetime average) hopefully upwards, to the biggest house we can comfortably afford-unlike our European counterparts in Germany, who rarely move once they are in a house and our Scandinavian colleagues who mainly rent and use surplus funds to buy antiques, pottery etc. Yet investing into property (and only property) brings various risks to the table:
My office took a call from a woman who required short term lending. She has a gearing ratio of around 70% on her property portfolio and one of her tenants is refusing to pay rent and she wanted to borrow £6,000 to start legal action-she has no cash herself as she invested it in property.
This was a genuine call made last week on 4th June. Now many will tut and roll their eyes and it may be rare. but I bet she isn’t alone-No mortgage or Bank would offer any further advance to her. Living proof that you can have all the property you want, but you still can’t break a brick off your investment property and take it to the supermarket to get your shopping.
How good is your tenant and want insurances and assurances do you have in place to cover such an event, or a gap in tenancy. Having investment property is great, but what happens when it is not producing an income?
Neighbourhoods change. I was brought up in the East End of London. In the late 70’s and early 80’s immigration and strike action caused friction in many areas and those that lived there, couldn’t wait to get out and now places like Hackney, Shoreditch, Bow are cool and trendy areas to live in. Who would’ve guessed it?
If everything you own is in one area then Correlation risk exists. By one area I mean any investment area: Cash, Stocks & Shares, Soft or Hard Commodities, Antiques, Property etc. because if that sector fails, then you have nothing that will grow. Suncream and Ice Cream generally get sold when the weather is warm, so if the sun is out, you’re doing fine, but if its -7 out there, not much going on. Far better to be in Ice cream and Overcoats, if you get my drift.
A little of what you fancy does you good; everything in moderation. We hear these platitudes daily, normally lifestyle related. But in the investment world, diversifying is king, Have property of course, but have some cash as well and some commodity stocks and Mutual Funds and Pictures, antiques, pottery…….