Property Wealth Hits £4.87tn!


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The key to property wealth is that it’s a long-term game.

For regular readers, you will know that I am a huge fight fan, so I was glued to the TV on Saturday night for the AJ vs Usyk fight to see how boxing’s equivalent of a chess match would play out.

It actually went as I had predicted, as I had a little flutter on Usyk winning on points. That didn’t make up for my heartache of seeing AJ humbled as I am such a huge fan of his. He conducts himself so well and works so hard. He is a truly great role model for anyone. But sadly, he came up against a true great of the sport, the very maverick Usyk. Having seen him handle Joe Joyce in the amateurs so easily, and then Tony Bellew in the paid ranks in a similar fashion, I didn’t see this one going any differently.

I hope AJ comes back stronger (quite literally as that is the only way he wins the rematch in my humble opinion), but equally, you have to take your hat off to a literal boxing genius. Anyone who doesn’t know a huge amount about the sport but wants to learn more, watch that fight back and look closely as you can see what footwork, timing, and fitness can achieve (plus about 350 amateur fights…). As Mayweather always said, “You can’t beat what you can’t hit”.

Head vs heart 

But that did also get me reflecting on those classic head vs heart decisions which we come up against so often in life, and very frequently in business. Why do we let our heart rule our head so much as it only typically ends in heartache?

That is often played out in making short-term emotional decisions that do not benefit us in the long run. This is why I picked out the theme below as I saw the headline and made me think of all the clients (and indeed friends), who I have seen take short term decisions which led them to either not buying when they could have done, or sell property when hanging onto it was the best thing to do:

Property Wealth Hits £4.87tn!

Research from the Equity Release Council last week showed that due to a strong performance in house prices in the first half of 2021, UK private property wealth reached an all-time high of £4.87 TRILLION…

Interestingly the property wealth figure was boosted by another all-time record of £38bn of mortgage debt being repaid over the same period. That equates to capital repayments of £200m a day or £3,500 for every single UK household.

Also for the first time, total mortgage debt went just over £1.5tn as a lot of new purchasers entered the market.

Much of this property wealth is due to the fast rise in house prices across the country as a whole, which oddly, London and the South East has been the lagging factor rather than the leading region for once. Average house price rises across the UK was just over 7% since January this year.

These figures remind me of two of the most fundamental lessons if you are looking to make money in the property market:

  1. Firstly, property is a long-term game. Even with house price rises in many regions in the last year or two, since 2008, it has been choppy going, so anyone hoping to get in and out and make a fast buck will most likely be disappointed. However, if you hold property for the long term that is how you get substantial gains.
    • For example – according to the Nationwide House Price Calculator if you purchased a property in London in 1996 for £250,000 (which believe it or not you could back then), that same property would be worth £1.63m today, or growth of 556%. That is a period of 25 years, which is the average mortgage term, so it would be interesting to see if that trend continues to 2046 (which I am willing to bet it will. Which if you haven’t done the maths, means that same property will be worth £9.06m… Sound crazy? Ask your grandparents how much their first home cost).
  2. Secondly, the beauty of property investment is that you get the growth on the asset value, not the equity value.
    • Using the same numbers above for direct comparison – let’s say in 1996 you put down a £100k deposit on that property, as we have established the total return to you is now £1.63m (assuming the mortgage has been repaid in that time). Had you invested £100k in the stock market, a likely return would be 501% (at an annual rate of 6.47% compounded monthly) as that was the growth in the FTSE 100 in that same period. Meaning your £100k would now be worth £501,862. That is obviously a great return, but as it is purely based on the equity value, it simply can not compete with the growth of a larger asset value performing at a similar level. While the tax treatment isn’t what it used to be on property, it is always worth remembering this key dynamic.

With a lack of property set to be the major issue in the coming years, this situation is not likely to change. So if you take a long-term view, repay the loan as quickly as you can, you are likely to be one of the big winners in the property game.

Rate Corner

In the Bank of England’s MPC meeting last week, interest rates were held at a record low of 0.1% by unanimous decision. With inflation looking set to be a real issue toward the end of the year, and mortgage rates at an all-time low, we could well start to see lenders start to nudge interest rates up ahead of these likely price increases.

This was seen in money markets all nudging up again last week. As per recent updates, the interest rate outlook is much flatter than had been the case a few weeks back but we’ll keep a close eye on this to see how that classic relationship between inflation and interest rates plays out.

Therefore, our default position stands, unless you have any specific needs, we would most likely recommend a longer-term fixed rate if you have a 25% + deposit, but keep it short term or flexible if less than that figure. 

In the last week:
3 Month Sterling = up by 0.016 at 0.086%
2 Year SWAP = up by 0.022% at 0.589%
5 Year SWAP = up by 0.006% to 0.849%
Bank of England Base Rate = Held at 0.10%

Property Wealth Hits £4.87tn!

Best Rates

2 Year Variable from 0.85%
2 Year Fixed Rates from 0.79%
5 Year Fixed Rates from 0.91%
BTL Rates from 1.19%

The actual rate you will be offered will be dependent on your personal circumstance and deposit level. Please speak to one of our London Mortgage Broker advisers so that they can guide you through this process, or you wish to discuss how you can increase your property wealth.
Source: Twenty7Tec September 2021