Time to divest from property?

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rebuilding society
12th March 2013

rebuildingsociety.com MD, Dan Rajkumar, is concerned about the aftermath of measures that he believes are artificially keeping the property market afloat.

It’s a favourite pastime of UK homeowners to talk about house prices and the possibility of opening up equity through a sale. And luckily for them, according to the number crunchers, UK house sales reached their highest level in more than two and-a-half years last month as ‘confidence continued to return to the market’.

The Royal Institution of Chartered Surveyors’ seasonally adjusted house price balance declined in the four months to February, signalling generally stable prices. Additionally, the number of mortgages on the market has increased by around a third since the Government launched the Funding for Lending scheme last August to unblock the housing market.

For mortgage lenders it has come as welcome relief. With access to cheap finance, lenders have also been slashing their rates to some of their lowest-ever levels.

But with this scheme in place, you wonder what more can be done? It’s probably the last phase of buoyancy that we can expect to see keeping the property market as inflated – it really needs the economy to build momentum so the stabilisers can come off. As a landlord, I’m concerned, without sufficient inertia, the cycle will fall.

While the cost of borrowing is this low, rental income can cover interest payments, but the moment borrowing becomes more expensive, we’ll see an increase in repossessions. If the UK takes another credit downgrade, then opinion over monetary policy will be further divided at the MPC and a rise in rates becomes a possibility, further compounding the problem.

With a diminishing money supply, fewer graduates, flat incomes and further underemployment, it’s a matter of time before something gives and I think it could be property. I for one will be getting my Leeds and London flats valued this month with a view to selling.

What will I do instead? I’ll earn 15 per cent in peer-to-business lending and see my capital grow in the productive side of the economy.

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