So You Think Investing in Property is a Good Idea?

Property investment seems like a no brainer these days. With programs broadcast across multiple channels about people buying a house purely to do it up and sell it on, property seems like a sure fire way to make extra cash. Indeed, in many cases you didn’t even need to make any improvements if you bought your house around 1995 and kept it for ten years; the average house price during that period rose by a staggering 180%. If your house was worth £100,000 back in the mid nineties, then it’s probably closer to the £250,000 mark by now.

Seeing the surge in property prices, many people have gone bought houses with the sole intention of making an investment; you buy a house, get tenants to pay for the mortgage, and then sell when the equity has increased. This is known as buy-to-let, and it has seen a particularly spectacular growth over the past decade. Buy to let-mortgages  were first launched in 1996 and 20,000 were taken out during that year. By June 2007 the total number of buy to let mortgages had increased to 940,000. Clearly, more people were eager to get amongst the easy profit making action.

However, there’s a problem. Investing in any market carries an element of risk, and it is always possible that the market will slow down or even crash. Throughout history markets go through cycles whereby for every boom there is a period of slowdown, or even bust. This is because, more often than not, when a market is successful, it blinds many investors into thinking they can easily make money, and prices (what people are prepared to pay) accelerate faster than the actual value of something.

It is a possibility that the runaway mentality has occurred in the UK property market. According to the Halifax , the average house price in the UK now stands at £192,000, almost eight times the national average salary. With banks normally only willing to lend four to five times of a buyers salary, it’s clear that many people are finding themselves completely priced out of the market. A lack of people able to buy means a decrease in demand, which is likely to contribute to at least a slowdown in prices.

For current homeowners, many forecasts for property prices have been gloomy to say the least. Jonathan Davis, of the Housepricecrash  website, has claimed that property will decline by as much as 35% by 2012. While he’s an independent forecaster, probably doing his best to promote the ideas put expressed by his website, it’s slightly worrying that large investment companies, such as Morgan Stanley, and accountancy firms like Deloitte are also predicting drops of around 10% in the next year.

At the moment it does indeed appear that the property market has run out of steam. If you’re looking to invest in a buy-to-let property, then it is essential that you undertake proper research about where potential growth areas remain. If you’re thinking about investing in property for 2008, then take a look at Fish4 for a wide range of property . Additionally, if you’re refinancing for 2008 then take a look at Natwest for mortgages .