House Price Review and The Future
May 22, 2009
As the front pages, and in many papers the next twelve pages, have been taken by the MP’s expenses row, you may have lost touch over the last two weeks with the economy and the state of our finances. Fear not, the economic world is still ticking, although some fear the ticking is that of a self-destruct timer. Standard & Poor’s seem to follow that line with the distinct possibility of UK Plc’s credit rating being downrated. At a time when The Government is borrowing more than it has done since the Second World War, the idea of paying a premium to service the debt is not an attractive prospect, and could lead to significantly higher budget deficits.
When we interpret the gloomy news, it means one thing for us, the taxpayer. Taxes will rise. Whoever wins the next election, Labour, The Tories or The Monster Raving Loony Party, they will have to increase taxes to repay the huge debts we are incurring.
With the amount of money being poured into the economy, we are likely building up an inflationary problem. As more money sloshes around, inflation starts to rise. At the moment this is not a problem, but should inflation rise above 3%, which could be by the end of 2010, then interest rates will have to be increased to curtail the rising inflation level. The inflationary problem could be exacerbated if GB£’s relationship with the US$ and the € remains volatile. For example, rising inflation occurs if the GB£ weakens, as the cost of imports rises, and vice versa.
The above is all about costs rising over the next few years. Therefore it was heartening these last few weeks to read that mortgage debt is becoming more easily serviceable. In fact, the relationship between earnings and the price of a house is now at it’s narrowest margin since 2004. The cost of a house in The North West is down from over 5 times (2006) to just 3.8 times the average earnings in this area. Also, your mortgage payment as a percentage of your income has fallen from 44% to a new low of 28%.
To some analysts, the statistics in the above paragraph will signify that a recovery in house prices is ¨just around the corner.¨ However, temper your enthusiasm in the knowledge that although your mortgage may be costing less, in the future the taxman will have taken a larger slice and interest rates will be higher than they currently are, leading to strains on your budget.
If you are coming to the end of your tied-in period and although you are happy the rate has fallen, are nervous of rates rising and would like a financial review, you should seek professional advice.
Kieron Bassett Financial Services have two Independent Financial Advisers. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.
Adam Elkin CertPFS
22nd May 2009
