We always have the concept of an ideal home that we own. People use more or less a basic set of criteria to decide whether an investment in a home is justifiable. These criteria include things such as price, neighborhood safety, amenities, resources and happiness factor.
Beyond the basic set of criteria, it is also important to keep in mind future trends that affect the value of a property. This is because most people today don’t stay in the same property or house for their entire life. Normally you start off with a small house, upgrade to a larger one when you have a family and more disposable income, and finally downgrade to a smaller home during your retirement years.
This means that on average, you will buy and sell up to three properties in your lifetime. With that as the case, it is important to make the right choice at each purchase or sell decision. The right choice includes considering future trends associated with a particular property or neighborhood when you put in the investment.
With house building in the UK increasing by 20% annually as of 2017, supply is ramping up. When supply increases, price point lowers. Certain neighborhoods have more vacant land and have the possibility of having more homes. If few of these neighborhoods are located in far-off, undesirable places, it is possible that demand doesn’t match supply, and property prices overall in those areas decrease.
Mortgage rates also have an impact on supply, whose effect we saw in the above sub-category. Mortgage prices have remained at historic lows, and as per the government’s promise, will continue to do so. However, keeping a look at global trends is useful since that can cause unexpected ramifications to Britain.
Real estate as an asset
While real estate remains and probably will remain the most stable asset, the emergence of numerous alternatives can mean that investors increasing prefer other asset classes for personal and institutional investment. If your neighborhood has a huge proportion of properties that are pure capital investments and not residential purchases, it will be volatile to factors such as interest rates and emergence of alternative asset classes, all of which are beyond your control.
These trends are important to keep in mind. While you cannot control everything, think of a home as an investment as much as an emotional decision. We have published more factors to consider when buying a property in another post here: www.hearthtax.org.uk/property/3-factors-consider-before-buying-property