This article is taken from Merryn Somerset Webb’s free weekly personal finance email, MoneySense. Click here to sign up now: MoneySense
There aren’t very many reasons to spend much time reading Country Life if you aren’t a genuine country dweller, but like thousands of other Londoners I take it anyway. Why? For the simple pleasure of flicking through the pages of property ads at the front of the magazine and thinking about what life might be like were I to buy one of the houses (the cottage rather than mansion type obviously) and move to Somerset or Devon.
A few months ago I began to think that I wasn’t getting much value for my £3 a week: the famous UK property shortage had meant that not only were the property ads reduced to only a couple of pages but that the few houses that did appear on them were way out of most peoples’ price range. But it seems that the balance is once again shifting in the direction of the London fantasists: this week’s magazine has pages and pages of houses for sale, some even at prices I could just about afford on the proceeds of the recent sale of my two bedroom flat in Paddington.
The good news is that this is a state of affairs I fully expect to continue. You can see why people might think now is a good time to sell: prices across the country are stagnating so there is no longer a sense that you’ll get a better price by hanging on for a few more months, and mortgage rates are rising at speed (see Friday’s issue of Moneyweek for more on this and what to do about it). Most people now expect rates to hit 6% by the end of the year and in last weekend’s Sunday Telegraph Roger Bootle was even wondering if “rates won’t have to go to 6.5 per cent” (see: Critical time for the Governor if he is outvoted again), something that means an awful lot of people are soon going to find their payments on the up again and something that might make them wonder if those home loans are worth having.
However, even before these rises there are signs that, thanks to the rate rises of the last year, the pain is being felt in Country Life circles. I keep being told that the prices of the things the middle class indulge in when they are feeling flush are falling at speed. One reader wrote in this week to say that his family (who train race horses) “were all very surprised at the fall in prices for horses on the opening two days of Doncaster bloodstock sales’ May Sale. The week picked up momentum as it progressed and top class horses were selling but the older horses were difficult to sell. Plenty of the horse boxes coming over from Ireland to sell went back nearly full! The May sale is usually the most buoyant.” Another wrote in to say that the price of ordinary riding horses has fallen by nearly a third since February too. Also suffering are mid range boat sales.
This makes sense. As another reader – Des Hickey – points out, both hobbies (boating and riding) get you a largish cash sum on sale and immediately save you money on regular overheads. Normally one would be prepared to wait a bit for a better price on a large expensive asset (particularly one such as a horse or a boat – most people become very attached to these). But if you’ve got no spare cash at all and are struggling to pay your day-to-day bills, its the £100-200 per week in cash flow that really matters not the lump sum.
The point is that more and more people are noticing that now is a bad time to have a big home loan. Some are thinking about downsizing and some – perhaps more – are thinking about selling up and renting. Buy-to-let investors are starting to sell up too (a broker told me recently that he is seeing a large number of home loan applications from tenants buying properties from their landlords).
This article is taken from Merryn Somerset Webb’s free weekly personal finance email, MoneySense. Click here to sign up now: MoneySense
At Moneyweek we’ve already started getting queries from the no-longer property owning classes. They’ve sold, probably at the top of the market, and are now in the wonderful position of having reduced monthly payments to make (it generally costs less to rent than to buy at the moment) and, better still, having large cash lump sums. And they want to know what to do with them. Most of these people want two things. First they want to preserve its value in the face of fast-rising inflation and second they want to find ways to do more than that without taking much risk. So how do they do it?
Over now to James Dickens of Grierson Dickens Limited for the answer. You cannot take any risk at all with money with which you intend at some point to buy another house, says Dickens. “A long-term ‘must have’ or ‘nice to have’ life goal is ideally suited to equity investment – you can afford to experience volatility. But a short-term ‘must have’ should be covered by nothing more complex than a cash deposit, simply because any volatility will jeopardise the achievement of the objective. Providing a family home falls cleanly into the short-term ‘must have’ category. Note too that most desirable properties are subject to sealed bids and you won’t even be considered if you’re not ‘proceedable’. So you need to know you have immediate access to your money.”
“This means that even fixed interest-term deposits won’t really do. You can get one-year fixed rate deposits of up to 6.45%, but if you take your money out early you will typically suffer 60 days’ loss of interest. What we need here is a capital secure investment with constant liquidity and the truth is that, however much sell-to-renters may think they can make a quick return on their cash pile, the only thing that really fits the bill is a good instant access bank account.” The best you can hope for then is to find one with a good enough interest rate that the real value of your cash can be preserved.
You can look up the best paying UK savings accounts here – but when you are looking at the best buy tables do look out for the many tricks the banks use to get themselves to the top when they should be at the bottom. I got a press release this morning from Abbey Banking promising an “AMAZING 8 PER CENT HEADLINE RATE FOR CURRENT ACCOUNT SWITCHERS.”
This sounds good but it isn’t really much of a deal. You can only get 8% on a total of £2500 and you also have to have “account turnover of £1000 a month” – ie you have to pay your salary into the account – and you only get the deal for a year anyway. After that you will revert to getting the “standard interest rate “ which at its best is 2.5%. Given that other accounts offer 6% plus anyway your total gain over the year – assuming you had £2500 in the account the entire time – would be about 50 quid. This is nowhere near enough to be an incentive to move your account twice in one year (don’t forget you’ll have to move it at the end of the deal or you’ll just be inviting Abbey to rip you off) and the marketing that suggests it is is disingenuous to say the least.
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