I was planning to avoid writing about the property market in this week’s letter. But I just had to comment on the latest piece of housing ‘research’ doing the rounds. According to a recent survey, parents across Britain are preparing to cough up an average of £20,401 each in the quest to get their offspring onto the property ladder.
Of course, this is a gross generalisation – these surveys are just pieces of promotional fluff designed to get the name of the company behind them into the papers. But it’s been very successful in its aim – plenty of pages in the weekend property supplements were devoted to how you can help your children buy their first home.
After all, the demise of 100% loans and ridiculous lending multiples has made it impossible for anyone on a normal-sized wage to even think of getting an adequate mortgage on their own – so how else are the poor dears ever going to be able to move out of the family home?
So in the spirit of helping out, here’s my suggestion on what you can do if your kids have been reading one of these articles and are now pestering you to lend them a deposit, or even suggesting you act as guarantor for their mortgage, so that you can finally can get them out from under your feet. Gently suggest that they rent.
Now I’m not saying for a minute that you shouldn’t help your children financially. Given the number of withdrawals I’ve made at the Bank of Mum & Dad in my time, it’d be very hypocritical if I did. But what none of these articles seems to point out is that the very fact that people on normal-sized salaries can’t borrow enough to buy a house any more means that house prices will have to fall.
It’s that simple. Anyone who does buy a property now – whether for themselves or their children – is likely to find that they’ve lost money by the time they come to sell it.
So if you really want to help your kids out financially, a better bet would be to invest some money now that they can use as a deposit at a later date when property finally looks good value again. But where can you put your money? Things look pretty grim out there in the financial sector, and despite Gordon Brown’s breakfast with the banks, credit is unlikely to loosen up any time soon, which means you should avoid consumer-facing stocks, too.
But there are still a few FTSE 100 stocks worth looking at – big oil looks cheap, as Tim Price points out here, even if the oil price doesn’t sustain its current record-breaking run. And the big drugmakers – despite being classic defensive stocks – are also still trading at historically low p/e ratios. All of these stocks are paying decent dividend yields of around 4% or so and all offer a reasonable chance of capital gains. That’s a lot more than you can say for any UK property at the moment.