Posted by admin
Wed, 28 Nov 2007 17:29:00 GMT
It is often said that if you are buying a house to live in then you should think of it as a home, not an investment. In other words you should be more focused on finding a house that you like, than what is likely to happen to its value in the future. This is broadly a sensible approach - a house, after all, has to be a place that you are content to live in, and will have a considerable impact on your future happiness and well-being.
There is, however, a danger inherent in the statement. Buying a house is, for most people, the biggest financial decision of their lives, and the impact on their finances should be considered very carefully.
Read more...
Posted in Main, Market Myths | Tags buy to let, capital gains tax, empty homes, house prices, housing market, housing shortage, investment, property investment | 2 comments | no trackbacks
Posted by admin
Sun, 18 Nov 2007 23:00:00 GMT
In order to answer this question, first of all it is necessary to define what is meant by "investment". There are many definitions, but to illustrate what investment means in this context it is useful to contrast it with a few other things. Broadly speaking, there are three things you can do with your spare money (aside from spending it of course!):
- Saving. This means putting your money in a risk-free pot such as a savings account or government bond. Usually this is a long-term strategy, where money is put away for 10+ years. Of course you can withdraw money from savings accounts earlier than that, but usually you will aim to keep the bulk of your money in there for a long time.
- Investing. This means using your money to buy (hopefully) low-risk assets for the medium to long term, i.e. at least 5 years. You might expect some short term fluctuations in the value of your investment, but broadly speaking over a period of 5 years or more you would plan for little risk of losing money.
- Speculation. This is the high-risk option with potential for high short-term returns. You might double or triple your money over a few months or even days, but on the other hand you stand a not-inconsiderable chance of losing it all.
The important distinction with regards to housing is between investment and speculation. Investment means you must plan to hold onto the asset for at least 5 years, and seek to minimise risk. With housing, you can of course obtain mortgage borrowing to "leverage" the investment, but this multiplies the risk. For example, with only a 10% deposit and 90% mortgage borrowing, the risk of losing money is 10 times that of the risk in buying a house with no debt. This approach is speculative in nature, as the risk is arguably too high to qualify as investment.
Read more...
Posted in Main, Market Myths | Tags capital gains tax, housing market, investment, stock market | no comments | 2 trackbacks
