Buying a home should be the largest wealth creator for people young and old. Many people rightly believe that having a home is their financial leverage and something that they can enjoy at the same time. The British dream is having a home of their own which is very different to on the Continent where most people are happy to rent their homes. Many people are trying to keep a dream alive today in what they think is an unfortunate real estate market. However, just checking a few facts here and there will bring the importance of this financial decision into focus.
The Property Market has consistently shown appreciation over the years. Real estate has generally appreciated about 5% a year overall. Having 5% down on a 200,000 house is an investment of 10,000. That house would increase about 10,000 to 11,000 for the first year in normal growth years. Earning 10,000 on an investment of 10,000 is equivalent to 100% earnings which would be virtually impossible to do in the stock market unless you were extremely lucky.
Consider putting 15,000 into your stockbroker’s hands and him getting a 5% gain for you which most would consider to be ok. Your profit would be 750. Compared to the average property increase figures previously mentioned it’s not too hard to spot the better investment and this is just for an average year. There are periods when we are having a property boom (every 7/8 years or so) and some properties can practically double in value in the space of a couple of years.
There will always be blips and temporary downturns in the market. These are always caused by other economic factors such as Government Policy, Oil Prices, what our American Friends have been up to, etc. This could be difficult for new homeowners who may be stretched a little but if you’re an established home owner then you just don’t try to move during these periods and wait for the good times to return.
Looking at investment over a medium to long term situation if you had invested 10,000 in the stock market in 1996 your balance would stand currently at around 22,400 which is a profit of 12,400. A typical house in 1996 was approximately 70,000 and that house would be worth 120,000 or more today. Time and Time again the property market shows itself to be the best and most consistent investment in the medium to long term.
Home values over time tend to increase at a steady pace and can be less volatile as stocks can really shoot up and down. There has never been a time when the housing market has not come back up from the down turn in values. The reason is that the British have a real belief system and the desire to own their own home and will sacrifice and make it happen and this just keeps fueling the market.
If people are careful about when to trade up on their property they can also avoid the necessity of paying Capital Gains Tax which means over the years a person can develop a small house into a much larger one or even a portfolio of properties without paying Capital Gains Tax. Tax free investments is definitely the way to go!
There is no reason to fear home ownership in the market in the current market with all the doom and gloom around. Simply look for the type of property and payment mechanism that you can afford and resist the temptation to use your home for a “bank” when you need money as in an equity line of credit. The home will be by far your best asset in your future financial portfolio and will continue to make you feel secure in your financial future for the rest of your life. Everybody’s circumstances are different and a really important task is to make sure you are in the best mortgage for you! There are lots of different mortgage options out there and it can make a massive difference to your lif if the get the best advice for you.
Lots more people are now considering debt consolidation mortgages to help straighten out their finances as the current mini-recession takes hold. Significant savings can be made by consolidating higher interest debts in this way and it will be easier to sit tight and wait for the property market to recover.
Tags: Loans