Are Residential Properties Now Priced Fairly

Since the onset of the credit crunch/recession in 2007, many economists have argued that consequent property price falls have brought properties down to more realistic values. Describing them as ‘over-priced’ and supported solely by the ‘pressures of the property boom’, these properties did not match or come anywhere close to the costs it took to build them…


More than 2 years on and it is fair to say that property prices are no where near their highs of 2007, but the question still remains – are they now more fairly priced?

Despite 20%-40% property price falls, economists are still in disagreement about whether or not the property market is in a better state for investment. Asked their opinion, they produced the following responses:

• Although now more sustainably priced – due to housing stocks, demand and levels of building - they are still far higher than building costs
• Property prices shall steadily pick up in line with excess property demand
• Despite promising interest rates, properties in the South are still too high in relation to incomes and floor space
• Property prices are currently being held up by lack of supply and low interest rates. Until the economy normalises, rates won’t rise and property prices will continue to rise
• Property prices will remain constrained by a limited finance sector and mortgage lending

In other words, despite properties being considerably more affordable, property prices are still well above long term trend growth making them inaccessible to large proportions of the nation.

Only when the economy stabilises and interest rates increase, will properties decrease to a value that will make them more easily attainable by homeowners on a lower income or who have only got a small deposit to invest in property.

More than a million people aged over 50 are believed to be relying on increasing property values to help fund their retirement. Yet since the onset of the recession during autumn 2007 an estimated £27,250 is believed to have been wiped off the price of UK property values.

Even following the last 7 months which has witnessed property price increases of £15,000, this overall property loss has still severely dented pre-retirees plans to use equity release to boost their retirement.

According to popular insurance company Liverpool Victoria, more than 12% of over 50s believed so much in the capital growth of their properties that they have chosen to save less independently.

And as a consequence, many now face a reduced standard of living when they hit retirement..

Yet despite these property price falls, confidence still remains in the long term value of their properties.

Through the use of equity release - where money is taken from the value of their properties – many over 50’s plan to fund their retirement by taking money out of their properties.

However, consumer group Which? feels this could be a big mistake and should only be used as a last resort.

Expensive, inflexible, and more often than not designed to leave people with little equity to play with; property experts recommend downsizing to a smaller, cheaper property instead. Not only is downsizing easier but pre-retirees can instantly benefit from these profits.

Original Article

More About the Author

Fraser Stirling, Property Mentor Delegate

No matter what the media wants you to believe, property is still the only investment route where you can benefit from an asset that will NEVER go into zero value. Even when I was university I admired properties ability to withstand the economic elements and stay strong, even when other investment forms faltered or failed. X years on, I am now the proud owner of multiple property investments - one of which earns a passive income of £4,680 and my property portfolio is still expanding. Read more