A recent headline showed that “inflation wipes thousands off property values".
For more years than I can remember I have met with clients who have said, “my property will be my pension plan". Certainly historically we have seen some good results but we need to keep this in perspective.
Analysis from LSL Property Services showed that house prices increased by just 11% between 2006 and 2011. Not bad? However, inflation increased by 17% over the same period. For some areas of the UK the situation is far worse as prices have been fairly static since 2006 and hence a substantial loss has occurred, albeit it on paper.
The same article in LSL Property services refers to a homeowner in the North West who in 2006 bought a property for £250,000. Shockingly, in real terms this house has lost more than £42,500 since then due to the effects of inflation. You may think that this is not a problem since you can 'wait it out'.
Hopefully yes, but perhaps the aforementioned property owner saw their home as their pension fund or possibly worse as an asset which was going to see them through long-term care. With long-term care fees being in the region of £35,000 to £50,000 a year (possibly higher) then in effect this person's ability to fund long-term care falls from 5 years to 4 years (approximately). Losing a 5th of what you had anticipated can be a harsh realisation especially if you were relying on the proceeds to give you independence
I'm sure there are few of us who would not accept that property can be a good investment over the longer term but like all investments it needs to be monitored and balanced with other assets as well.
So, my message is:
Be careful about relying on just one investment area to help you towards your personal business plan to retirement. Particularly an investment, like property, which is not liquid.
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