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Will!

Buying A Small Property As A Hedge Against Gbp Debasement?

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Hi all

A very particular constellation of circumstances means I am considering buying a small property as a hedge against debasement of sterling:

1) I am about to receive an unexpected cash payment equivalent to just over 40% of my net worth.

2) My planned move to Australia has fallen through.

3) I think the Bank of England will push on the string of QE ever harder and this will lead to stagflation.

Even with 15% exposure to precious metals and purchasing all the equities I like the look of I still find myself with greater than 60% of my net worth in cash. I am therefore thinking about buying a flat on the West Sussex coast. This would cost just under 40% of my net worth and would be a 'home base' to live in when I'm not renting a room to work various jobs around the south of England. I believe I can buy one for a 2002 - 2004 price.

Any thoughts?

Will

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I think it sounds like it could work for you and your circumstances.

I too suspect that the BOE will continue to ensure that nominal house price falls don't happen to any great degree, but of course no-one knows. If you have considered the risks and can handle them come what may then you're in a strong position. Good luck.

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It could work for you I reckon - and congratulations!

It's what I ended up doing. I had saved for years, and then had a good year business wise. Buying a modest place in a cheap but nice area. But then I mostly work from home and can work from anywhere so I was somewhat able to pick my location.

Even now there are houses offering good value - and if you can live with possible further reductions in price and see yourself staying there a long time - then why not?

I'm not sure I'd be thinking about it as a hedge though.

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So you've done well with ARM.....lucky you! I would probably do the same in your shoes. Sounds like a plan but only as a place to call home not because it will go up (or down) in price :) Nice one.

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Sounds like a great idea to do with a windfall provided you aren't over-mortgaged. A small amount of gearing won't hurt .. just take "normal", divide it by 5 and then you'll be sweet. Plus any bank will love to have you.

As a currency hedge it's a pretty silly idea, doubly so as the UK balance of payments is effectively corrected by the huge inflows into UK housing assets from abroad. If the currency drops sharpy houses will drop even more sharply. .. and conversely if houses drop sharply then the currency will drop sharply. Different dynamic of course if the falls are not that large .. but once the reverse self re-enforcing cycle is triggered it will go on and on and on. Why I'm pretty certain there won't be anything left of value in this country by the time it does.

To hedge debasement you would typically buy shorter term treasuries of some stable country. The US dollar still counts and I believe Norway always used to be fashionable (because of the huge oil reserves). These days .. guns, beans, antibiotics, a 4x4 with a cattle grid and an "I don't stop for central bankers" car sticker probably makes more sense.

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Thanks all.

As a currency hedge it's a pretty silly idea, doubly so as the UK balance of payments is effectively corrected by the huge inflows into UK housing assets from abroad. If the currency drops sharpy houses will drop even more sharply. .. and conversely if houses drop sharply then the currency will drop sharply. Different dynamic of course if the falls are not that large .. but once the reverse self re-enforcing cycle is triggered it will go on and on and on.


I follow your logic one way but not the other. An asset bubble collapse causing a collapse in the currency in which the asset is denominated makes sense. But it seems to me that a currency collapse inflates the asset bubble further as the assets are now cheaper in any other currency?

Why I'm pretty certain there won't be anything left of value in this country by the time it does.

Agreed.

To hedge debasement you would typically buy shorter term treasuries of some stable country. The US dollar still counts and I believe Norway always used to be fashionable (because of the huge oil reserves). These days .. guns, beans, antibiotics, a 4x4 with a cattle grid and an "I don't stop for central bankers" car sticker probably makes more sense.


Good points. I haven't found a convenient way to buy US (or Norwegian) T-bills though. I don't like paying fund managers.

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I would do the same - or into some other hard asset. It is what I am doing. Leaving all your money in the banking system is effectively taking a massive gamble that TPTB will not steal them.

Cypriots already found out that is very very dangerous.

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On 26/08/2016 at 0:07 PM, Will! said:

I am therefore thinking about buying a flat on the West Sussex coast. This would cost just under 40% of my net worth and would be a 'home base' to live in when I'm not renting a room to work various jobs around the south of England. I believe I can buy one for a 2002 - 2004 price.

Well the 2002 - 2004 price was a bit optimistic.  Even in unexciting West Sussex prices are up 50% since 2012 although the market appears to be stagnating.

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I may be in luck.  I just viewed a two bedroom flat being sold by the executor of a BTLer who died in August.  The BTLer bought it for £140k in 2012 and had a mortgage with HBOS.  He worked for his own small company and doesn't seem to have had much else by way of assets.  I'm hoping HBOS is putting enough pressure on the executor for him to consider a cheeky offer.  

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It turns out the BTLer was unmarried with no kids.  The estate is being handled by a firm of solicitors.  I'm going to offer £140k tomorrow.

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My offer of £140k was rejected, despite being a cash buyer who can proceed immediately.  The flat is empty with the mortgage, council tax and utilities still to be paid from the estate so I'm going to wait and let the pressure to sell build.  There appears to be a flood of BTL properties being put for sale at the moment so I doubt the executor will get a much better offer.  

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Bizarre. As any UK flat you intend to buy is denominated in £ this is silly, unless you buy abroad.

UK property is not like gold or a stock where depreciation increases the value in that respective currency. Foreigners cannot by and live in the IK house only rent it (rent is also in £) and this will apply to EU nationals after Brexit too. 

Buy in Germany

 

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