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gruffydd

The Economist On House Prices - 2 March - Soft Isn't Safe

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In case you didn't spot this article first time round -

http://www.economist.com/finance/displaySt...tory_id=5587046 for full article

Soft isn't safe

Mar 2nd 2006

From The Economist print edition

Homebuyers can lose money even if house prices do not fall

............................British homeowners may comfort themselves that, contrary to The Economist's predictions, prices have not fallen. With homes still remarkably dear, prices could yet fall. Next worst, they could stagnate for a long time. And even then, housing investors could lose because transaction costs such as estate agents' and solicitors' fees and stamp duty are so high.

Suppose you bought a flat in London for £500,000 ($870,000) and sold it five years later for the same amount. You might think you've got your money back; in fact, you have lost a tidy sum. Suppose that you put down a deposit of £50,000 and took out an interest-only mortgage. Stamp duty, legal fees and other costs on the purchase were almost £20,000; five years' maintenance cost £10,000. Your selling costs were then, say, £15,000. Of your £50,000 deposit, you now have £5,000—a 90% loss. Had you simply put the cash in the bank, you would have made 20%.

Worse, because rental yields are so low, you have paid more in interest over the five years than you would have done in rent. In most other countries, where transaction costs are typically twice as large as in Britain, the loss could be bigger still. Investors be warned: even if prices do not fall, housing is not, so to speak, as safe as houses. "

Edited by gruffydd

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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