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Merryn's At It Again

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Great bearish advertorial for Moneyweek in which she lists 5 'time bomb' investments. I wonder what the first is...? ;)

Time-bomb investment #1:

Buy-to-let property

The best time to buy property for investment is when house prices are low in real terms.

To work out whether prices are high or low, you need to look at interest rates. Over time, falling rates are the single most important factor pushing house prices up. So you want to buy ahead of what you hope will be a sustained period of low interest rates.

But that's not now. On 5th July the Bank of England raised interest rates again and in our view it is much more likely they will rise rather than fall in the near future. This is the best time to sell. The crash in the buy-to-let market looks like it has already begun. Soon the rush for the door will begin and it will be impossible to sell for a decent price.

At the beginning of 2005, interest rates were at 4.5% and most analysts thought they would fall further. And yet – as we at MoneyWeek predicted - by the end of the year they stood at 5%. Now, once again, the majority are predicting that rates will stay flat or fall – but we think there’s every chance they’ll go still higher. And that’s bad news for the indebted UK consumer, and buy-to-let investors in particular.

Already, bankruptcies have never been higher, while home repossessions are at their highest level in five years – with buy-to-let properties accounting for half of those sold at auction. If interest rates go even slightly higher, many more amateur landlords will be unable to cover the shortfall between the cost of their mortgage and their rental income. Then they'll all sell at once.

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The recent interest rate rise has just been shoe-horned into the article. Later she says

"But analysts expect the results for 2006 to show us US GDP to slow down to 2.7% and there are other signs that the economic recovery is very fragile."

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