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Crash prediction misses the point

A prediction that a terminal crash in the housing market will undermine confidence in property investment forever is likely to be wide of the mark, says Sally Laker

Meteorologists have a poor record when it comes to making predictions. We all remember TV weather forecaster Michael Fish failing to predict the hurricane that battered England in the autumn of 1987.

There was another famous meteorologist who was left with egg on his face after making a much bolder prediction. Albert Porta claimed that the conjunction of six planets in 1919 would make the sun explode.

Happily for all of us he was wrong – and I am sure that the latest prediction by a mortgage ‘expert’ will prove to be similarly wide of the mark.

The expert undertook a review of the UK mortgage market in 2004 and concluded that consumers need to be buying long-term fixed rates.

He said brokers should be explaining the associated risks to their clients, how the rise and fall of interest rates works and what all these things could mean for their property investmentsThis analysis raised a few eyebrows at the time but was then quickly forgotten about. Now he is back. This time his crystal ball foretells a disastrous crash that is about to befall the buy-to-let sector due to a conjunction of high interest rates and overstretched investment. He believes this will forever turn the public away from property as an investment.

He says if the market slows for even six months people will recognise that as the norm and behave accordingly by withdrawing from the sector.

Well, we in the mortgage sector have recently been through regulation and a housing slowdown, with about six months of stagnation immediately thereafter. But the market has picked up again and has recently been extremely buoyant because of price volatility.

Over the past 10 years – i.e. the period of a longer term investment – property has proven to be a good deal. I can’t see that a six-month slowdown is going to eradicate an entire culture and mindset.

People have seen their parents’ properties increase in value over the years. Look back to the early 1990s when people were handing over their house keys to lenders and walking away because the debt was greater than the value of their homes and they were worried how they would cope. How many of those properties would not have made a profit 10 years later?

Theory is great and provides an interesting slant on life but as with any market, if house price movements could be predicted perfectly it would not be such an interesting place to be. In our culture, it feels as though we are born with a chromosome that programmes us to own property to cash in on when we retire.

Therefore, we spend a lot of time moving towards that goal, secure in the knowledge that over a 25-year period our investment will come good. If you know of anyone who bought a property 25 years ago and would lose money selling it today, please let me know. To add those up would provide an interesting statistic.


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