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Safe as houses?

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

Take a look at the latest house price data and you’ll see property prices are continuing to rise albeit at a slower rate, with regional differences becoming even more pronounced.

Safe as houses?

The latest figures from the Office for National Statistics (ONS) show UK house prices increased by 1.4% in the year to April 2019, down from 1.6% in March. However on a regional basis the picture continues to be mixed. North East England has experienced the greatest monthly price rise, up by 5% from March to April this year, while prices in the West Midlands have fallen 0.2% over the same period. Prices in London have seen a more modest monthly rise of 2.4%.

While London has seen a monthly lift, average prices in the capital remain below where they were a year ago. Last April the average price of a property in London was £477,253, this year the figure is down to £471,504, a drop of 1.2%.

For many Londoners, especially first-time buyers, prices like these are still out of reach. Despite falling over the last year, London house prices have still more than doubled over the last 15 years. Low interest rates have helped fuel this. The financial crisis brought the base rate down to a record low of 0.25% and ten years later rates are still historically low at 0.75%.

But it’s not just a question of borrowing, what you earn counts too and how affordable the monthly mortgage payments will be. According to the Resolution Foundation house prices in the capital have increased six times faster than earnings since early 2011, making home ownership in London a distant dream for many.

The latest comments from the Bank of England confirm that rates aren’t likely to rise over the short-term. All nine members of the Bank’s Monetary Policy Committee (MPC) voted to keep rates at 0.75%, due to the uncertainty over global trade tensions, which have intensified recently, as well as the likelihood of the UK exiting the EU without a trade deal.

This provides some relief for borrowers that at least for now, the cost of borrowing isn’t likely to increase greatly in the near-future. However at these record low levels the cost of financing a home isn’t going to get much cheaper either. This could mean that in future properties will not rise in value as strongly as they have done in the past - especially if rates start rising again.

With residential property making up such a large proportion of most people’s wealth, it’s a timely reminder of the importance of investing across the various asset classes over the long term.

Restrictions on tax relief for additional homes, as well as increased rates of stamp duty, have dampened the appeal of buy-to-let properties as an investment. Investing in funds within a tax-efficient wrapper such as an ISA or SIPP is one way you can ensure your home is not your only castle.

Your money can find security and refuge in other places too. There are many funds available that invest in different assets such as shares, bonds and commodities, as well as property. These can complement the investment you have already made in purchasing your home.

A good starting point is the Fidelity Select 50 range where our experts reveal their favourite fund choices. The funds are categorised across a variety of asset classes such as shares or bonds, and geographical regions from close to home to further afield.

Or the Fidelity Select 50 Balanced Fund provides a simple, ready-made fund solution that invests in a mixture of different Select 50 funds, actively managed to provide a balance of different asset classes.

More on the Select 50

Important Information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. The Select 50 is not a recommendation to buy or sell a fund. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.