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UK house prices: sentiment improving

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

The gloomy winter months aren’t considered the best time to move house, yet the latest Residential Market Survey from the Royal Institution of Chartered Surveyors (RICS) shows there’s some optimism in the air.

London house prices fall at fastest rate in 10 years

The December 2019 survey of estate agents and other property professionals - which took place after the general election - reveals a welcome lift in sentiment. According to RICS, sales expectations have increased sharply, hinting at future house price rises.

In December, 17% more survey respondents saw a rise rather than a fall in enquiries from new buyers across the UK, with solid growth particularly reported in Wales and the North East.

The election result giving prime minister Boris Johnson a clear majority, plus the ongoing environment of low interest rates, appear to be the main reasons for the uplift.

“The signals from the latest RICS survey provide further evidence that the housing market is seeing some benefit from the greater clarity provided by the decisive election outcome,” said Simon Rubinsohn, RICS chief economist.

While the prospect of rising prices may be welcomed by sellers, getting onto the property ladder is still a major challenge for first-time buyers, especially for those in London and the South East.

With the average London house now costing £458,363 according to the latest Nationwide House Price Index, this is still considerably higher than the UK average of £215,925 and the capital remains the most expensive place to buy a house in the UK.

Despite falling over the past 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 now over 10 years later rates are still historically low at 0.75%.

With inflation in the UK at its lowest for more than three years speculation has also increased that the Bank of England may be forced to cut interest rates further to boost the economy.

However, even if there is a rate cut, 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 if rates start rising again and affordability of existing debt starts to become an issue.

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 you’re not excessively exposed to one particular asset class.

There are many funds available that invest in different assets like 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.

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