Congratulations, you’re the proud owner of a property. It’s no small feat either; when you look at the past 30 years and what’s happened to homeownership rates in the UK. They have been in steady decline, and now they’re at their lowest level.
“Official figures in the annual English Housing Survey show 62.9 per cent of English households owned their homes in the financial year 2015-16, the lowest figure since 1985.”
So once again, well done, you’re on the property ladder either as an owner-occupier or an investor.
Your property is a valuable asset, and it’s probably worth more than your other assets combined. What you need to know is, its expected sales price or value will go up and down.
Market conditions mostly dictated by global events will change your property’s value, and this is out of your control, so you’ll have to get used to it.
Property Values Fluctuate
The property market is closely connected to the economy, so if the economy is doing well, the property market usually is doing too with property prices going up.
If the economy is struggling, however, like it is currently, in the UK, due to Brexit uncertainty, you’ll see property prices go down.
There are other reasons, too, for a drop in the value of your home. Its physical condition will influence it either positively or negatively.
A home in a dire condition will be worth a lot less than a comparable home that’s in superb shape.
Make a mental note to do regular maintenance and replacement of its interior and exterior when required. Doing a small job today is better than a big job tomorrow.
Knowing your property’s worth empowers you to make better financial decisions. For example: if it’s gone up in value, you can consider leveraging the equity in it to buy a property for investment, i.e. for its rental income.
On the flip side, if your home has dropped in value and so too your equity in it, your lender may request a top-up, i.e. request you increase your equity stake.
Most homeowners borrow to purchase their home, and the loan is known as a ‘mortgage’. The homebuyer does have an equity stake in the property, which is their initial deposit.
What they borrow, however, is usually the lion’s share of the property value.
On an LTV loan, the amount borrowed can be as much as 90 percent of the property’s current value, with your deposit only making up the remaining 10 percent.
Here’s an example of the actual numbers of a 90% LTV loan: If at the time of purchase, your property purchase price was £300,000, you have borrowed £270,000 and put in a deposit of £30,000.
If there is a major correction in property values due to an event out of your control, it will change the equity stake you hold, be it a drop or an increase.
Therefore when you’re aware of your property’s value at any given time, you’re empowered to make smart borrowing decisions on the type of loan best suits your financial position.
Home loans lenders offer many different types of mortgage products. There are variable interest rate loans and fixed interest rate loans, where the interest rate is fixed for a set time.
The loan product term could be as little as six months, or 5 years or more. There is a lot on offer, so please heed our warning:
At this time; we recommend you always get sound financial advice from your financial advisor, accountant, lender etc.
There is never a good time to read an article like this one and take action without first seeking input from your professional service providers.
When you are ready to sell your home for whatever reason, with the knowledge of your property’s value, you’re in a much stronger position to take the right action and make the best decisions regarding how to sell your home to achieve its optimum sales price.
You’ll already know what you could borrow to renovate it, and you’ll also know what you’ll get back when it eventually sells. There’s nothing worse than making the wrong move, and it negatively affecting your financial position, let alone you and your family’s well being.
A home is a big-ticket item and a huge responsibility. However, it’s manageable, which is why we love to own our own home and also invest in property too.
Stay financially literate and knowledgeable about your home so you can avoid nasty surprises and take positive action in the market as you see fit.