Most people think that in many ways the UK and the US are very similar, however when it comes to financial issues, namely those surrounding property and mortgages there are some stark differences, but also some surprising overlaps.
UK property law is some of the oldest in the world and therefore it has more than its fair share of idiosyncrasies. This is especially true if you are buying property to let out. However, property development in the UK is more profitable than in the US, where such large margins are hard to find. Property management therefore differs between the two countries.
Now is a good time to be investing in property, both sides of the pond. The property markets on either side of the Atlantic, as well as throughout the world more generally are struggling right now, but there are signs of light suggesting prices are on the up. Therefore, investing now, while houses and apartments are cheap and largely undervalued will mean that in a few years time they will be worth a great deal more even without undergoing building work.
According to The Economist and its fair value index, which compares prices and rents, US property is undervalued by 3%. This is because during the ‘bubble’ period, house building far outstripped demand therefore prices fell and the bubble burst, and we all know the story from then.
To overcome this problem, house building was reduced so that supply and demand levels could become akin to each other. This means that as the US market continues to recover, house prices will start to return to a normal level that reflects their true market value. The bubble has well and truly burst, but for property developers as well as new buyers, this could bode well for a profitable future.
The UK on the other hand isn’t fairing so well. Unemployment continues to increase – now at 8% – meaning fewer people can afford to buy. Add high mortgage rates into the mix and you are looking at a slow recovery and a tough time for first-time buyers and property developers. However, because people can’t buy, they will continue to rent, which for existing property moguls is a good thing.
Knowing when to jump into the market and take the risk is the hardest part of the equation, but with markets this low, they can only go up, so taking the plunge now could mean riding the property-boom wave in a few years’ time.
For help with ascertaining just how much you can borrow consult Santander’s mortgage calculator.
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