Inflation Hits Real Value of Homes
Published: 11 July 2011 By Julian Stone Leave a Comment
Your home may have risen in value on paper, but inflation is rising faster – meaning that your property could be worth less in real terms than you paid for it.
Although house prices are slowly going up in many parts of the UK, don’t assume your property has increased in value.
That’s the message from LSL Property Services, which is urging Britons to take inflation into account when assessing the real value of their homes.
According to market analysis from the company, the average house price rose by 11% between 2006 and 2011. But this should not be mistaken for good news. During the same period, salaries grew 15% while inflation increased 17% – meaning that the real value of the average home has gone down, because the equity in it is worth less.
By contrast, LSL found that house prices rose a huge 79% in the five years to 2006 – while inflation amounted to only 11.7% over the length of the same period.
So if you bought your house in 2001, you’re still ahead. If, however, you bought your house in 2006, the real value of your home has declined in the last 5 years.
For some parts of the country, the situation is bleaker. In East Anglia and the North West house prices have remained fairly stationary since 2006 while homeowners in the East Midlands have seen price of their homes decline. The national average is being buoyed by London, where property prices are rising more strongly.
Ray Boulger, representing mortgage broker John Charcol commented: “People think that they bought a home at a certain price. When they sell it they regard what they make as a real gain, whether it is due to inflation or not. They simply don’t factor it in, although they should.”
Moneyhighstreet comments: “With economists predicting interest rates to remain low while economic growth remains slow, inflation is likely to increase or at least remain above-target for some time to come.
“And while there’s not much you can do about inflation, you can make the best use of the money you’re paying into your home. So be sure to shop around for the best deals on mortgages and take a look at fixed-rate mortgages to help your money beat inflation.”
