How Should We Deal With A Potential UK Property Bubble?

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Published: 17th August 2015
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Hey gang! Here we ago, another week in the exciting and wonderful world of property. I hope everyone had a wonderful weekend and that you had a chance to go out and live a little even despite the freezing UK weather! Oh well, Christmas is upon us so at least it will give us something else to think of.

For those of you who have your finger on the property pulse, I'm sure by now you would have heard all the news regarding a potential bubble that seems to be brewing throughout most of the UK. First of all, whenever I hear about a bubble or read about it in the paper I immediately go into defense mode and start questioning if there really is a bubble or if critics are simply overreacting to a spike in recent property prices. God knows that none of us have a crystal ball, and we can't possibly predict what the markets hold, but when it comes to trying to understand the true potential of a bubble, we can do our own research and question the legitimacy of these claims.

Ok, so where do we start? Is "the sky really falling"? Just because the Financial Times says that's the case, doesn't mean it is. There you have it, my first piece of advice! Don't believe everything you read. Similarly, just because property prices have spiked doesn't mean we are all doomed and that there absolutely must be a bubble upon us. You don't need to be an expert economist to conduct your own due diligence on this situation so here we go…

How Do We Handle A Property Bubble? Buy, Sell, or Do Nothing?

Isolate the situation - I for one, can't sit around and do nothing! Not possible. I am ALWAYS looking for deals regardless of market conditions. The first thing I like to do is isolate the situation. Find out exactly which part of the UK is heading for a bubble. The UK is made up of several regions, and just because a bubble is looking likely to burst in one region doesn't mean that the others are sure to follow. Just because London might be ready to explode, doesn't mean the South East is going to follow suit. So the first thing to do is identify EXACTLY which region of the UK is likely to burst

EXACTLY why do we think there is a bubble? If the sole reason people think a bubble is coming is because prices have spiked in such a short period of time, you need to ask yourself why have they spiked in the first place? Yes, this requires you doing a bit of research on your own in order to gain a comprehensive understanding of the severity of the situation. If the property market was undervalued in the first place due to a recent correction, then it's perfectly normal to see prices bounce back rather quickly. However, if government schemes have been established to help buyers enter the market, then we need to consider whether the spike is due to relaxed lending in the financial system which is always temporary and may not be sustainable when lending tightens. Foreign investment also plays a HUGE part in the bubble story, and you should look at things like what percentage of foreign buyers are buying properties in a specific area and will that growth trend continue. Also, WHY are they buying? Are their beneficial tax implications that are encouraging them to load up on UK property, and if so would this trend continue if the UK government changed those guidelines?

Take action and diversify! Diversify, diversify, diversify!! That's right, don't put all your freaking eggs in one basket! Bubble or not, even if you head straight into the storm or into calm waters, you need to hedge your bets and diversify so if the bubble does indeed burst, your portfolio is balanced. Remember, we're investing, NOT buying property based on emotion, so don't let the penthouse flat in London get you all bent out of shape when the Manchester period house warrants a much better ROI. This way, if the bubble did burst, who cares! As long as you're diversified, your portfolio will weather the storm nicely.
Well there you have it! Sorry if you expected the "crystal ball answer" that was going to tell you exactly what and where to buy during "bubble" catastrophes, but if isolate to find out which region is poised to burst, find out the metrics involved in driving the prices up, and then take diversified action, you should be OK.

Until next time, have an awesome day (yeah, that's the American in me) and we'll see you on the inside!!

Matthew Clark, Primus Property Club

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