Growing your assets during a recession
The writing has been on the wall for a while now, and the UK is clearly entering a recession next year.
A common rule widely used to describe a recession is two consecutive quarters of negative GDP output.
There are more ways to measure a recession, but let’s keep it simple. Having said that, we have had a small bounce in October recently, with GDP growing 0.4%, so it may not be all bad news.
On the property market, we have seen a collapse in activity as the industry has across the board. With such a spike in the cost of borrowing, this is to be expected.
There will be a period of getting used to the new ‘normal’. It is extremely painful when you go from borrowing at 1% to 4% overnight, especially when a big mortgage is attached to the borrowing.
Mesa MPUS
So, you may ask, why are you reading an article about upsizing in a recession after your mortgage interest rates have just gone through the roof? History tells us this can be a genius move in the right circumstances.
Please note this is not to be seen as advice but purely for information purposes. For the sake of logic, I will use Richmond on Thames as the case study area to look at the upsizing numbers. The current average detached house price in Richmond is £2,441,154, with a semi-detached average price of £1,819,417, according to Rightmove.
If the property market in this area takes a 10% hit, the detached house is then purchased for £2,197,038 (a £244,116 hit), the sale price for the semi-detached property becomes £1,637,475 (a £181,942 hit). This gives the upsizer a favourable position of £62,174.
I am fully aware of stamp duty and other costs; these numbers are for illustrative purposes only. In the right areas, property inflation has normally grown exponentially when compared to everything else, especially in Richmond Borough.
Last year’s detached house prices were 49% up on the previous peak of 2016 in Richmond and 86% since the 2009 recession.
Essentially if you purchased a property today at £2,197,038 and applied the logic of the last recession, in theory, your property could potentially be valued at £4,086,490 in the next 14 years, which is not too shabby for the simple fact of just owning an asset.
Now, I am not saying that the future is always a reflection of the past and god knows what will happen in the next few years, but this is purely to show a different perspective on the current property market.
The Mesa Financial service
There can be extreme complexities to consider when looking at financial positions, and it is key to get the correct advice based on your circumstances. If you are looking for a trusted local adviser, don't hesitate to contact one of our team.
Your professional team
Through this window of opportunity, it is critical to have a strong professional team to ensure all risks are covered.
Your professional team will add the following value:
- Assess your number calculations to make sure each acquisition makes sense. We normally advise our clients to assess their property transactions on their net cash return on their net cash invested.
- Allow you to operate fast and deliver on your promises. This will allow you to build strong relationships and get access to deals.
- Make sure your tax structure is correct for your future goals
During this time of mayhem, it is vital to get professional advice. At Mesa Financial, we love working with property investors. We have made it our business to understand the niche advice areas, and being property owners, we know how to maximise financial positions.
Mesa Financial 77a Richmond Road, Twickenham TW1 3AW (020) 8891 4422 enquiries@mesafc.co.uk
