Risk of Property investment

Although the fall out from Brexit negotiations is unknown at the time of writing, there have been warnings from institutions such as the Bank of England that some property in some areas might suffer a reduction in value.

This could be an opportunity should you be in the market to buy, it might be a threat if you are an owner risks could include negative equity if you have borrowed funds to purchase, or the anticipated returns on selling the property might be lower than planned.

If you are a landlord, it might be argued that the rental income when compared to the lower value results in a better return. Of course, lower property values could feed through to reduced rent (or supply and demand could result in higher rental opportunities).

From the above it is clear that individual advice will depend on many factors – there is no simple action that will benefit everybody. One message is reinforced though; If possible, diversify your investment portfolio as widely as possible to ensure you do not ‘have all your investment eggs in one basket’. For liquidity (the option to cash in some or all your assets) property might not be your best option because most properties must be disposed of entirely or not at all – an investment fund can provide any amount at the time it will do most good.

A scenario some retirees contemplate might be ownership of the main residence, a lump sum from a pension that could be invested in a holiday property or a ‘Buy to Let’. If most of your assets is switched in to more bricks and mortar, your estate is both inflexible and very concentrated, there could be Inheritance Tax or Capital Gains Tax issues that are difficult to overcome when concentrated in this way.

Changes in legislation have reduced the attractiveness of property investment (rather different from main residence ownership). If concerns outlined by the Bank of England come to pass, and planning to offset the potential impact of taxation is not taken – an unwary investor can be disappointed. My advice is to speak with an Independent Financial Adviser who will work in your interests, if you need help working through this contact an Independent Financial Adviser and ask about Cash Flow Modelling.

Government legislation can change, and observations are made with information available at the time of writing.

Issued by Wealthline Limited, which is authorised and regulated by the Financial Conduct Authority.

Past performance is not a reliable indicator of future results and any forecast is not a reliable indicator of future performance.

The information contained in this editorial should not be construed as offering investment or tax advice.