British housing is not a sterling investment
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What do you know about the housing market in England? I invested in several pieces of real estate in the United States last year and recently got out. A good friend here has been asked to invest with a very successful and award-winning home builder in England. He’s investing $250,000 for a full investment unit. I spoke with the builder on the phone several days ago, and he made a great impression on me. He e-mailed me all the documentation, including his company’s business history, financial statements and references. I don’t have $250,000 to invest, but I can purchase a half-unit for $125,000. I’m told that I should be able to earn between 15 percent and 20 percent annually on this money. After reviewing the enclosed data, please tell me what you think.
L.S., Durham, N.C.
Dear L.S.:
Fewer than 5 percent of the British have 20- or 30-year fixed-rate mortgages. The usual is a fixed rate for two or three years, then the borrower’s payments are subject to a floating rate until maturity.
However, the interest rates on those iniquitous adjustable-rate mortgages across the pond have skyrocketed during the past year, tossing most homeowners into a blather of blithering Brits hard-pressed to find the pounds and shillings to make their monthly payments. Then add the rising costs of food, power, clothing and transportation, and it’s no wonder foreclosures and bankruptcies in Great Britain have ratcheted to record highs this year. Many stoic Britons just don’t earn enough to keep the keys to their castles – no matter how humble those dwellings may be.
Did you know that British consumers have more personal debt than the folks in Europe, the United States, Iceland, Greenland and even North Korea? The average debt per British family is almost twice that of the average American family.
I used to think that the U.S. consumer was a profligate animal until I spent time with a group of folks in London. Those English revel in debt, but it’s not as obvious as in the United States. The average home is less than half the size of ours, lot sizes are no bigger than a mobile home patch and their cars are smaller by half.
That being said, I think you got to be dumber than a size 13 bowling shoe to invest $125,000 with that British home builder. First, I think that the British National Housing Federation’s assumption of 8 percent to 10 percent annual increases in housing prices is tommyrot. Drive through some of the boroughs around London, and you’ll see more “for sale” signs than houses. And I’m told by a British “estate agent” at one of London’s largest firms that his company believes that 16 percent of British homeowners are behind on their mortgage payments, and that the number is growing.
In the past 10 years, builders in England have made tons of pounds while home prices tripled. Many believe that the real estate market in Great Britain is cooling, and that the predictions of the National Housing Federation are ramblings of doddering fogies playing croquet at the All England Club.
Considering that the Bank of England has ratcheted up interest rates five times since August of last year, I think you should ask, “If rates are headed higher, what effect will higher interest rates have on home sales in Great Britain?” Finally, you might ask, “What will happen to my $125,000 if the housing market across the pond crashes as it has in the United States?”
I think you should keep your money in your pocket.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service
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