A Property Depreciated by £80,000! Still a Negative Asset After Ten Years of Investment?
- TBA
- May 3, 2024
- 3 min read
As a long-established world financial centre, the UK enjoys a unique political and economic environment, which has attracted large number of people from all over the world every year who move to the UK to seek better economic conditions.
Moreover, with limited land resources available for development and cumbersome administrative regulations controlling land, the UK’s property market has long been in a state of undersupply. Therefore, many investment enthusiasts are keen on investing in UK properties.
But beware! There are risks involved! Just like the protagonist of the story we’re about to tell today, who after ten years of property investment, unfortunately ended up with a negative asset! He even considered returning the house keys to the bank to escape the loan…
1. Is a rental property investment still a negative asset after 10 years?
Mark (an alias) and his wife purchased a property in 2007 for £155,000 and paid a deposit of £35,000, leaving a mortgage of £120,000. However, soon after, the economic recession hit, and its value plummeted to £75,000! That’s a direct loss of £80,000!
Initially, they were on an interest-only mortgage, but three years ago, the couple switched to a repayment mortgage in an attempt to reduce their debt. During this time, they had rented out the property for £500 per month, trying to repay the mortgage with the rent. However, as the bank mortgage interest rates rose to 8.74% (£949.07 per month), the monthly rent was insufficient to cover the debt. Additionally, because the property was rented out, the couple had to rent a separate place for themselves, gradually leading to financial strain, and the property becoming a negative asset.
Some might ask, why not switch to a lender with lower rates? Because they’re in a negative asset situation, they were not able to switch lenders.
Mark felt deeply distressed about this and even considered returning the keys to the bank to avoid paying the loan..
2. Does returning the keys to the bank mean no more repayments?
Originally, Mark hoped to make a fortune through property investment. However, with the economic downturn causing property depreciation and the rise in bank interest rates, Mark gradually found it impossible to bear the high mortgage pressure.
So, if he returns the keys to the bank, can he stop repaying the loan? Unfortunately not!
The property Mark resides in is located in Northern Ireland, where property prices peaked in 2007 but sharply declined from 2008 onwards.
Therefore, Mark missed the best investment opportunity. Currently, they still have a £94,000 loan remaining, and returning the keys to the bank will not absolve them of any outstanding responsibilities. With the mortgage exceeding the property value, many lenders may offer alternative solutions to existing clients. They might offer slightly lower rates, but this may mean agreeing to early repayment fees.
3. Property investment tips
In the long run, the value of UK real estate is still steadily increasing. Even amidst market fluctuations, real estate remains one of the reliable investment options for the future.
If you’re looking to make quick money, the real estate market might not be suitable for you.
However, if you engage in it for the long term, real estate can provide stable income and healthy returns over time. The key is to make wise purchases, conduct research to find areas with strong demand and price growth opportunities.
Let’s take a look at some tips for property investment that you need to pay attention to!
1. Acquire all information about the UK real estate market and various investment strategies
Before investing, analyse the latest market trends and forecasts, or consult professional tax experts to determine the best investment areas and property types.
2. Develop an investment plan
Determine your investment goals and the strategies you want to adopt
Identify your budget, preferred locations, and property types
Develop a timeline for finding and purchasing investment properties to keep yourself on track
3. Find suitable investment properties
Look for properties with strong rental demand and capital appreciation potential
Negotiate the best price to maximize your investment return
4. Prepare investment funds
Explore your financing options to determine whether a mortgage or cash is suitable for you. Compare rates and terms to find financing that fits your budget and investment timeline.
5. Effectively manage property assets
If you decide to invest in buying property for rent, you’ll need to devise appropriate marketing strategies to attract quality tenants, handle the leasing process, and oversee ongoing maintenance and repairs to keep the property in good condition.
In conclusion, the three key elements of property investment are:
Finding properties with higher potential returns
Sensible investment
Effective management