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Why can't people get their heads around this little fact? Someone's first home is not an investment, it's their home. It matters not one iota whether it gains or loses market value unless it gains well above the market average.

It makes a huge difference if you move to a cheaper area. Prices are still climbing in my village because of London types who have made a couple of hundred K over the last couple of years - which makes for a very handsome deposit in this part of the world. So they can move here and get much more space, for less money.

If you're stuck in London that isn't an option. But a good percentage of London types have at least some mobility, so the effect can spread.

There's also the holiday/weekend/foreign home syndrome, which spreads the price rises even further to other properties which aren't a main home.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 26th, 2007 at 09:32:39 AM EST
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Ah, but the holiday/weekend/foreign home is not a primary residence and so becomes an investment.

"It's the statue, man, The Statue."
by Carrie (migeru at eurotrib dot com) on Mon Mar 26th, 2007 at 09:38:35 AM EST
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Possibly. But not everyone sees it that way.

In any case hyper-inflation in the property market means that inevitably you get a lot more speculative buying.

I have a friend in Kensington with a neighbour who bought a two bed garden flat for around £370k and is trying to sell it for £500k six months later.

You also get a lot of builder types who get in at the start of the bubble by buying cheap old properties, spending a minimum on doing them up, and then selling for a comparatively huge cash profit, which can be used as a deposit to repeat the scheme in a different cheaper area.

A few rounds of climbing up the ladder like that and you can do very nicely for yourself.

So as soon as you get a bubble, you get significant market distortions because the proportion of people buying to live, as opposed to buying for profit, starts to decrease significantly.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 27th, 2007 at 06:02:18 AM EST
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in 1990.  Builder spent L400ish on a 3 story detached house on the edges of Hampstead.  Spend quite a bit on converting to 3 flats with decent cabinetry etc.

Bottom fell out and he was left holding the bag renting at roughly 1/2 the cash flow necessary to buy the flats.  Was happening all over.  Saw another in Ealing that was on offer at L200K.  Finally sold at about L140.  Ugly for the spec builders.  I hope that bastard lost a bundle after the way he jacked us around.

by HiD on Tue Mar 27th, 2007 at 07:30:48 AM EST
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