Wednesday 1st October 2008
by Bob Bardsley
Know Your Money Editor
The turbulent financial markets currently being witnessed worldwide could have many investors running for the metaphorical hills; stocks and shares may seem to be in freefall, while the banks are having little more luck than individuals at managing their money. So where is the safest place for funds to be positioned in order to maximise the chance of a substantial return? And is it necessary to wait for signs that the market is recovering before making that all-important investment?
One of the major profit-spinners in recent years may have been property, but it seems times could be changing on that count. Fears of negative equity and repossessions are making the headlines, while vendors are reportedly slashing their asking prices in an attempt to secure a sale. Industry body the Royal Institution of Chartered Surveyors (RICS) is among those to have published research showing the extent to which homeowners are being placed under pressure by buyers insisting on a good deal.
If you have to ask
Historically, buyers might have thought they got a good deal if they managed to knock a few thousand pounds off the asking price of their new home, or get the white goods included in the price. Now, however, the percentage difference between the asking price and the amount vendors are actually receiving for their property is nearing double figures - and has already surpassed the ten per cent mark in some regions.
RICS places the average gulf between asking prices and completed sales at nine per cent nationwide. On a regional basis, London fares better than the average at an 8.5 per cent deficit, while Wales, the north-west and both the West and East Midlands are around the ten per cent figure. Worst off are those furthest north, with buyers knocking as much as an eighth off of the asking price in completed sales in the north of England.
Chief economist Simon Rubinsohn comments: "The gap between asking prices and selling prices could widen in the coming months as the downturn in the economy becomes more visible - the London market could be adversely affected as employment in the financial sector drops off."
What are the alternatives?
For homeowners who have become used to seeing their equity levels rise, the concept that their house may fall in value in the coming months could have them looking to alternative forms of investment. However, it could be that the tables have turned thanks to the property market itself, as John Gilbert Financial Research (JGFR) notes. In its latest update on consumer saving and investment intentions, the organisation notes that confidence in the mortgage sector now stands at 67.1 on an index scale, close to an all-time low.
The property purchase intentions index has also slumped over the past 12 months, down to 69.6 from its position of 94.6 at the same point in 2007. Despite this, JGFR points out that tightened lending conditions are leading consumers to require larger deposits, potentially driving them towards investment vehicles as a means of developing the necessary sum to put towards a new home.
Cashing in on confidence
JGFR notes that consumers remain relatively confident in the prospects of savings accounts and investment schemes despite turbulent financial markets. As a result, the intention to invest stands above the basis point at which it was initially set, reaching 100.4 on an index scale. This is the first time during the past two years that the scale has reached beyond the 100 mark and represents growth of 2.8 points over the position 12 months ago.
With many Britons planning on putting money into investments or savings, JGFR suggests that there may exist a disparity between the health of financial institutions and consumers' perceptions of their ability to handle money. "Trust and confidence, the necessary attributes consumers need to have in financial services products and institutions, are still in evidence," the organisation asserts. Among the areas seeing the greatest rise in interest from the public are life and pensions products, along with cash savings.
Where to invest?
European investors might be glad to hear that their funds could be expected to perform well close to home. That is the assertion made recently by the Association of Investment Companies, which notes that the continent has performed well historically. While noting that fund managers are currently "realistic" about their prospects for profit in the immediate future, the organisation predicts long-term success for anyone investing in Europe.
Communications director Annabel Brodie-Smith comments: "The global banking crisis and associated market volatility is understandably concerning for investors. Whilst none of us can be sure of the markets' next move, it demonstrates the importance of taking a long-term view of your investments." To avoid short-term turbulence, she advises investing on a regular basis, with small monthly purchases helping to spread out any risk related to choosing the most opportune moment at which to plough in a significant level of funding.
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