registerme
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Post by registerme on Sept 18, 2018 18:22:15 GMT
For most people with any kind of assets their home is also their main asset. So I am curious, say you were fearful of a UK residential property market "correction", how would you hedge against that?
Let's say your property was worth £500k, and you were willing to spend £10k to protect against downside risk (hopefully for a period of two years, perhaps capping at £100k protection).
Are there any products out there that would provide something along these lines?
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Post by Deleted on Sept 18, 2018 20:19:01 GMT
Interesting concept, I have no idea what could achieve that but I'd grab it in a moment in my current situation.
Lost my house buyer*, so am currently buying outright to secure the home I want prior to finding a new buyer and selling the current place.
The idea of owning two properties, if and when a brexit based correction occurs is very uncomfortable!
*The English house buying system offers so little certainty it's painful
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bigfoot12
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Post by bigfoot12 on Sept 18, 2018 22:42:20 GMT
For most people with any kind of assets their home is also their main asset. So I am curious, say you were fearful of a UK residential property market "correction", how would you hedge against that? Let's say your property was worth £500k, and you were willing to spend £10k to protect against downside risk (hopefully for a period of two years, perhaps capping at £100k protection). Are there any products out there that would provide something along these lines? Answering your final question - I haven't seen any. One of the spread betting companies (City Index - I think) used to offer spread bets on Halifax or some similar index which had regional numbers. I haven't seen these recently, but in any case these were similar to a future not the option that you describe. If you shorted £500k worth and house prices doubled you would lose £500k! Also your house might go down in price (because a sewage works or motorway is built next door ) whilst prices overall go up; you lose on your hedge and one your house price. jester is in a different place, but registerme do you really care if you house drops in price? You will still live in the same house; unless you are about to sell the current price doesn't matter that much. If property prices near me dropped 90% I would buy my next door neighbours house and knock through! I might have "lost" hundreds of thousands of pounds, but my life would be better. On a side issue are you asking to pay £10k for a two year £400k put (on a £500k house), or for a two year insurance product which will pay in a falling market to make you back to £500k, providing the prices don't fall below £400k? Sounds like a good idea for a new P2P property platform, although I fear you would have to pay more than £10k for your two year option. And would we trust the RICS valuation!
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registerme
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Post by registerme on Sept 18, 2018 23:35:57 GMT
Thank you both for your thoughts. In this case I really am asking "on behalf of a friend". A couple, one is Spanish and works in the city (more coding than finance though), the other is Irish (and a translator). Between them their major asset is their flat. Between them their major worries are a) Brexit and b) what that might mean for bi) their employment and bii) the value of their home. I have a reasonable head for numbers but the specifics of their question were beyond me, and, I thought, potentially of interest to others on this forum  . |
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registerme
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Post by registerme on Sept 18, 2018 23:38:10 GMT
On a side issue are you asking to pay £10k for a two year £400k put (on a £500k house), or for a two year insurance product which will pay in a falling market to make you back to £500k, providing the prices don't fall below £400k? Good question. I think I am asking for the latter.
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registerme
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Post by registerme on Sept 18, 2018 23:41:40 GMT
The way it was phrased to me was.... "I am willing to pay 10k GBP to ensure that if I want to sell in the next two years I will get at least 400k GBP for it" (assume a current value of 500k). I think that they are thinking of moving to Spain (I will miss them  ) and want to e(i)nsure the capital they have invested in their flat in London. |
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Greenwood2
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Post by Greenwood2 on Sept 19, 2018 6:31:50 GMT
The way it was phrased to me was.... "I am willing to pay 10k GBP to ensure that if I want to sell in the next two years I will get at least 400k GBP for it" (assume a current value of 500k). I think that they are thinking of moving to Spain (I will miss them ) and want to e(i)nsure the capital they have invested in their flat in London. Sell now and rent for two years, rent should be less than £110k, and invest the £500k to help pay the rent.
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Post by Deleted on Sept 19, 2018 8:25:05 GMT
@bigfoot regarding my current situation I'd be potentially interested in a spread bet property hedge if any of the big players still offered it .... am I actually saying that, I hate gambling  If I'm thinking about it correctly when owning two properties, any losses on the spread for property value rises would only detract from the actual increase in your two property values together. From a gambling point of view it's hard to see anything more than marginal gains in the market during the period I will hold two properties anyway. As for the winnings on property losses, these could help cover any calamitous drop in the value of the property I'm selling. This is the only one I care about as I'm cashing in on it, the other property which I'm purchasing has many years to regain value in such a scenario. So most likely, although never certain, the outcome would be protection against a large Brexit correction with risk being the more regular housing price increases which would be be offset against the properties increasing in value anyway. Hmmmmmmmm sorry to semi hijack your thread registerme |
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invester
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Post by invester on Sept 19, 2018 8:29:26 GMT
Roughly speaking you could rent a £500k flat in London for £1.5k a month or perhaps a bit less.
But there are also other things to consider, as well as investing the £500k to provide a return for the rent might involve taking on risks as well.
Perhaps if you're willing to spend £10k a hedge might be to short some property-related equities, although arguably some kind of drop is priced in IMO - most of the homebuilders already trade on very low valuation multiples.
Anecdotally I think prices have fallen already. Perhaps a very small dataset, but properties near me that were going SSTC at £375,000 are now appearing at £350,000. A lot of prices congregate around the Rightmove filters, so the next drop to £325,000 (if it happens) would be something approaching a 20% fall if the bid is under.
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james100
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Post by james100 on Sept 19, 2018 18:56:46 GMT
Based on your comments re their concerns being related to Brexit, and a potential move afoot (presumably to Euroland?) they'd be vulnerable to composite issue of property price in GBP plus any decline in the value of GBPEUR. If they have a sale underway (to exchange) then they can buy a future forex contract for up to say 12 months out, but it sounds like they aren't at that point yet.
I've been in a similar situation back around 2008/9 (double whammy of over -50% on london price reduction + gbp forex depreciation) and focused on cashflow so I could sit it out. Took about half a decade though!
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Post by jevans4949 on Sept 21, 2018 10:51:22 GMT
Might be good to "insure" if you were going to end up in a "negative equity" situation on a property - your home or a buy-to-let, or if you were planning to sell in a couple of years to buy in another market (abroad?), or invest in something else altogether.
Otherwise remember that your house is worth exactly one house.
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bigfoot12
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Post by bigfoot12 on Sept 21, 2018 11:10:47 GMT
The idea of owning two properties, if and when a brexit based correction occurs is very uncomfortable! I just remembered Arca - I have had no dealings with them, but they were trying to raise money on one of the crowdfunding platforms a couple of months ago. I doubt that they would want to bother with a single £500k property, but you never know they might do it as a publicity stunt, especially ahead of Brexit, and if they are not interested they might know about an alternative.
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registerme
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Post by registerme on Sept 22, 2018 10:11:55 GMT
Given the the Land Registry and Nationwide etc provide a UK house price index it surprises me that there aren't more products available in this space.
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jlend
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Post by jlend on Sept 22, 2018 11:08:38 GMT
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jlend
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Post by jlend on Sept 22, 2018 11:18:57 GMT
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) and want to e(i)nsure the capital they have invested in their flat in London.
