On top of this, 44 per cent of active investors agree according to the Association of Investment Companies (AIC). However the seed of doubt has been sewn after new statistics showed 7 per cent of those with either a buy-to-let property or second home are 'losing money' either through a reduction in capital values or a drop in profitability due to interest rate rises taking mortgage payments higher than rental incomes.
Despite the public’s general optimism, five consecutive interest rate rises since August 2006 are beginning to undermine confidence. Even though they may protest that property values will continue to rise, only 13 per cent of the general public have any investments in property outside of their own home compared to more than half (54 per cent) of active investors who include property in their portfolio.
Active investors and the general public express very different reasons for not putting their money into property. While the highest reason cited by active investors was that they didn’t invest in the sector because their cash was already tied up in other areas (33 per cent), the general public said they simply couldn’t afford to (59 per cent). Surprisingly both groups said fears that the market might crash were low on their reasons for not investing in property.
Of those that invest in property, both active investors (48 per cent) and the general public (38 per cent) believe property has performed strongly over the long run and this is why they invest in it. However, three times as many active investors as members of the general public say that they invest in property because it is a great diversifier (18 per cent vs. 5 per cent).
From the options given, active investors are clearly undecided about the best performing property sector with 14 per cent favouring the overseas residential property market, 13 per cent favouring the overseas commercial property market and 6 per cent opting for the UK commercial property sector.
Interest rate hikes
Interest rate rises are beginning to undermine confidence and of those with a buy-to-let property and/or have a second property, a significant 43 per cent of active investors and 30 per cent of the public believe that rate rises have affected the financial value/profitability of their property investments. From this group, some 7 per cent of the general public and 6% of active investors are already “losing” money on their property investments, either through a reduction in capital values or profitability, with interest rate rises taking mortgage payments above the level of rent received. Reasons for staying in profit – or at least not losing out – included being on a fixed rate mortgage, having a low mortgage, and having held the properties for a long time.
Annabel Brodie-Smith, communications director, Association of Investment Companies (AIC), said: ‘‘The general public and active investors’ optimism in the housing market could well be misplaced as there is increasing evidence that the housing market is slowing down following five rate rises and the recent credit crunch.
“It’s clear that there is a great deal of confusion about property investment not only amongst the general public, but also from active investors. Investing in property can be a useful way to diversify an investment portfolio and thus reduce risk."
