Hedging out falls in UK housing market

Chris_h_4

My issue... I have read various commentators predicting a significant fall in the UK housing market over the next few months, and my personal view is that the market is still very inflated. Is there anything I can do to hedge a fall in the market, either wholly or partially, that does not require a significant capital outlay and that is not prohibitively expensive? I dont know where to start, so any ideas are very welcome!

Some facts:
- I am 31 and recently married.
- We own a flat in central London worth c. £350k at the moment which we bought for £250k 6 years ago.
- Like many people our main asset is our property.
- We have no intentions of moving / selling at the moment.
- I have moved my DC pensions into cash for now due to similar concerns for the equity market, but our flat makes up about 80% of our assets so it would be far more beneficial to guard against a fall there.

Thanks in advance for your thoughts.

Chris

ps I suspect some may suggest this thread is in the wrong forum, albeit I think this is very much a savings and investment issue. If one of the "wardens" (or whatever the correct term is) believes it is appropriate to move it then please do so! Ta...

gozomark

lets say you could hedge, and you did so, and prices actually went up. You might get in a situation where you end up having to sell your flat to cover the hedging costs....

uk_steve

housing market allways slide in december/jan

so nothing new really


all the best

mr_fishbulb

Chris_h wrote:

I am 31 and recently married.

Congratulations

Chris_h wrote:

We own a flat in central London worth c. £350k at the moment which we bought for £250k 6 years ago.

Don't worry - no one is predicting falls by that much.

Chris_h wrote:

I have moved my DC pensions into cash for now due to similar concerns for the equity market, but our flat makes up about 80% of our assets so it would be far more beneficial to guard against a fall there.

Do you always plan for your property to make up the majority chunk of investments? If you do, how are you going to release that in the future, given that you can't downsize very much from a flat.

neil324

mr_fishbulb wrote: »

Congratulations

Don't worry - no one is predicting falls by that much.

Do you always plan for your property to make up the majority chunk of investments? If you do, how are you going to release that in the future, given that you can't downsize very much from a flat.

Maybe here lies the problem, £350k it always will be the majority for most people lucky enough to be able to afford and also a flat that will only be released upon death.

sabretoothtigger

Hedging usually occurs in currency markets not property so much. Property is a solid asset and I agree prices were inflated but in the long term currency value is still more volatile then housing

Housing is your hedge against drops in the currency. There is not really a market for turning that principle on its head afaik

What you should do is fix your costs as much as possible, the house itself will be worth the same whatever price tag people place on it this decade or the next

Chris_h_4

Given the illiquidity of property there is a standard view that falls should just be endured, and that it isnt really a big issue if you dont intend selling in the near term. Where you feel there is going to be a fall in equity then it is very easy to move into cash and avoid any fall (by sacrificing any potential upside).

It appears there is no equivalent for the ordinary (ie not capital rich) investor.

One thought would be to invest an amount in an industry that was expected to shoot up the way when the property market fell. That way you would hopefully have a small gain to keep you happy for a while!

Any suggestions what that investment could be? Or, as an ordinary investor, is there a way of shorting the property market??

clairbear_3

You could short property/housbuilder shares.
Personally I would leave alone,unless you are planning to exit the market in the near future a small 'paper' loss is neither here nor there.Its all relative,if yours falls then others fall.If property halved I would look at buying more.

pete80

One easy way os shorting house prices is by way of placing a Spread Bet with a company like IG Index, or there is also probably a futures bet available.

I have just checked the IG Index site and there are 2 bets available at present, one is UK House prices which show an expected increase between September and December of about 0.7%. Also there is a bet available for London House Prices showing an expected increase for the same period of around 1.6%.

March bets should be available in about 3 weeks time.

About 6 months ago, the expectations were still down for bets over the following two quarters but they soon changed. I am kind of glad that I didn't place a short bet or I would have lost out, but I still think there is a chance of house prices dropping again early 2010, I just wouldn't wager any money on it now.

With the Spread bets there are no income tax or CGT to pay but of course the companies profit is the spread which is 2.5 points (£2,500) on the Halifax index, expected December sell/buy is 162.2/164.7

Personally, I think that spread doesn't make it a worthwhile bet at the moment but good luck with whatever you decide.

Chris_h_4

What would be the easiest and most effective way to short shares as an individual retail investor? Would it be worth looking at Betfair, for instance?

Chris_h_4

Thanks pete80... you pre-empted my question. Thanks for your very helpful advice.