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What’s Better Than House Price Forecasts For Property P2P?
Over half of the P2P lending platforms allow you to lend in property loans. (Read 18 Property Peer-to-Peer Lending Websites.)
So you might be concerned to have read the headlines this week that house price rises have halved from over 11% a year ago to 4.6% in May 2015.
Just to be clear: house prices have still grown, but half as fast as they grew one year ago. Yet this is still being touted as a cause for concern for people who might have bought at a peak – as well as for property investors and lenders such as ourselves.
What does this tell us about the future?
Looking at the historical record, a year-on-year plummet of around 50% or more has been a completely useless indicator that a crash is around the corner.
Looking at Nationwide's data going back to 1952, positive growth roughly halved – or more than halved – in about 30 quarters during that time. (A “quarter” is a consecutive three-month period.)
Yet in just three out of those quarters – about 10% – did that rapid decline in growth turn into an annual loss.
We also had a false negative in late 2010 when the growth rate plummeted nearly 90%. For the following three quarters prices actually fell, but by the end of 2011 the losses had more than reversed.
Even when several quarters in a row have seen growth halve on the same quarter a year earlier, we've typically not seen a crash come afterwards.
In addition, we only had one quarter's warning of halved growth before the most recent crash from 2008-2009. Not much of a warning.
Bear in mind that I'm talking about quarterly data here, not monthly. The property commentators at major mortgage lenders, mortgage brokers and economics think tanks often refer to the quarterly figures as more revealing of the trend. Yet it would appear that even quarterly figures are astoundingly unreliable.
What's better than short-term forecasts?
I'm not saying their won't be a crash. I'm not making any forecast at all. I'm just pointing out that short-term forecasts suck.
If you let yourself believe you can spot when a crashes is going to occur by reading the entrails then you are distracting yourself from more down-to-earth and rational ways to make financial decisions.
Keep an eye on the P2P lending companies' 4thWay® Risk Ratings, such as Funding Circle‘s* very low score of 12 for A+ property loans. You can also see how clear their lines in the sand are when selecting borrowers, such as how Landbay* limits the maximum loan to buy-to-let landlords to 80% of the property valuation, and the landlords are always expected to be earning a minimum of 125% of the mortgage payment through rent.
Read more: 18 Property Peer-to-Peer Lending Websites.
*Commission: our service is free to you. All P2P lending companies will be included in our fair and accurate comparison tables once we have finished adding them all. We receive compensation from the companies marked with an asterisk above, and other P2P lending companies not mentioned above, for providing you with their 4thWay® Risk Ratings and 4thWay® Insight Reports for free, which pay us when you click through from us and open accounts with them. This doesn't affect our editorial independence. Learn How we earn money fairly with your help.