…I was driving home from my Grandmother’s house listening to the radio. I was listening to 5live on the BBC, which incidentally I’d highly recommend if you’d rather listen to a talk show over music for a change, where a new phenomenon was being discussed – the introduction of the 40 year mortgage. For me this felt like a step too far. If the limits of affordability had been reached borrowing money over 25 years then 40 was obviously the natural progression. But borrowing levels were at record levels and this felt like the final straw…and it was.
So where are we now? Borrowing for property is back to pre-crisis levels, the 40 year loan hasn’t reared its ugly head but it can’t be far off. What has occurred however is much along the same lines. Investment returns since the crisis have been fanominal, if you’d simply bought the S&P 500 in 2009 you’d be up well over 200%. I fear however that these returns are no longer enough, nor are the returns from property. The recent introduction and promotion of equity release to buy classic cars is now here and feels like the catalyst I last encountered in 2008 on the journey home from Gran’s.
The last time we saw this property bubble was in the early part of the new millennium. The growth of the re-mortgage to finance the purchase of a foreign holiday home boomed. Despite the incredible growth in UK property values, the lure of seemingly guaranteed returns offered by off plan property purchases were too good to miss and we piled in. Places on waiting lists were changing hands for profit. Classic car prices are following a similar path. Prices have reached and significantly exceeded pre-crisis levels with the rarest of vehicles changing hands for sums which wouldn’t be out of place in some of the hottest London property areas. A Ferrari 250 GTO recently changed hands for $25,000,000 in the US and another ex-racer in Paris for €12,000,000.
So classic car values are so “nailed on” that the expected returns will exceed the growth in the value of your main residence? Changes to stamp duty coming into effect shortly will only exacerbate this problem as investors move from second homes to expensive classic cars, further inflating the bubble.
I imagine I’m early. Prices will probably rise steadily for the next 12-18 months, this has come in a bit as many of investment markets have hesitated in recent weeks, but I can’t see it going much longer than that.
So keep an eye on where your favourite car was sold at auction and to whom if possible, then wait a couple of years and buy it back off them for a fraction of its previous sale price as they balk at the monthly finance costs.