So there I was at the Barnard Marcus auction today, bidding on Lot 7.
My local friendly Estate Agent had told me it was worth around £275k, the person doing the viewings reckoned someone would be foolish enough to pay £300k and I felt comfortable going to £286k. This bearing in mind a £10k sum will become payable in 2016 when external works to the block are carried out.
Fancy hazarding a guess? No, wrong. Try £340k.
Yes, I know to my own cost that you lose money by keeping it in a bank these days and yes, I also know that London property prices may appear cheap when viewed from an international perspective.
But Lot 7 is a one bed flat in an average Shepherd's Bush location i.e. is just the sort of flat a London FTB would target. And yes, I know that if said FTB was able to secure a mortgage, they would be paying the lowest interest rate in history.
One day, in the not too distant future, this will change. The only hope the Conservatives have of winning the next election is to carry on propping up house prices with their artificially cheap lending.
Whoever wins the next election will then have to come clean. So called austerity has barely started but real cuts will become necessary. Interest rates will rise. Mortgage rates will return to their historic mean.
The FTSE100 drops nearly 15% because the Fed says they will reduce QE WHEN there are signs the economy is strong enough. Note they haven't actually done this yet. They only stated the obvious and the FTSE drops 800 points.
So what happens when the artificially cheap money supply dries up and people who bought 1 bed flats on a 3% yield face mortgage rates of 7.5%?
Me thinks that come 2016, I may just be glad I was outbid today.