Plummeting residential property prices is the biggest risk facing the UK today, Philip Milton has warned.
Speaking at the FTAdviser Income For All roadshow at Sandy Park, Exeter, the Devon-based chartered wealth manager said too many people had no idea of the potential problems that residential property could bring.
Earlier today (16 May) FTAdviser revealed the housing market has taken its foot off the accelerator with average house prices in the UK down 0.6 per cent over the month.
The average price of a property in the UK is now £215,848, according to Land Registry figures released today (16 May).
This continues the general slowdown in the annual growth rate seen since mid-2016, according to the Land Registry.
Mr Milton told advisers gathered at the event this morning (16 May): "It (falling house prices) is probably the biggest risk facing our country, more so even than Brexit.
"I do not want to be a serious pessimist but as advisers we should do a better job in educating clients about the risk involved in residential property."
He explained many people aged less than 50-years old have not seen what a property bear market looks like, but people who saw asset values drop significantly in 1988 to 1994 know that 2007 was "just a blip by comparison".
Mr Milton's comments were echoed by fellow panellist Clive Emery, multi-asset product director for Invesco Perpetual, who said there were so many risks that clients were not fully aware of.
This includes inflation risk, which rarely gets discussed, he commented.
Mr Emery told delegates: "Inflation is the artful dodger of investments. It pickpockets your funds and erodes the value.
"Inflation is a real and inherent risk."
Although he commented Invesco Perpetual's view was that inflation will not accelerate wildly, Mr Emery said if real earnings start to fall, as has already been evidenced, it will be harder for people to save more.
This morning the Office for National Statistics reported the UK inflation rate hit 2.7 per cent in April, up from 2.3 per cent in March, suggesting a continuing squeeze on household finances.
The Consumer Price Index (CPI) overshot the Bank of England’s 2 per cent target for the third month in a row.
Earlier this month, the Bank of England inflation report suggested real wage growth would struggle to keep pace with inflation, which is expected to hit 3 per cent by quarter four this year.
Fellow panellist Leigh Fisher, in the intermediary distribution team at Investec Structured Products, made the point that for those investors concerned with maintaining a regular income, "inflation is, and should be, a real concern".
But she also suggested investors looking to equities for a regular, sustainable income stream should question why the markets are growing so much. "What is driving the growth of the FTSE 100?
"It is difficult to understand what are the real, underlying growth factors. Is it merely complacency? We need to be diversified and focus on sustainability."
The FTSE 100 closed yesterday (15 May) at 7,454, an all-time closing high.
The FTSE 100’s performance has been helped by a weakness in sterling, which has supported earnings and dividend growth for companies who earn the bulk of their profits outside the UK.
Many FTSE 100 firms have global footprints, and are being helped in this way.
simoney.kyriakou@ft.com
