Jul 10, 2018
Financial Advice to My Younger Self: Andrew Pilkington, Executive Vice President, Branch Banking
In the first installment of our new advice series, one TD leader reflects on how there's no such thing as a sure thing in real estate and why your heart should never rule your head.
It was all so simple. There was no way I could lose.
At least, that's what everyone told me.
I was in my early 20s, had just graduated from a university not far from my home in the United Kingdom, and was already working for a major multinational organization. Life was good – it was the late 1980s, Liverpool was dominating English football, and I was making a good salary in a job with a future.
On the surface it was smooth sailing, but on the inside I felt like I was falling behind. All around me, my friends were investing in property; the London market was red hot and I thought to myself – why am I still renting? If everyone else is doing it, I probably should be too.
This is likely a familiar story for anyone currently living in a major Canadian city.
After some research and lots of encouragement from friends and family, I wound up buying a condo with incredible natural light in a so-called "up-and-coming" area of London. My realtor told me that I was making a great investment and everyone I talked to, from my parents, to my friends, to my work colleagues was in agreement – I had made the right decision.
Except, as it turns out, I hadn't.
Fast forward a couple of years and things weren't going so well for my prized investment. It turns out that I had bought at the very height of the market and property prices had dipped significantly.
Making matters worse, interest rates had skyrocketed, and my after-tax earnings were no longer enough to even cover my monthly mortgage payments. It wasn't long before I had to rent out one of the bedrooms just so I could afford the payments.
At the time of purchase, I felt great to be on the property ladder. Interest rates were low, house prices were consistently on the rise, and the economic outlook was pretty bright. As I came to understand, all was not so rosy, and I learned what so many homeowners have come to realize over time: that taking a step back to understand what you can afford is a crucial step in your home-buying decision.
While it can be easy to let your heart take over the purchase of a new place, it's important to consider that circumstances, like interest rates, can change in the future.
As I look around our industry, and I hear the rumblings of change, there are certainly some similarities with my situation in the late 1980s. For nearly a decade, Canadians have enjoyed record low interest rates, house prices have continued to rise, and things have been looking up. But all that could change.
It's funny, that area of London where I bought my condo never really boomed – in fact, it wasn't long before I saw the announcement of a highway extension that would pass very close to where my condo was which, as you can imagine, did not do too much for the property's value.
I was lucky though. After a few years, the markets settled down, my earnings improved and I was able to move on. Not everyone is so fortunate.
If I could go back in time, I would have encouraged my younger self to look beyond the present and consider the medium-to-long-term, calculating affordability instead of assuming that a great economic climate would continue simply because that's all I had known. I would have looked for objective advice before purchasing – whether that was through a bank or financial advisor. And finally, I would have told myself that it's okay to rent, that it's not necessary to jump into the housing market just because everyone else was doing it, and that there are always risks with any investment.
In the end, I had plenty of time to reflect on how easy it can be to let your heart rule your head and not want to miss out on a "surefire thing" because everybody else is doing it.
But I never forgot that condo with the incredible natural light and what it taught me. Sometimes, things aren't as simple as they seem.