From the Editor

For some time now our property market bulls have been insisting that inflation is dead, that interest rates are set to stabilise at low levels and that, as a result, our housing- price bubble is utterly sustainable. This is obvious nonsense. Inflation is far from dead. It will be back, and probably in the not-too-distant future - witness the classic warning signs of over-stimulative monetary policy, a big spending government, the public sector wage inflation encouraged by that government, and, of course, rising oil and gold prices.

And when inflation returns, rates will rise. Even the Bank of England Governor Mervyn King thinks this is the case. As he pointed out in a speech this week, "it is almost inevitable that there will be somewhat greater volatility of both output and inflation than the remarkable stability we have become used to in recent years". Right now, low rates mean our mortgage payments are still a reasonably low percentage of our disposable incomes, but this can change fast. Consider this. You can take out a variable rate mortgage at the moment at around 3.6%, but a five-year fixed will cost you more like 5.5%. That's 50% more. Could you afford it if your interest payments went up that much? And what about the six million people who, according to Sainsbury's Bank, are already "anxious and worried" about their mortgages? I bet most of them couldn't.

This fairly imminent risk of rising UK rates is, I think, a good reason in itself to stay away from the buy-to-let market for now. But if you need another reason, remember that pretty much every major fall in house prices starts not with falling house prices, but with falling transaction levels. An old colleague from my days in Japan points out to me that Inland Revenue figures show residential property transactions were down in July this year - by 13.2% in July 2002. He remembers something similar happening in Tokyo over a decade ago. There, prices have still to regain their peaks. Anyone thinking of moving into the buy-to-let market at this point should probably think again. But where should they put their money? Professor Harry Kat of Cass Business School offers a fairly outrageous-sounding idea: the tulip market: a careful investment in bulbs can apparently net you 30% a year. Not bad, given the dismal returns on offer elsewhere. Better still, it's a euro investment, and if the euro is on the verge of becoming the world's new reserve currency, that's the kind of investment you want.

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