Housing Market Update – December

In April 2017, the government brought in their new section 24 tax laws. This meant that if you own property in your own name, which most people do as property investor, if you have mortgages, which again, most people do, and if you are a higher rate taxpayer, you’d have to pay a lot more tax on your property income. So for that reason, some investors moved their properties into a company structure which is one of the reasons the government have done this. They want to control property within corporations as they are easy to tax, they are easy to legislate against and they don't want millions and millions of individual landlords. But that's another blog post.

Some investors are saying, “You know what? I don't want the cost of a hassle of doing that; I'm just going to retire early.” So start to sell up their properties. We know this because of our network of property meetings all over the country. In 2019 and the beginning of 2020, we saw longtime landlords come to those network meetings looking to sell up some of their properties because of section 24 and the new tax changes. That meant a lot more landlords bringing more property onto the market. For this reason, we felt that 2020 might see a dip in the market. Then COVID-19 happened. In the UK, it kind of hit home at the beginning of March and then later in March, we went into the very first lockdown. What that meant for property prices in the UK was that for 12 weeks or so, nothing happened. What I mean by that is all of the lenders and the mortgage companies stopped lending. The reason that happened was because they were very nervous about the market and what was going to happen.

This pandemic and lockdown had never really happened here in the UK before. But the main reason was they didn't have capacity to take on new work or even deal with existing cases. That was because the government announced that they were going to give rent holidays for tenants who were struggling to pay the rent because of the pandemic. There were going to be mortgage holidays for the landlords. So what that meant was, if you were struggling to pay your mortgage, you could speak to a lender and get three months of mortgage holiday. Now there was a real knee jerk reaction. I think a lot of investors thought, "Well, I don't know what's going to happen. My tenants might struggle to pay. Maybe I should get this mortgage holiday, just in case." So tens of thousands of landlords applied to their mortgage companies to get these rent holidays.

The problem was these mortgage companies just were not set up for this work. They were over overwhelmed and they had to take all their staff out of all the other departments and put them into the department just to deal with all of the people applying for mortgage holidays. So that's one of the reasons why lenders completely stopped. The other thing is, all surveyors stopped. I had three re-mortgages and one purchase going through in March, and everything stopped. So the valuations of those just didn't happen for about 10 weeks. In fact, I had a valuation immediately after we came out of lockdown. This was for a big block of flats; I've got seven flats up in Halifax. I was expecting the valuation to come up maybe £908,000 or £850,000. It came in at £750,000 and they said, "Because of COVID-19, market might change". So actually, the surveyor had already downed value the property because of that. So surveyors were being cautious, lenders were not lending and mortgage brokers and estate agents all went home as they weren't working. The whole market just stopped.

Now normally in the spring, there's usually a bit of a boom, but that couldn't happen. So when we came out of the lockdown, I think there was a real relief for a lot of people. Suddenly the market went crazy. All the people who were trying to get transactions through during the lockdown, all of the pent up demand came through. You had a bit of a natural boom in the summer. Then you had things like the simple loans and bounce back loans. So there was lots of money sloshing around in the economy that meant people had more money to buy property. People who had got money in the bank were worried about what might be happening. They thought, "Is it really safe to leave money in the bank?" I had a number of people who are not really in property, their fellow speakers, other people on other wealth creation strategies contact me and say, "Simon, I've got some money in the bank, I'm thinking about putting it into property. What do you think? I need somewhere safe to put it." So I think that's definitely stimulated the market and caused this mini boom. I must admit this mini boom has gone on longer than I expected.

We also had the government who realised the market was going to fall. The Bank of England predicted a 16% drop in property prices due to the COVID-19 pandemic and the recession. The government brought in things like the stamp duty holiday, where they said, “If you're buying a first time property or you're moving from one house to another, you won’t have to pay stamp duty on purchases up to £500,000 up until the end of March, 2021. So this was a real stimulus. Certainly a lot of people thought, "Well, if I don't have to pay stamp duty, it's a great time for me to go and buy property." So this stimulated the market. Let me explain what's happening here in Birmingham and of course, it's different all over the country obviously. But here in Birmingham, properties are going like hotcakes. They’re flying off the shelf. Properties are going for more than the asking price. So the value has kept on going up and up and up. What happened was, people were making crazy offers. Now that's all very well if you can get a valuation at that crazy offer.

But increasingly what's happening right now is more and more properties are coming to a point where they're actually being sold at a price often higher than the asking price. Surveyors are going out and saying, “This property is not worth this much”. Surveyors are all being very cautious. Now it's an interesting point when you think about the UK property market and valuation surveyors. If surveyors or people like The Royal Institute of Chartered Surveyors, the people who do the valuations on behalf of the banks, think the market's coming down, they are going to be very pessimistic and cautious with our valuations. They are going to lower property at a lower value. But they don't realize, or maybe they do, but that's actually a self-fulfilling prophecy. If it's the surveyors are valuing the property down, they are causing the property market to come down. What this means is, property sales are starting to fall through.

In the UK property market, we see one in three sales fall through naturally. I think we're going to see an increase in sales falling through. So that's going to cause properties that are technically sold coming back onto the market, which will result in more and more properties coming on. I've seen, certainly in my area, more properties coming on and not enough buyers. I've heard some other property trainers talk about a real shortage of property. There was, but not now. Things are starting to change. I think we're going to start to see the market to tip and start to come down. I think that the stamp duty extension, the holiday until March, 2021, will see a whole load of transactions that people are trying to get through early March. So that might keep the market going a bit. The government might decide to extend that beyond March 2021. What that means is, that maybe it might save the market. Otherwise I think we could see a real drop-off in prices in April 2021.

We also heard in the news very recently that Rishi Sunak, The Chancellor, has been prompted to maybe change the capital gains tax that investors have to pay. Now, what kind of effect is that going to have? Well, it depends what comes in in the budget. These are only suggestions, proposals at the moment. The media is making a real fuss about this. I don't know if it's actually going to happen. I’ve said to a lot of my clients, "Look, don't worry and panic about something that could happen. Worry about things that are actually happening in the market." The reality is, there's lots of property on the market that is not selling. There are sales falling through. I think we're going to see the property market dipping and starting to come down. When is that going to happen? I just don't know when that's going to happen. Nobody knows when that's going to happen, but we think it's going to happen sometime soon.

So what does that mean for you? Well, it's important to keep updated on what's happening. I also think you should get ready for a property market crash in 2021. I think that's going to happen. So what does that mean? If you're an active investor right now, you've got equity in property and you're thinking about releasing the equity to buy more property, I would get it done right now. There's no doubt in my mind that lenders in the UK are getting very nervous. We've seen some of the higher loan to rate, loan to value mortgage offers being pulled. I think it's going to get difficult to borrow money going into 2021. If you want to release money, I can't give you financial advice, but if you already planned to do that, you might want to get on with that and do that very soon. I don't know about you but I'm going to be watching the UK property market very closely because I'm getting ready for the property crash 2021. I think it's going to happen. I think it's going to happen very soon and it's going to be a great opportunity. That means there’s going to be more sellers than there are buyers. There might be people who want to buy, but if they can't get the finance, they're going to really struggle to do that. So what that means is strategies such as vendor finance, purchase lease options and exchange and delay completion are going to be strategies that we're going to be able to use in the market in 2021. There'll be a lot more sellers open to those creative finance strategies because they need to sell their properties.