Housing Market Update – January 2021

Now, I want you to understand this, whenever property prices boom you always have a burst afterwards. Actually if you go back and watch some of the housing updates I've done towards the end of 2020, I was saying, look the property market cannot sustain this growth. At some point, it's going to have to crash, it's going to have to come down. And I was really surprised to see that didn't happen. Now, what was going to cause that crash I believed, was at the end of October when the government's furlough scheme was coming to an end. There were millions and millions of people on furlough who I expected unfortunately may not be brought back to work, they'd probably be made unemployed. That would have had a catastrophic effect on the economy and the sentiment of the country, and that's why the government have extended the furlough into 2021, initially to March, now to April. So this has I think prolonged the inevitable. I think at some point we're going to see people lose their jobs. The recession's going to get worse. That's going to have a knock on effect on commercial property. It's going to have a knock on effect to people who cannot afford to hold their homes anymore and have to then sell them.

Stamp Duty Holiday

There's going to be more supply in the market than there is demand, and we're going to see property prices come down. Last year in about may June time The Bank of England was saying, they felt the property prices in the UK would be affected by about 16%, a 16% down term because of the effect of COVID-19 and the recession. Now that didn't happen. And I think that's why the government intervened And they've extended furlough they all support in the stamp duty holiday. So let me talk a little bit about that, because that's really important. We're looking at what's going to happen to property prices in 2021. So the government announced that they were going to give everyone a stamp duty holiday. Now stamp duty is the tax you pay when you buy a property. The amount you pay varies, it's based on the value of the property. And as investors, we pay an extra 3%. So they said anyone who's buying a first home or if you're selling a home to buy another property on purchases up to 500,000 pounds there was no stamp duty. Now as investors, we still pay the extra 3%, but it's still less than we would pay normally.

This did the trick that the government wanted. It really stimulated the market. And there was a rush for a lot of people to come and buy properties because they wouldn't have to pay stamp duty. Now this was supposed to be until the end of March, 2021. Now anytime there's a change like this, when the government first suggested that they were going to bring a few years ago, they said, right, anyone who's an investor is going to have to pay an extra 3% stamp duty, they gave everyone notice. There was a real flood of purchases that went through and everyone was rushing to get it done before the cutoff point, so that they didn't have to pay the extra 3% stamp duty. So that caused a real boom to the market. And a similar thing has happened now. So the government wanted to protect the UK property market because the UK economy is based mainly on retail but also the property sector. And they knew if the property sector was hit as well as the retail, which had been hit by the pandemic then the country was really going to be in difficulty. And that's why they introduced the stamp duty holiday to stimulate the market, to make sure that they propped it up so that market kept on going, and it certainly did the trick. But the question is, what's going to happen at the end of March, 2021 where the stamp duty holiday is supposed to end? Now there's a couple of things, it might just end or the government might realise that maybe they need to extend this further in the same way they extended furlough just to keep the property market propped up. Now, no one knows what they're going to do. I'm sure there's going to be an announcement about it at some point, but until that happens we don't quite know.

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Property Prices: My Prediction

So if you want to buy a property in the UK at the moment, when you find a property today, it's probably going to take at least two if not three months for that sale to go through for a couple of reasons. First of all, as I said, everyone is very, very busy. Solicitors are busy, mortgage brokers are busy, is taking a long time for lenders to process mortgage applications. And I think they're a little bit nervous about the market as well. So they're not rushing out to lend lots of money. They do want to lend money but they're being very cautious about it. So even if you found a property in January it's very unlikely that that transaction is going to go through before the end of March. Unless you're buying cash, well, maybe you could do it, but if you're getting a mortgage, which most people do, and you're starting to find a property right now it looks like you're probably going to have to pay the normal stamp duty unless the stamp duty holiday is extended.

So what does that actually mean for you? And what does it mean for the property market? Well, if you think about it, the idea of not paying stamp duty encourages people to come and buy their property. But if they realise, well, actually that's not going to happen now, I haven't got enough time, suddenly that demand falls away. So I expect that we're going to see property prices certainly start to slow and maybe even drop over the next few months. When it comes to April there's no incentive at all. I mean, obviously then anyone who's already found a property in them, going through the transaction they will hopefully get those done before the end of March. When it comes to April that incentive is no longer here, unless the government do decide to extend it which they might decide to do, I think sales are going to drop off a cliff in April. Now, add to this. Also, that the fact that we're in this third national lockdown in England at the moment, no one knows how long this is going to last.

Buying Property in a Lockdown

Now, there is a solution. Many people have moved their properties into a company, but it's expensive. You have to get good legal advice and accounting advice to do that. You have to change your mortgages. So there are increasingly large number of landlords who are saying, "You know what, "I don't think I want to be in this game anymore. "I've been doing it 10, 15, 20 years. "I'm going to sell my properties. "I've had some really good capital growth, "and now I'm going to sell up and I'm just going to retire." So we're seeing lots and lots of landlords doing that. Certainly in 2019, when we first saw the effect of section 24, we had more long-term landlords come to the Property Investor Network meetings, looking to get rid of some of their properties. We saw it at the beginning of 2020, and for most of 2020 we've been online to have virtual pin meetings. And at those, again we've seen experienced landlords come along looking to sell and get rid of their properties. So this is still a huge opportunity for you. If you can reach out to and find other landlords, and that might be through direct marketing, through letters, through registered HMO landlords, or responding to landlords adverts online and newspaper saying, "Yeah, I'm interested in renting or buying your property." We can potentially find properties that are not on the market now, but the landlord might be very open to potentially selling their property. Now, landlords also have a little bit of a challenge. If they sell all their properties in one go they're going to pay a huge amount of capital gains tax.

Capital gains tax is the tax that we pay when we sell a property that's not our own home. It's the tax on the profit between what we bought it for and what we sold it for, less than the capital cost. So if we've spent money, improving the kitchen, or putting a new roof on, and the cost of buying and selling there also included, but once you take those off we pay tax on what's left over. Now each year, you get a personal capital gains tax allowance. The chancellor has mentioned that he wants to change and look at potentially changing capital gains tax. So again, we're going to have to see what happens. When we look at all the impact on property investors once those are actually announced, but we don't know what's going to happen just yet. But at the moment, there's an allowance of 12,300 pounds. Where you can sell a property or shares, or anything that has a capital gain and the first 12,300 each year is tax-free. Now, if you own that asset in joint names with a partner you both get that 12,300 allowance. So in other words, you can sell a property, and the first 24,600 pounds is completely tax-free. Now, if you are a higher rate taxpayer getting 24,600 tax-free is actually a really good thing for you. But you only get the allowance once a year, it's not per property it's per year. And if you don't lose the allowance, you use it. So any landlord, who's got a number of properties deciding they want to retire, they're going to sell one property a year and phasing the sales over a number of years is a great way to do it. They are able to use their personal capital gains tax allowance each year. So many landlords who are looking to retire are going to be putting their properties on the market, but we can actually help them. In fact, I've got some online training, all about what I believe is going to be one of the best strategies for 2021, which is purchase options and purchase lease options. If you look below this blog there's going to be a link, and I'd encourage you to come and register for that training with me. So you can learn all about how you can use this strategy to help these landlords who are looking to sell.

Difficulty Buying Property

I was originally talking about an increase in property coming onto the market. I think it's going to be some of these landlords looking to sell, that's going to have an increased supply in the market. Not so many buyers, because people are nervous about the market coming down. Also, it might become difficult to actually fund purchases. When the market comes down, at the last property market crash what we saw was lenders become very nervous. They dropped the loan to value, and in fact some lenders stopped lending completely, because they were just too exposed to the property market. So if we see property prices come down in 2021 I don't think it's going to be as bad as we saw in 2009. But if prices do come down lenders who remember that time might get very nervous, and so it might get harder again for people to buy property. So even if there is demand, people want to buy property it might be very difficult for them to actually do it. And so less property is sold. This again, will bring property prices down further.

How Much Will the Property Prices Fall?

Now, the question I'm always asked, is Simon how much do you think property prices will fall in 2021? I wish I knew the answer, but I don't know. In fact, nobody knows. It's a bit of a guess really. The Bank of England did predict last year that property prices would come down 16%, but that was before all the government intervention that I've mentioned already. And so I think maybe more like a 10% drop in property prices is probably realistic. I know some people think it might be as much as 50%. Some people think the property market will not crash in 2021, I doubt that's going to be the case. I think this boom that we saw at the end of 2020 it cannot continue. After every boom there is always a burst, prices are too high, they have to correct down, and I believe it's going to happen in 2021. The other question is, when is it going to happen? Well, I just don't know. Again, if I could, I'd get my crystal ball out and I'd tell you, but I don't know, nobody knows. I think it's going to partly depend on what happens with this stamp duty holiday. Are the government going to extend it beyond the end of March, 2021? In which case it would prolong the market fall, or will they finish that, and then that incentive disappearing with potentially loads of people coming off far low in April, 2021. I think we're going to see by the summer, I think we're definitely going to see prices come down. They're certainly going to stall, level out, but I think by then, we'll see them coming down as well.

Click on the link below to come and join that training with me. I think you're going to find it really powerful. And it's going to show you how you can make the most out of the 2021 market. Whether you're completely new or whether you're a really experienced investor. By the way, if you're an experienced investor you can also use, purchase these options to sell a property that you don't want.

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