March Housing Market Forecast

I think to understand this we need to look back a little bit. If we look back to 2020, when this pandemic started the bank of England predicted that UK property prices were going to fall by 16%. I think given all the fact we went into a recession, all the people that were losing jobs and things is a pretty good indication that was probably about right. However, the UK government reacted to this very well, they obviously put the Furlough Scheme in place. This is where people who were not required at their work, instead of being made redundant were put on to 80% of the salary and basically sat at home. it's still not a great position to be in because of the uncertainty about your job, but it's not bad sitting at home and getting 80% of your salary.

So that was one thing. Then they also introduced a Stamp Duty Holiday. Now, these two factors have helped prop up the property market. Imagine if millions of people were made unemployed they might not be able to afford their mortgages. Many people would need to sell their property. That'd be a very, very negative bound sentiment in the market and the economy and people wouldn't be buying property basically. All the shops and restaurants and bars that are closed would then be going out of business. This would be very bad for the economy. .

So this economic downturn would have caused property prices to fall. As I said, the Bank of England predicted 16% but the intervention by the government has helped to prop up the property market. It stimulated it because of the Stamp Duty Holiday which was until the end of March 2021. Add to that the fact that there was lots of money in the economy or the money from the bounce-back loans and schemes as well. This is why the property market absolutely boomed in 2020.

To be perfectly honest I thought we would see the property market come down by the end of 2020, because I thought furlough was going to finish in October. Now they have announced that they are going to extend it out until April, March, 2021. I then thought, okay, well, let's see what happens to them as that's when the Stamp Duty Holiday finishes. I was convinced that after a boom, you always see a crash. I thought we'd see that happening in 2021.

However, the chancellor made some big announcements on the 3rd of March. What he said was, first of all furlough is being extended to September, 2020. So instead of all the people in February, March losing their jobs, they've got a good six months to go.

They are also putting a lot of money into the economy. They're going to help leisure businesses in particular. I'm also pretty sure the Prime Minister has laid out this plan of how they want to open up the country. If that goes to plan, by the time we get to the summer, lock down will pretty much be finished. Most adults in the UK are going to be vaccinated. Or at last they will have their first jab by the end of July. This means public sentiment is going to be up.

Also, I think there's going to be a boom in the economy. All the people who have been stuck in for a long time have got money to spend. They're going to come out, they're going to be going on holiday. They're going to be eating in restaurants, bars. There might be social distancing or those kinds of things still in place, but to all intents and purposes it's going to be back to normal. This is going to give a massive boost to the economy. I think because of this we're going to see the property market continue. Especially as the government has said, well we're not going to finish the Stamp Duty Holiday on the 31st of March, 2021. They've said, they're going to extend it for another three months to the end of June.

So for purchases up to £500,000, there's no Stamp Duty for First Time Buyers or people selling and moving to the next property. That's going to stimulate the market. For properties up to £250,000, they're extending it for a further six months from the end of March up to the end of September. So in other words First Time Buyers who are buying properties up to £250,000 pounds and given that's about the average price in the UK, most First Time Buyers are probably going to be buying property below that. So that's going to work incredibly well for First Time Buyers and they are going to be able to come in and pick up properties without paying Stamp Duty. It's been an incredible stimulus that's worked very well so far. It's going to continue to keep the property market topped up.

So, whereas on previous blogs I've said I think we're going to see the market come down in 2021. I think it might actually extend out until the very end of 21 or even the beginning of 22. I'm convinced even if the economy starts to bounce back, we are going to see property prices come down. The simple reason for this is that there will be some people who have come off furlough, who haven't gone back to jobs. They might then lose these jobs.

There are going to be more and more businesses that are going to suffer. I think the economy is going to have a harder time because at the moment everyone's got these Bounce Back Loans and it's kept people afloat. It will be very soon where people just have to start paying these loans back. That's when there's going to be a bit of a challenge. I think that's when people might start to struggle and we're going to see more businesses go out of business, more shops close, more restaurants and bars not be able to sustain the losses they've made. Even though they're going to have this boom in the summer.

Unfortunately I don't want to be the proclaimer of doom, but I think the economy is going to get worse. That will then trickle through to the property market. So I'm changing my prediction. I think probably by the end of 2021, or certainly by the beginning of 2022, that's when we're going to see the property market start to come down. So will the property market crash in 2021? I don't think it's going to crash anymore. I've changed my view based on what the government has decided to do. Also based on the recent announcement by the Chancellor of the Exchequer.

I think actually this budget they have put in place is a very smart budget. They have frozen all of the personal reliefs that people get. What that means is that as we earn more over time, we'll start to pay increasingly larger amounts of tax. Stealth Tax. So rather than putting up the tax rates they have frozen the limits. So we're going to pay more tax over time. That's understandable because the government has spent something like 280 billion pounds, supporting the economy through this COVID-19 crisis. They're going to be spending a lot more than that with the extensions to follow that.

So this is going to be a big debt that is going to need to be paid back at some point in the future. So there's no doubt that as property investors we are going to have to pay more taxes. Those who earn lots of money are going to have to fund all of this.

There are also a couple of other factors which I think are going to affect the Property Market, such as not making changes to Capital Gains Tax. You might remember before this announcement, in the newspapers there were big headlines saying that Capital Gains Tax was going to potentially double up to 40%. As a result of this, a lot of property investors that I know were panicking and wanting to sell properties to avoid this.

So with a bit more time, I think this might be a great time to sell one or two properties that you don't actually want. Sell the property, pay the tax, bring the money in and reinvest it in better properties with better cash flow. Reinvest in properties with a better Return on Investment.

I think we're going to see a number of landlords looking to do that, and with a buoyant market there'll be lots of buyers waiting to buy those properties. So a bit of a U-turn of what I predicted in the past, based on what's changed. I think maybe it's not a surprise. If the government had ended the Stamp Duty at the end of March 2021, then things would have dropped off a cliff and it would have been really bad for the economy. By kind of extending it and phasing this in, I think it's a very smart move that they have done.