Government Intervention - Furlough & Stamp Duty Holiday
Now the government very wisely intervened. They brought in the Furlough Scheme, which prevented a lot of unemployment. This was scary for people because of the uncertainty. But still, it could have been a lot worse, right? So that massively helped. The government then decided that we need to stimulate the property market here. As the UK economy is made up of mainly the retail and property sector, if property was hit as well, this would have had a devastating effect on the UK economy. So they also introduced Stamp Duty Holiday, originally up to the end of March 2021. This caused an incredible boom.
Whilst there’s normally a boom in the spring and one in the summer, the property market shut for 12 weeks from March. This caused a lot of transactions which were going through to be delayed. I had one purchase and three remortgages supposed to go through, and nothing happened on them for pretty much three months. Everything stopped and Covid 19 was a massive shock to everyone. Now the second time you had a lockdown, the property market was open. Obviously things could then move forward. There were lots of people who took out Bounce Back loans that had extra money, which wasn’t supposed to be used for property, but I’m pretty sure some of that was used as deposits. So the stimulation to save money for first time buyers, the stimulation for all this extra money coming into the economy, and the sense of security that people were on Furlough, this gave a lot of confidence in a pretty scary time. The property market therefore boomed.
I expected the property market was going to crash at the end of 2020, based on Furlough ending in October 2020. I've been perfectly open about that. Then the government extended furlough to March, April 2021. Then in March 2021, they extended out to September. They also extended the Stamp Duty Holiday. So they said for purchases up to £500,000, an extra three months, and for purchases up to £250,000, six months. So they're kind of phasing it out rather than having this drop off the cliff, which is what a lot of people were worried about.
The Impact of a Property Boom
Now, the reality is that solicitors and conveyors are very busy at the moment and the market is booming. They're struggling to get everything done. The extension was pretty good because they probably wouldn't have met the end of March deadline. So even if you speak to a solicitor now, they're very busy. But here are the things we need to look out for, and to be perfectly honest, I don't know what's going to happen in the property market. But based on what we do know at the moment, Stamp Duty is scheduled to end at the end of June. It's going to be a bit of a rush to that. Now 250 is still probably the average house price in the UK, so for first time buyers outside of London, that will still work for them. There will then be some first time buyers who will still be completing up until September. If someone's a first time buyer, they also don't know what to do, how to buy property, they're going to take longer than a serious professional investor who could do things pretty quickly. Allowance obviously by the lawyers. So I think we're going to see this continue, but we're going to see the market start to slow down. Once Furlough ends in September, I'm concerned what might happen after that.
My personal prediction, and who knows, but I feel that as the UK market is opening up and the restrictions around COVID-19 are starting to ease, things seem to be going to plan at the moment. We'll really know by the 21st of June if that's happened completely, but I don't know about you, I've seen a lot more people out. The roads seem really busy, lots of traffic. People aren't taking public transport as much. Kids are back at school. People are going out to pubs in the evening, sitting outside. There's a whole load of people who've got money in the bank that they've not been spending because they couldn't go and spend it. That money is a pent up demand. It’s going to go into retail, and it's going to go into leisure. If you've tried to book a staycation anywhere in the UK, because we can't really travel overseas at the moment, everywhere is pretty much booked. There are some places available, but they're all really expensive. So this is going to see a massive boom in the economy in the summer.
"My personal prediction, and who knows, but I feel that as the UK market is opening up and the restrictions around COVID-19 are starting to ease, things seem to be going to plan at the moment."
Property Market Price Predictions 2021
The question is how is that going to affect the UK property market and property prices in 2021. Who knows? I think we're going to see some businesses that were in danger of closing, having a really good summer and that might be enough to support them. But you’ve got to think about the time when those businesses were shut and they didn't have revenue coming in, they were still paying for their premises and they just weren't generating profit. I think we're going to see a lot of businesses close.
When Furlough does end, and the government might extend it further, but back in March they released figures. They had spent about 280 billion pounds supporting the economy. It’s going to be a lot more by the time we get to March, but they can't keep doing that. The chancellor's budget was actually pretty good to stimulate the market, not penalising people too much. But in the future, we're going to have to all pay more taxes, because we need to somehow pay for all the money the government spent supporting everyone through the pandemic. So it's going to have to take its toll at some point. But who knows when that's going to be. My money, unless things change, is at the end of the year when Furlough ends and those extra transactions have been petered out. I think we'll see the market start to slow. Now, are we going to have a big crash? Personally, I don't think it's going to be a big crash. But after every boom, there is always a correction. So what does it mean for you as a property investor?
Should You Be Buying Property Right Now?
Should we be buying now or should we wait. It's a great question if you think about it. My view is that if we find a property that works right now, then actually we should buy it. If it meets our criteria, it gives us the cash flow, the Return on Investment, buy the property now. I was speaking to a friend of mine who is in Australia, and he was saying he's been waiting to buy property, thinking the market was going to crash. He's just missed the last five years of phenomenal growth they've had over in Australia. So if we sometimes wait, thinking I'm going to wait for the crash, it might not be a good thing to do. People sometimes say, "Yeah but Simon, "if we buy now and then the market crashes, "is it possible that the property we buy "is going to be worth less in maybe a year "than we're buying it for now?" Yes, that's a possibility. Does that mean they've lost money? No, not unless they try and sell the property. If you follow the five golden rules I talk about in ‘Property Magic,’ you'll see that if we follow rule two, three, and four, so we buy an area of Strong Rental Demand and we buy for the Long Term, it doesn't matter about the Short Term fluctuations. Property prices go up, they come down. But over the long-term, especially in the UK, we live on this island with a limited amount of accommodation and an increasing population. Obviously, the population has been affected. We've had some people leave because of Brexit. We've had people pass away due to COVID-19, dying prematurely.
Yet overall, we are seeing a longer life expectancy. We're seeing increased birth rates. This means over the long time, the population is increasing and getting older. We therefore don't have enough accommodation. The government figures suggest we need 300,000 new homes in the UK every single year, and the UK is pretty good at building about 200,000 new homes. So therefore there's not enough of a supply. So over the long-term, we’ll see property prices come up, and also we see rents go up as well. All this money that's been put into the economy is going to cause inflation in the future. For general consumers, inflation is not a good thing. As property investors, inflation's actually pretty good, for two reasons. First of all, as the cost of living goes up, rents will also go up. So that's good for us. The other thing is that if prices go up and the cost of living goes up, we're borrowing a certain amount of money on our Buy to Let mortgages. We borrow that money for a period of time. Maybe 20 years, and we might borrow £200,000 pounds. In 20 years time, £200,000 pounds buys a lot less when we've had inflation. So the debt is actually eroded by inflation.
Interest Rate Increases
Hopefully the values have gone up a lot so we can sell a property and completely pay the debt, or we could obviously remortgage. So actually inflation is good for us as investors. The only problem is that sometimes the Bank of England or the central banks will use interest rates to control inflation. When inflation's getting too high, they raise the interest rates, which cools the economy down. So a risk we have as property investors is potentially interest rates going up in the future. I don't think they're going to go anywhere for a couple of years because we need the economy to recover. But at some point I expect rates to kind of go up. So what a lot of people do is they fix their mortgage rate. They might pay a slightly higher interest rate, but they can fix it for two, five, or sometimes longer.
Personally, I can't give you advice. What I'm doing on all my mortgages, for my purchases and also my remortgages at the moment is, I'm fixing it for five years. A couple years will be alright, but who knows in three, four years time where interest rates will be. So that's what I'm doing with my property. I've been doing this a very long time. A lot of people have only been investing since the market's been booming. But I was there investing, teaching my students when the property market crashed in 2008, 2009. You need to do it in a different way. So get ready for that. The market's going to dip. Not that it's going to crash, but we're going to have a correction. You heard it here. It's going to happen at some point. I just don't know when that's going to be.
Property Magic Podcast
A recommendation for you, for how you can get a whole load of extra quality training from me at no cost, is the Property Magic Podcast, that comes out every Tuesday morning. It's completely free of charge. I reveal some of the secrets that I normally only share on my Property Mastermind programme. Just click on the link below the blog to gain access and subscribe, or just go and look on iTunes to pick it up.
If you've got an Android phone, go to Google Play, or even on Spotify. I highly recommend you subscribe to that podcast, because it's a short 10 to 15 minutes every Tuesday morning. You'll have me in your ear, motivating you, teaching you some of the best strategies. We’ve got well over 70 episodes that you can go and binge. I promise you, if you listen to all of those, maybe one a day for a couple of months, you will know far more than the average investor in the UK. So go and check out the Property Magic Podcast.
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