Despite the perilous state of the economy and life itself, there seems to be crazy property boom around our parts at the moment. What’s going on? Is this madness justified and what should you do?
I’ve written about how I’m pessimistic about property and I reckon that the value of our home will reduce in value this year by about 20%. That might be overly pessimistic but that’s what I’m saying now and until some facts come to light, I’ll keep that.
But some friends of ours put their flat on the market and were able to push it to a closing date and get an offer over price well above what they thought they’d get – and extra maybe 10%! We are talking about people upping their prevsious bids by tens of thousands of pounds in a mad race to win. The local property website is showing a lot of under offers at the moment and there’s been a big pick up in the market. After a quiet lockdown period, the market is coming back to life!
There are houses that have been on the market for years and years that have gone under offer just now – real dumps, the sort of place you’d end up in as a half-way-house if you left a tough prison. There’s kite-flyers who’ve had their ordinary house on the market for 15% more than anyone else who sold on the same street before and they’ve gone under offer! I can’t believe it – boom times are back!
By the way, we live in Scotland and there is a different system here. Properties are normally marketed as being “offers over”, “offers around” and “fixed price” – it’s common to big above the offers over price but mortgages are only secured against the home report value. It’s all a bit complicated – but it’s better than the English system. A government guide is linked here if you want more information.
Why all this?
Despite the economy being in a bad shape, the Chancellor, Rishi Sunak announced that there would be a temporary stamp duty holiday across the UK. More accurately, the rate of Stamp Duty Land Tax (SDLT) will be reduced for residential properties purchased from 8th July 2020 until the 31st of March 2021. For properties up to £500,000 the rate will be 0%, ZERO, zilch, nada, nahin! This could save buyers up to £15,000 and the money off applies to both buyers and BTL.
Give with one hand and take with the other
Unfortunately, I’m a bit of a cynic and if everyone saves 3% on their stamp duty, it just means that use that money to outbid other bidders for the same property. Ergo, prices jump 3% as everyone just spends more money on the same property. The winners are the sellers – who get that 3% straight to their bank account once the sale goes through. Estate agents do well as they make their money from volume/turnover and sales of houses were drying up. The economy gets a boost as household creation involves spending. The buyers are no better off if they just use their money to bid more for the houses and the government loses most as they lose the stamp duty which can add up.
A Property Market on State Support
The UK’s property market is highly dysfunctional. Millions rely on housing benefit to pay for their accommodation – with billions paid by the government which has systematically sold off it’s housing stock over the years and never replaced it. Building new houses, where they are needed is slow, painful and hamstrung by planning rules. The houses that are built are often the wrong type, in poor locations and unaffordable. To make things more affordable, the government steps in with schemes designed to ultimately push prices up even more – schemes like “help to
sell buy”. If you don’t buy a property and don’t get housing benefit you can enjoy renting in the UK – paying a fortune for substandard accommodation. Since property prices are so high relative to earnings, you might never pay off that mortgage, meaning a life of perpetual debt lays in wait – but don’t worry, you can always extra the equity in your home when you re-mortgage to enjoy life or get a geriatric lifetime mortgage when you hit 65 and still owe the bank.
For those of us who want to be Financially Independent, you need to have a strategy about property – where will you live, how will you pay for it and how will you afford it. For us, we live in a very large property in a very nice area of a very cheap place. Our house cost the same price of a luxury modern 2 bed executive apartment, cheap I tell you! You could call it a forever home. Low Cost of Living has its attractions.
Property as a path to prosperity
I had very recently considered investing in BTL as a way to diversify out income as we have the money for a deposit and the returns look good. But on running the numbers, the return on capital would not be as good as I can get from a side hustle of mine and would involve more stress – which I don’t want in my life. As Finumus says, it’s not 1994 anymore and the best returns are behind us now.
But it’s different this time
My gut feel is that the property buyers who had their powder dry were able to buy quickly once the stamp duty cut was announced. But the risk of any temporary cut like this is that it might give a temporary boost now but once it’s removed there’ll be no green shoots or spring bounce. Students of economic history will remember that MIRAS caused trouble back in the 1980’s, 2021 could see RISHIS doing the same thing.
Life is not a Spectator Sport
Writing this, I am tempted to go out and get a BTL mortgage, buy something, anything and sit on it for 9 months and sell next Spring. Flipping it’s called and it’s great. However, I’ll just sit this one out – too risky for me and You Only Have To Get Rich Once. Plus I have enough skin in the game with the house that we own.
Are you taking advantage of the stamp duty cut? Is it helping or hurting you? Let me know.