No need to ‘panic’ buy or sell - David Alexander comment

An estate agent based in Liverpool has come under fire from others in the sector for calling on homeowners to “sell now before prices crash”.

Thursday, 8th October 2020, 7:00 am
People should not sell over fears of a crash that may never happen, warns Alexander. Picture: Lisa Ferguson.
People should not sell over fears of a crash that may never happen, warns Alexander. Picture: Lisa Ferguson.

Adam Sutton said potential vendors needed to act because what he believed was the coming recession would result in a substantial drop in prices, going on to refer to values having fallen by 15 per cent as a result of the 2008 financial crash.

To a certain extent Mr Sutton does have a point in that, even if the country manages to survive the coronavirus pandemic without a recession, the scheduled ending of the Land and Buildings Transaction Tax (LBTT) or Stamp Duty “holiday” on 31 March next year, and probably affecting a majority of transactions on both sides of the Border, will undoubtedly result in a drop in market activity. But using the word “crash” is, in my opinion, indulging in needless and self-defeating hyperbole.

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Certainly, the property tax concession has created a price bubble – to varying degrees depending on location– across the country, but the hope must be that once the “holiday” ends, this bubble will only deflate somewhat rather than burst. And for this to happen it is essential that the public not be driven into panic selling (or buying), because should that occur then we really will be in trouble. It would be the British property market’s equivalent of the Wall Street Crash of 1929.

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Back then, not just seasoned investors but ordinary Joes with a bit of cash stuffed under the mattress allowed themselves to be panicked into buying shares before prices got beyond their modest reach. Of course, the shares became overvalued and the same people were then panicked into selling the same shares, many of which became virtually worthless in a matter of days.

To help ensure something similar does not happen to our housing market in 2021, people should not only not sell over fears of a crash that may never happen but, just as importantly, not buy just because they fear they will somehow “miss out” on the current tax holiday.

Of course if, just before the pandemic struck, a householder in Scotland had been thinking of upsizing or downsizing, or simply fancied a change of location, then now would seem to be an ideal time to take advantage of not having to pay LBTT on transactions of up to £250,000. However, the absence of LBTT has increased buyer competition for many properties and emboldened some vendors to seek a higher price than they might have done at the beginning of March. So some of the advantages gained on the tax roundabout may be lost on the price swings.

This is why many potential buyers need to pause for a moment, put the LBTT advantage to one side, and ask themselves two questions: A) is this really the right time to make a move and, B) is there a property currently on the market that’s right for me and which I can reasonably afford?

Consequences

If the answer to either is “no,” then buying a property purely based on saving tax could be a wrong decision from which it may take several years to recover. In terms of consequences, it’s on a much bigger scale than falling for a “bargain” holiday offer that then turns out to be a duffer.

Therefore, if you think a move might be advantageous but is not essential at the present time, it might actually be better to wait until after the tax concession ends when prices may have dropped back a bit – although not, hopefully, fallen off a cliff.

Remember that while tax holidays are, by their very nature, temporary, the seasons follow a familiar pattern; just when LBTT and Stamp Duty are scheduled to return, the onset of spring will bring with it an annual upturn in the property market as lighter evenings and better weather bring out the viewers again.

So, rather than be panicked into a sale (and related purchase) between now and then, perhaps existing homeowners could make better use of the interval to prepare their homes for the market in terms of necessary repairs, value-adding improvements or just simply applying a lick of paint to whatever part of the house needs it. Buying or selling one’s main home is a decision that, pandemic or not, always requires a clear head – and sometimes a stout heart.

David Alexander is managing director of DJ Alexander

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