House Price Correction and Death of Buy-to-Let

Two journalists have reported that house prices will face a “nasty correction” in the near future and the buy-to-let sector could crash.

John Ficenec believes that property prices are living on “borrowed time” and there are “six clear reasons a nasty correction looms in the coming year”.

He describes quantitative easing as the great “money printing experiment in history,” and while most of that money has flowed into the stock market, a large amount has also found its way into house prices.

He writes: “What we are now witnessing on trading screens around the world is the unwinding of the era of monetary excess, and house prices will not escape the fall-out.”

House Price Correction and Death of Buy-to-Let

House Price Correction and Death of Buy-to-Let

He reports that share prices are already falling, but there has been a delayed effect on property values, as the market is so inefficient.

He explains: “Transactions can take up to three months to complete and the property itself may have to languish on the market for even longer.

“The prices are also dictated by estate agents, who have an interest in inflating them to raise fees.

“The number of transactions is also still about 40% below that of 2006 and 2007, which allows prices to stray from the fundamentals for a longer period.”

He continues: “It is true that Britain is suffering from a housing shortage, which drove UK house prices to a record high of an average of £208,286 in December, but like all asset prices they are on borrowed time.

“The fundamentals of demand and supply in UK housing will undergo a huge shift in the year ahead.”1

Ficenec also discusses the death of buy-to-let, expecting 200,000 landlords to leave the sector after Chancellor George Osborne’s tax changes.

From April, mortgage interest tax relief for buy-to-let investors will be reduced, along with the Wear and Tear Allowance, and landlords buying more properties will be charged an extra 3% in Stamp Duty.

Another writer, Olivia Rudgard, warns that landlords investing in 90% of the UK and who buy properties with mortgages will be losing money within five years.

This calculation used data from estate agents Your Move and Reeds Rains.

Use Landlord News’s Stamp Duty calculator to work out how much more you will pay under the new rules: https://landlordnews.co.uk/calculator/

1 https://www.telegraph.co.uk/finance/property/house-prices/12087971/UK-house-price-to-crash-as-global-asset-prices-unravel.html

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