Selling property: Why you shouldn’t sell if house prices fall

Reasons for Not Selling Property While House Prices Fall

According to the Halifax, house prices across the UK fell by 0.5% when the stamp duty holiday ended in June 2021. Does this mean investors are thinking about selling property now? Does this mean you should think about selling property now? In our experience, we don’t think so. Here’s why …

Selling Your property? Property is a Long Term Investment

Property is a long term investment. According to the Office for National Statistics (ONS) house, the UK average house price in January 2011 was £167,300. In January 2021 this had risen to £249,309, an increase of 49%. So if you are investing for the long term, short term falls in property prices will not affect you.

Selling property, Average rents in London are increasing

Historic Lack of New Development is Driving The Supply and Demand Imbalance

No matter what you’re buying, supply and demand is the ultimate driver of price. London has a chronic shortage of housing.  Decades of success creating jobs and new opportunities in the capital have simply not been matched by the delivery of new housing to meet this increased demand. 

Whilst the supply of new housing in London has increased from delivery lows between 2010 and 2013, there is going to be an increased supply shortage in London as new construction starts have rapidly declined. New construction starting in 2020 were 22,574 just above a 2012 low of 18,180. 

The issue is most pronounced in Inner London where new construction starts have declined by 45% from 10,113 in 2015 to just 5,559 in 2020. 

The Proportion of People Renting Their Home Remains High

Buying and selling property for profit? According to statista.com, the percentage of households living in private rental accommodation in the UK remains high at 18.7% of all UK households.  

In 2000, this figure was 10%. Difficulty saving for a deposit and the affordability pressures mean more people are living in privately rented homes, for longer.

Supply and demand fundamentals mean that if prices dip, it is unlikely to be a long term trend.

You should have Equity in your property

If you’re an investor, you’ll more than likely have at least 30% equity in your property, meaning prices would need to fall by 30% for you to fall into negative equity territory. So if prices start to fall, hold you’re nerves and don’t get panic and start selling property.

Bonus Tips: How much equity is in my property and why is its importance is huge?

Rents are Increasing

According to the Homelet Rental Index, the average rental price for new tenancies in the UK in June 2021, was £1,007 per calendar month.  This represents an increase of 5.9% from a year earlier.

In London, the average monthly rental for new tenancies was £1,607 an increase of 1.5% compared to last year.  This is slightly lower than pre-COVID average rents, which averaged £1,611 per calendar month in June 2019.

Figure 2 UK rental prices have increased by 10.9 since January 2015 1 PropTech Pioneer

Changes to taxation laws over the past few years have seen many domestic landlords sell their properties.  With fewer rental properties available, this has contributed to that lack of supply putting upward pressure on rents. You can read more about the Demand for a rental property in England for 5 Years.

Interest rates remain at all time lows

To support the economy during the pandemic, the Bank of England cut the base rate to a record low of 0.1%. For those on variable rate or tracker rate mortgages, their monthly repayments will have fallen. If you are selling property or house with a mortgage, For investors coming to the end of the term of the current mortgage, there could be the opportunity to benefit from savings when re-mortgaging.

Government support for the housing market

The UK Government implemented measures to support the housing market throughout the pandemic. The stamp duty holiday, which came to a close at the end of June 2021, and the 95% mortgage scheme saw the number of houses being sold rise significantly in 2021.    

The housing market is crucial to job creation and generating economic activity, and the government have demonstrated they are willing to go to significant lengths to support this.

London Remains a Global City

If you’re an investor with property in London, remember that despite Brexit and the pandemic, London remains a global city.

London remains one of the most vibrant, popular capital cities in the world.  The entertainment, arts, cultural, business and educational facilities continue to place London as a global city.

The Global Financial Centres Index, published by the China Development Institute (CDI) and Z/Yen partners, provides evaluations of future competitiveness and rankings for 114 financial centres worldwide.  Their latest report ranks New York first with London second. 

It also reports that London is one of just 15 global centres likely to become “more significant” over the next two to three years.

Selling property: Why you shouldn’t sell if house prices fall. The City of London.  Even if house prices fall, London remains a global city.

The Costs of Selling Property and Buying Property are High

Capital Gains Tax (CGT) is a tax that is levied on the difference between the sale price of an asset and its original purchase price. CGT in the UK is either 18% or 28% depending on your personal circumstances, so if you’re planning on buying and selling property to take advantage of price drops, think about the costs associated with selling property and buying again.

Selling property tax & costs, CGT, purchase costs and stamp duty charges will most likely mean you are better off simply holding your existing asset and seeing through short term price falls. You can read more about UK Capital Gains Tax here.

Housing Market Predictions

If you’re an investor with property in the UK, do not be put off by reports of prices falling.  The crucial elements that drive house price growth remain in place. Our view is that any falls in prices will be for the short term as the fundamentals for long term price growth are stronger than ever, particularly in inner London.

It is not easier selling property or your house but if you want there is an estate agency for house sale with potentially interested buyers for legally binding, exchange of contracts and markets your property.

We hope you have found this article useful, feel free to comment or ask any questions.  For more information on investing in the United Kingdom check out our other articles and request your copy of our Buyers Guide to the UK [email protected]

Important notice:  Proptech Pioneer and its associated companies seek to provide investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect.  You use the information at your own risk and accept no liability if you rely on this information. Proptech Pioneer is not a tax advisor, accountant conveyancer, lawyer, financial advisor or mortgage advisor. You should seek independent advice from independent professionals before making any investment decision.

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