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Peter Davies
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Peter Davies
As usual, the UK Government has done something short-term for political effect without understanding the fundamentals. This is bound to lead to “UNINTENDED” CONSEQUENCES &, probably, the long-term ERODING OF THE TAX BASE + higher house prices. The political objective is to look pro-active & to be seen to be helping 1st time buyers & “ordinary” voters. At least, having trailed the idea, they implemented it quickly. Just talking of SDLT reductions leads to MARKET PARALYSIS as buyers wait… The latest measure is big & will lead to a RE-PRICING, which will have different effects in different SUB-MARKETS (North/South, London/regions, old/young owners, large/small houses, 1st time buyer, investment, buy-to-let etc). The HOUSING STOCK remains exactly the same though, so putting more money into the pockets of purchasers will RAISE PRICES, compounded by a buying frenzy & ULTRA LOW INTEREST RATES. Middle Class 1st time buyers will clamour to extract funds from the bank of Mum & Dad (the UK’s 5th largest mortgage lender). Rising prices is a free WEALTH TRANSFER to existing owner,s who are actually the true beneficiaries of the tax cut. The next problem will be the EXIT STRATEGY. Any attempt to end the “holiday” will be met by industry & political resistance as vested interests will have built around the new status quo. If the measures are reversed, there will then be an inflationary frenzy in the final days & a MARKET COLLAPSE afterwards. Then what? Markets generally rise gradually up the stairs but can fall suddenly down the lift shaft! The upside risk is small but the downside risk is large. Never waste a crisis!! This one has been wasted. The opportunity was there to do something really good. This could have been a full package: remove the market distorting “CLIFF EDGES” in the tax system, switch to a seller-pays system, add higher Council Tax bands instead to annually tax £1m+, 2nd, larger, empty, investment etc houses…

From: Peter Davies 11 July 2020 12:45 PM

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