What affect would taxing second homes have on the economy

[NotAGolf]

What would happen if the UK government were to announce that they're going to introduce a huge tax on second homes (holiday homes, BTL or other). A tax so big that having a second home becomes completely unviable. Let's say this were to come into force immediately, but on a sliding scale so the final tax value doesn't kick in for 5 years.

The government would also force lenders to offer mortgages of up to 100% LTV, meaning that anyone who currently rents should be able to get a mortgage instead.

Mortgage repayments are a fair bit less rent, and the flood of second homes coming onto the market would likely reduce house prices (possible crash?), meaning that most people would have lower mortgage repayments and thus more disposable income no?

As you may have noticed by now, economics and the housing market aren't my strong points - I'm just thinking out loud. I'm sure there are plenty of people who would lose out if this were to occur (e.g those with 2nd homes, people that want to rent, people that will end up in negative equity if the housing market crashes etc), but I imagine these would be in a minority.

Thoughts?

 

[413x]

House prices would crash, loads of people would be absolutely screwed others would be living the dream.

And no, you wouldn't have lower mortgage payments.
If your mortgage is 200k. But your house is worth 100. You still owe 200k

 

[dlockers]

Vote for username change to NotAnEconomist

 

[Chuk_Chuk]

Not everyone can afford or will want to buy a house (even if the prices were lower), so such a tax will hit the rental market quite badly. There would be a shortage of rental properties as people begin to sell off their second homes which would probably raise the price of renting, due to supply and demand.

 

[Maundie]

Absolutely destroy the market, house prices are high due to demand, reduce the demand by having a massive influx of properties on the market and people who have 2nd homes they are forced to sell may not get back what the owe on their BTL mortgage thus leaving them paying for something they no longer have as you forced them to sell cheap.

There's so many ideas people keep throwing out without looking at the bigger picture, it's a very difficult job trying to come up with ideas that don't absolutely screw certain areas of society.

 

[Psycho Sonny]

Second homes are already taxed.

If you make them unviable. People will simply leave the UK and take their money with them.

Would cause a massive crash to the point UK would drop out of the top 5 in terms of GDP to possibly even out the top 10.

A lot of people need two homes. For work as an example. Also by destroying the rental market you would make a lot of people homeless who even with lower prices don't have savings to buy.

 

[413x]

Vote for username change to NotAnEconomist

The economyist

 

[cheesefest]

Is the council tax on second homes just 10%. If you can afford a 2nd home, you can afford more than £200-300 a year.

Should be charged 200% minimum

 

[LeMson]

I'd be living the dream, I'd guess hell would have frozen over tho, for the tories to do it

 

[thenewoc]

I've been thinking a similar thing is necessary but I think you could taper the severity of the tax hike. Peg it to council tax bands so the most severe increases are at the more expensive properties. You squeeze more tax from those landlords at the upper end of the market and their richer tenants.

 

[Chuk_Chuk]

I've been thinking a similar thing is necessary but I think you could taper the severity of the tax hike. Peg it to council tax bands so the most severe increases are at the more expensive properties. You squeeze more tax from those landlords at the upper end of the market and their richer tenants.

Why would you want to squeeze the tenants for more cash?

 

[dlockers]

I've been thinking a similar thing is necessary but I think you could taper the severity of the tax hike. Peg it to council tax bands so the most severe increases are at the more expensive properties. You squeeze more tax from those landlords at the upper end of the market and their richer tenants.

What difference would that make? Attack the rich? You'd just squeeze the middle even tighter as the richer tenants moved into middle of the road properties.

 

[Colonel_Klinck]

Maybe on 3rd , 4th, 5th homes. With it rising with every additional home. Not a huge tax as that would be counter productive but something that raises revenue and makes owning lots of homes more unattractive.

 

[thenewoc]

Why would you want to squeeze the tenants for more cash?

You don't specifically, you want the wealthy landlords but they'll inevitably in some cases try to pass it off on to their tenants.

 

[thenewoc]

Maybe on 3rd , 4th, 5th homes. With it rising with every additional home. Not a huge tax as that would be counter productive but something that raises revenue and makes owning lots of homes more unattractive.

I doubt you'll know whether it's their 3rd, 4th or hundredth home as they'll no doubt package them up in to holding companies with no more than 2 in each. That's why if you tackle it through council tax bandings on anything that isn't someone's main residence there's probably less room for evasion.

 

[Colonel_Klinck]

I doubt you'll know whether it's their 3rd, 4th or hundredth home as they'll no doubt package them up in to holding companies with no more than 2 in each. That's why if you tackle it through council tax bandings on anything that isn't someone's main residence there's probably less room for evasion.

We should be discouraging companies from holding homes like this. So change the law.

 

[Dalandius]

Council tax is such a bad tax the higher the price of the property the lower the effective tax rate.

 

[mrbazmondo]

It'd probably hit anyone hard that has a mortgage on their 2nd home, but not those that own 2nd homes outright that hard.
Those with mortgages would start to sell up, prices would drop, and the super rich would see a bargain and buy them all outright and we'd be in the same situation again.

When I was renting my first house after uni I remember the agents pointing out an old lady that had just walked out. She owned 85 houses outright and was able to buy a new one every month or so from the rental income.

One disparity that I don't think has been addressed is that if a couple can owned 1 house each they technically don't own a 2nd home, but if another couple were both owners of 1 house, they get penalised for buying 2nd property. Again the richer couple that could afford to buy houses separately on their own are better off.

 

[arknor]

tax 3rd houses at 10% of there value annually.

2 houses ain't so bad but anyone owning houses just to rent for the free money is pure scum

 

[Tefal]

What would happen if the UK government were to announce that they're going to introduce a huge tax on second homes (holiday homes, BTL or other). A tax so big that having a second home becomes completely unviable. Let's say this were to come into force immediately, but on a sliding scale so the final tax value doesn't kick in for 5 years.

The government would also force lenders to offer mortgages of up to 100% LTV, meaning that anyone who currently rents should be able to get a mortgage instead.

Mortgage repayments are a fair bit less rent, and the flood of second homes coming onto the market would likely reduce house prices (possible crash?), meaning that most people would have lower mortgage repayments and thus more disposable income no?

As you may have noticed by now, economics and the housing market aren't my strong points - I'm just thinking out loud. I'm sure there are plenty of people who would lose out if this were to occur (e.g those with 2nd homes, people that want to rent, people that will end up in negative equity if the housing market crashes etc), but I imagine these would be in a minority.

Thoughts?

House price crash, lots of defaults on mortgages and people forced to sell.

Property companies would be raking in properties at a bargain to charge premium rent on