Budget 2021: Mortgage guarantee to help buyers with 5% deposit

[b0rn2sk8]

Taxing gains on a primary residence isn’t a very well throughout policy and would have the complete opposite effect.

People just wouldn’t move or downsize which will be a huge negative downwards effect on the rest of the market. Old people in large family homes wouldn’t move to a bungalow or downsize to unlock the capital because of the tax. People in sampler homes wouldn’t be able to trade up because of those staying out above them. There is next to zero inheritance tax for ‘normal’ people on their primary residence. You have to be pretty wealthy to be in the scope of it these days. Why downsize when you can just pass on the full value when your no longer here.

There would be literally zero incentive to downsize and would effectively reduce the mobility of the entire population, particularly those who need to move for work etc and are looking to sidestep.

Punitive taxes for empty properties, fine, additional taxes for people with multiple properties fine but aggressively taxing normal people with a single property is a really bad idea, particularly when housebuilding is trailing increases in demand significantly. People will do everything they can to avoid it which ultimately means they don’t move or trade up or downsize, even if it’s to their own detriment and that will have a big negative effect on people looking to buy their first home.

 

[HACO]

Taxing gains on a primary residence isn’t a very well throughout policy and would have the complete opposite effect.

People just wouldn’t move or downsize which will be a huge negative downwards effect on the rest of the market. Old people in large family homes wouldn’t move to a bungalow or downsize to unlock the capital because of the tax. People in sampler homes wouldn’t be able to trade up because of those staying out above them. There is next to zero inheritance tax for ‘normal’ people on their primary residence. You have to be pretty wealthy to be in the scope of it these days. Why downsize when you can just pass on the full value when your no longer here.

There would be literally zero incentive to downsize and would effectively reduce the mobility of the entire population, particularly those who need to move for work etc and are looking to sidestep.

There already is zero incentive to downsize, and there already is an incentive against moving (SDLT). We also need annual property taxes tied to property valuations (like most developed countries) to replace SDLT, so that people are incentivised to downsize when they are no longer requiring the space or need to live in a highly economically active location.

Punitive taxes for empty properties, fine, additional taxes for people with multiple properties fine but aggressively taxing normal people with a single property is a really bad idea, particularly when housebuilding is trailing increases in demand significantly. People will do everything they can to avoid it which ultimately means they don’t move or trade up or downsize, even if it’s to their own detriment and that will have a big negative effect on people looking to buy their first home.

These are all very simple issues to solve. E.g. if you set a property tax of 1% per year, similar to the rate in most of the US, it creates an excellent incentive to downsize even in the case of a capital gains tax.

E.g. You buy property for £300k, it's now £400k. So if you sell you make £80k net profit, £20k capital gains tax. If you don't sell, you need to pay £4k every year. You can go to a cheaper £200k house and pay £2k a year, £80k in your pocket as well. If you make that annual property tax progressive (e.g. 2% on properties worth over £500k or £1mn), it serves as even a greater incentive to sell and relocate.

Capital gains tax on properties is not a radical idea. Many modern countries including the US and most of our European peers have them, if they can manage it, so can we.

People just wouldn’t move or downsize which will be a huge negative downwards effect on the rest of the market.

I'd say after being artificially propped up for 30+ years, the country would do well with some downwards pressure on the housing market.

 

[b0rn2sk8]

Stamp duty already taxes property transactions and we already have annual property taxes linked to the value of the property which you are ignoring.

The taxes you are proposing are incredibly punitive and more than most people pay in income tax in a year. There not a chance in a month of Sunday’s normal people can afford to pay that level of property tax in addition to everything else. It’s not just working people who would struggle, it would have a huge impact on those with relatively modest incomes like pensioners.

Im not suggesting that the market is kept propped up, quite the opposite. It should be allowed to fall but punitively taxing isn’t the answer and would dramatically increase the tax burden on relatively normal people. You’ve cited countries which have completely different tax structures, e.g. the USA has a sales tax which is less than half of the UKs VAT.

 

[rG-tom]

SDLT is a really out-dated mechanic anyway, especially around the south east and London, where it's punitive to the point that it makes people less mobile - we won't move from our apartment until we can afford our "forever" home now, as stepping stone homes around here are 50k+ cash in SDLT, which is unmortgageable, and is thrown straight into the bin. We would for example consider vacating our apartment into a small house around the corner, then in a few years, career developments allowing and depending on family planning etc, either get a bigger house in the same area or move out into the sticks where our money goes far further. We can't really afford/justify spending 50k on SDLT now and then 50-60-70-80k again in 3-4-5 years time, it's just too much.

I've always been an advocate for some kind of "life time" SDLT, so you pay the SDLT on the difference between your last purchase price and the new one, not the whole amount again.

IE. buy somewhere for 700k, pay the ~25k SDLT. Sell, buy somewhere for £1m, pay SDLT on that 300k difference, NOT on the full million, which would encourage the smaller changes, but throughout the market that would get people out of their "first" homes quicker an free them up for someone who can only afford a first time home to buy them!

 

[Deleted User 298457]

The SDLT point came up in another thread and folk seemed baffled by FTBs going into the market at 450k+ but it is exactly that. I'll stick in this smaller place until I can buy £1m+ because otherwise I'll pay SDLT twice in a 10 year period.

 

[rG-tom]

The SDLT point came up in another thread and folk seemed baffled by FTBs going into the market at 450k+ but it is exactly that. I'll stick in this smaller place until I can buy £1m+ because otherwise I'll pay SDLT twice in a 10 year period.

Where I live the average FTB price is £750k for example....

 

[moon man]

You’re either delusional about the value of your house or extremely lucky/right place right time with the purchase and don’t realise it’s almost a one off scenario
It’s not like you can just go buy a 100k property that needs a bit of TLC and it will increase 25% a year!
Can you??

I will happily go for delusional. But delusional ina very nice place

 

[Deleted User 298457]

I will happily go for delusional. But delusional ina very nice place

House is so old it is 4:3 not 16:9

 

[builder22]

I will happily go for delusional. But delusional ina very nice place

Aye we’ve all seen your hammock , seriously tho...looks a great place but it’s a bit of a one off situation for the figures you’ve mentioned

 

[HACO]

Stamp duty already taxes property transactions and we already have annual property taxes linked to the value of the property which you are ignoring.

The taxes you are proposing are incredibly punitive and more than most people pay in income tax in a year. There not a chance in a month of Sunday’s normal people can afford to pay that level of property tax in addition to everything else. It’s not just working people who would struggle, it would have a huge impact on those with relatively modest incomes like pensioners.

Council tax is not property tax. It's a regressive arbitrary tax that ignores the changing landscape of the last few decades and helps mega landlords by shifting that burden to tenants.

If people can't pay a 1% property tax every year, like people do in many many other countries, it just shows that the property prices have risen to absurd levels compared to incomes, and such a tax would go a long way to help bring those prices back to reality.

 

[HACO]

The SDLT point came up in another thread and folk seemed baffled by FTBs going into the market at 450k+ but it is exactly that. I'll stick in this smaller place until I can buy £1m+ because otherwise I'll pay SDLT twice in a 10 year period.

I'm actually getting to the same conclusion as well. Apart from my well-known very unpopular ethical concerns over 'climbing up the ladder', paying SDLT twice sucks, my first home may very well be £1m+.

 

[b0rn2sk8]

Council tax is not property tax. It's a regressive arbitrary tax that ignores the changing landscape of the last few decades and helps mega landlords by shifting that burden to tenants.

If people can't pay a 1% property tax every year, like people do in many many other countries, it just shows that the property prices have risen to absurd levels compared to incomes, and such a tax would go a long way to help bring those prices back to reality.

If council tax was paid by the landlord and not the tenant it would just be added to the rent, it’s that simple. It wouldn’t suddenly get cheaper for tenants. Same goes for any % based taxes.

I also didn’t say it doesn’t have regressive elements (it has progressive elements because it’s linked to value) but ultimately it’s it’s still a form of property tax, just because you don’t like or think it’s a rubbish tax doesn’t mean it isn’t a property tax. You do t pay it if you don’t live in or own a house. Even if you make the landlord pay it, the tenants re still ultimately paying it indirectly through their rent one way or another.

 

[Deleted User 298457]

I'm actually getting to the same conclusion as well. Apart from my well-known very unpopular ethical concerns over 'climbing up the ladder', paying SDLT twice sucks, my first home may very well be £1m+.

100%. Just do the maths on price increases of whatever property you could get in and see how much you're spunking on rent.

 

[Scam]

I also suggested this.

Problem is renovation etc. You just wouldn't do it.

Do we really live in a world where people undergo renovations primarily for capital gain? Sheesh, how sad I thought the point of improving your home was exactly that - to improve the home where you live. So sad, this attitude (Sidenote, of course people would improve their homes!)

This house I bought not many years back has rose maybe 25k a year, but when it was for sale there was no interest from generation netflix or whatever they are as it needed some work (big garden overgrown, outbuilding doors stuck, nothing a below average diyer couldn't do)
People wanting cgt on primary residences and tax is just sour grapes, they just need to pull there finger out, my house was well within reach to a minimum wage earner

'Was' being the operative word. Because you said it has risen £25k (that's about an average salary) per year, for many years. Sounds like you're generation boomer who wants a nice triple figure gain on your house after doing exactly zero work to it, right?

People just wouldn’t move or downsize which will be a huge negative downwards effect on the rest of the market.

There's no incentive to downsize as it is. Funnily enough one of my other suggestions such as getting rid of council tax and replacing it with a 1% LVT or property tax would help here too... Anyway, we're only talking about taxing some of the profit. Perhaps something like if a house rises more than 20% then the government takes 5% of that profit in tax. Why not? You'd still get a big payout, it's all relative. Sounds more fair than FTBs paying stamp duty!

Stamp duty already taxes property transactions

No it doesn't, it taxes buyers. It's so backward. We should be taxing the sellers who are making ungodly profits.

 

[Deleted User 298457]

Do we really live in a world where people undergo renovations primarily for capital gain? Sheesh, how sad I thought the point of improving your home was exactly that - to improve the home where you live. So sad, this attitude (Sidenote, of course people would improve their homes!)
<snip>

You need to get yourself a good dose of daytime TV

Are you FoxEye's prodigy btw?

 

[Uther]

I will happily go for delusional. But delusional ina very nice place

Could you afford that place today though?

 

[413x]

Do we really live in a world where people undergo renovations primarily for capital gain? Sheesh, how sad I thought the point of improving your home was exactly that - to improve the home where you live. So sad, this attitude (Sidenote, of course people would improve their homes!)

'Was' being the operative word. Because you said it has risen £25k (that's about an average salary) per year, for many years. Sounds like you're generation boomer who wants a nice triple figure gain on your house after doing exactly zero work to it, right?

There's no incentive to downsize as it is. Funnily enough one of my other suggestions such as getting rid of council tax and replacing it with a 1% LVT or property tax would help here too... Anyway, we're only talking about taxing some of the profit. Perhaps something like if a house rises more than 20% then the government takes 5% of that profit in tax. Why not? You'd still get a big payout, it's all relative. Sounds more fair than FTBs paying stamp duty!

No it doesn't, it taxes buyers. It's so backward. We should be taxing the sellers who are making ungodly profits.

I'm not talking about painting etc.
But I certainly wouldn't want to build an extension if I wasn't going to gain. I guess the point I'd get tentative is a new kitchen. If you're chucking 5-10k down the drain I'd certainly question if I needed it.

I do favour a heavy seller tax. But it can't be 100 percent of the gain.

A more hefty council tax would probably be better. But have to be careful. It could force many people to sell. Especially if they've just bought.
If probably be in favour of it going forward on any new purchases.

It would also stop people inheriting money and buying a massive house as they might not be able to afford the tax if it was too far beyond their means

Besides, we are generation subscribe so the government should join the process

 

[dowie]

I also suggested this.

Problem is renovation etc. You just wouldn't do it.
Really. It sounds ideal.. In an ideal world. Prices wouldn't rise at all. But what would they be set at?

Profits should be heavily taxed for sure. I'd be completely happy to not make profit on my home. It would help with upgrading to the next stage too.

But if you tax people heavily on their primary homes then you stifle the ability of people to move....

Suppose Janet and John buy a family home in the Midlands for 300k, they have two kids and 10 years later their home is worth 500k, John gets a new job in Yorkshire, they see a similar home on the market in Yorkshire for 500k... not an issue under current rules, they'll pay a bit in stamp duty, moving costs and legal fees but they can make the move....

On the other hand, you think they should be "heavily taxed" I guess heavily taxed is anything over 50% (?)... but lets say it is 50%, well now if they sell their 500k home that they paid 300k for they'll have to hand over £100k to HMRC... they might now need to take out a bigger mortgage or look for a smaller house worth 400k or indeed perhaps the move itself is no longer worth it, John stays in his current role, the company that was going to recruit him isn't able to tempt him up to Yorkshire as you've put in a huge disincentive for any homeowner who now wants to move house for work.


(figures above are arbitrary - but essentially the point is that if you heavily tax anyone on their primary residence then simply having an increase in house prices over a bunch of years means that you could heavily penalise any simple lateral move)

 

[413x]

But if you tax people heavily on their primary homes then you stifle the ability of people to move....

Suppose Janet and John buy a family home in the Midlands for 300k, they have two kids and 10 years later their home is worth 600k, John gets a new job in Yorkshire, they see a similar home on the market in Yorkshire for 600k... not an issue under current rules, they'll pay a bit in stamp duty, moving costs and legal fees but they can make the move....

On the other hand, you think they should be "heavily taxed" I guess heavily taxed is anything over 50% (?)... but lets say it is 50%, well now if they sell their 600k home that they paid 300k for they'll have to hand over £150k to HMRC... they might now need to take out a bigger mortgage or look for a smaller house worth 450k or indeed perhaps the move itself is no longer worth it, John stays in his current role, the company that was going to recruit him isn't able to tempt him up to Yorkshire as you've put in a huge disincentive for any homeowner who now wants to move house for work.

Many people can't move because they can't afford prices in that area. I couldn't move to London if I wanted a job there. The houses are too expensive. Because I didn't get a house in the boom years

John could only consider this because he was lucky and his house boomed in value. He was lucky to even be able to do it. Someone younger couldn't do it. Someone poorer couldn't do it. So I kind of see it as leveling the playing field. Young people are already stifled by the very issue here.

 

[touch]

Suppose Janet and John buy a family home in the Midlands for 300k, they have two kids and 10 years later their home is worth 500k, John gets a new job in Yorkshire, they see a similar home on the market in Yorkshire for 500k... not an issue under current rules, they'll pay a bit in stamp duty, moving costs and legal fees but they can make the move....

On the other hand, you think they should be "heavily taxed" I guess heavily taxed is anything over 50% (?)... but lets say it is 50%, well now if they sell their 500k home that they paid 300k for they'll have to hand over £100k to HMRC... they might now need to take out a bigger mortgage or look for a smaller house worth 400k or indeed perhaps the move itself is no longer worth it, John stays in his current role, the company that was going to recruit him isn't able to tempt him up to Yorkshire as you've put in a huge disincentive for any homeowner who now wants to move house for work.

What happens to the £500k house in Yorkshire that Janet and John would have bought? The next offer was lower so it sells for a slightly lower price. Multiply that by many house sales over many years and house prices don't rise as fast anymore.

Then a Janet and John of a future generation who buy a £300k house in the Midlands and later want to move to an equivalent house in Yorkshire find that their house has increased in value in line with inflation and now is worth £320k, their profit tax is much lower and they can easily move.