House prices rose 7.3% this year, average now almost £250k

[HACO]

As a recent FTB'er we took out a large mortgage, because frankly that's the only way you could buy a property. It's within the realms of what the bank deem as affordable, and i've got at least another 35-40 years of potentially working, so in reality it's quite insignificant.

A huge drop in the house price as a result of taxing property wealth instead would plunge us into negative equity. Should the government cover that shortfall? You claim if it's to be for the greater good then so be it. But you'll have hundreds of thousands of FTB'ers who have purchased a property in at least the last 5 years who will now find their property worth significantly less than the balance they owe on it.

That's not for the greater good, that's just having a narrative to suit you because you've not been able to get on the housing ladder. The "i'm alright Jack" attitude works both ways.

Nobody is entitled to risk-free asset appreciation. If you would benefit from price increases (which owners do), then it's only fair that they should also suffer from price crashes. That's what an investment is.

Buying assets on leverage is risky. You're gambling and sometimes it doesn't pay off. Why should the government bail you out? Homeowners usually feel entitled to privatise the gains and socialise the losses.

 

[HACO]

Who said it was an investment?

If i'm being completely honest I'll be very surprised if my home increases in any similar value at the rate it has done in the prior 8 years to when i purchased it.

You'll have mass gentrification of pretty much every person but the elite.

Once an area turns desirable, house prices do increase, but they will eventually plateau, and you'll just see general increases in line with everything else in the country.

The "general increases inline with everything else in the country" has been 10 times higher than inflation rate, i.e. an investment.

‍I'm with you, housing shouldn't be an investment. But it is. Because you buy it and it appreciates, that's an investment. So like any investment, if it's allowed to go up in value, it should be allowed to fall in value. Expecting government to bail out investments when they don't work out is privatising the gains and socialising the losses.

 

[HACO]

Surely it would need recalculating every year. Where I live people have bought houses for 100k and 10-15 years later they are 500k. It wouldn't be fair otherwise, you could have people on the same street paying very different rates.

Most countries that have property taxes based on value just get a value per square feet in the neighbourhood and apply it to every property. Which is totally doable every year, ONS does that already here.

 

[HACO]

I'm not sure how this property tax thing would work in reality, and what other impacts it might have.

I bought my house for £340000, but then spent some money improving it.

If the house is now worth more due to my expenditure and improvements, do I now pay more property tax to boot, or would it only be recalculated on sale?

Even at £340000 I am worse off, as I also get single occupancy on council tax today. I pay £108 a month which is £1296 a year. £340000 * 0.0048 = £1632 a year on the property tax rates.

They'll just go by average price per square feet in the neighbourhood like all other countries who have similar policies. Buying a new kitchen or bathroom won't change your tax, expanding might.

 

[HACO]

Makes sense, even so kind of sucks if they push ahead with it for me, worse off regardless, and I've paid actual stamp duty twice in the last 4 years.

That's pretty unlucky

 

[HACO]

Yes. Yes it is!

Not seen any news to suggest this was definitely going ahead though, has it been confirmed?

The property tax proposal permanently removes SDLT and council tax.

He's just floating it as an idea, it's not definitely happening is it? It's going to be very unpopular in certain parts of the country.

It does nothing to address multiple ownership either if the properties are BTL? Tenant pays the tax?

Not happening until they formally announce. The news only said that Sunak was seriously considering it for the March budget.

According to the proposal, the owner is always liable for the property tax, but depending on the market, they will of course try to pass that on to the renter if they can. Realistically in most cases some percentage of it will be passed down to the renter, some percentage will be absorbed by the landlord. But yeah, it's the owner who gets the bill.

 

[HACO]

But the owner with the mortgage doesn't own the asset, - well actually he owns 10% of it.

They own the asset - they benefit from 100% of the capital appreciation. For example, if you buy a house (£200k, £150k mortgage), your mortgage doesn't increase if the value increases to £300k. Your asset is just collateral against a loan, your mortgage.

This is the big flaw in the system. The owner without a mortgage will be deemed a lot wealthier than the one who currently has a 90% mortgage to pay off.

A better system would be to tax peoples net wealth regardless of income or what assets they own. You'd have to divulge at the end of the tax year what your net wealth is (or even better have a system that tracks it all) and you then get presented with a tax bill. You could probably do away with income tax, VAT, council tax etc.

There was a one-time wealth tax proposal a month or so ago, a 5% tax on assets above £500,000, payable over 5 years, so 1% per year for 5 years. That tax was estimated to raise £260 billion over 5 years, to pay for Covid costs. It seemed to go nowhere.

I'm in the minority here in that I do support a wealth tax (in addition to property tax), but a pure wealth tax shouldn't kick in at £500k, that's too low. Maybe at £10m or more, at a higher percentage to raise the same amount of money. The Bernie Sanders wealth tax proposal in the US for example would have kicked in at $32m net worth or more, but was at 2% per year instead of 1%, and was intended to be permanent.

 

[HACO]

I've had a little look at numbers.

If I pay into my private pension at rate I do now.
And my house rises with inflation
And I pay it off by retirement.

I think I could retire on 30k. Without releasing equity if the state pension stays same.

But 30 won't be worth much then. So even saving a lot. On an above average wage I'll barely have enough to keep up with any unexpected events.
Let's say state pension drops away rapidly. That 30k will also come down rapidly.

I'm not a low earner. That's the scary bit about the future. I'll manage. But it won't be like my parents retirement. Off on cruises etc.

It's a time bomb

Professional workers of the boomer generation usually got a final salary defined benefit pension, those were some of the best in the entire world. And to a large degree, they were unsustainable.

I do save 25% of my gross income into my pension, that's the only way I can be sure to have a reasonable retirement. I don't expect the state pension or the NHS to be around in 30+ years when I retire (either completely gone or means-tested), so I'm not counting on them at all and I know I can only rely on myself.

 

[HACO]

No wonder you can't afford a house now

What can I say

Holy moly. How old are you? That is a large chunk to be contributing.

I'm 32. I didn't have a lot of contributions up until 28 or so, so trying to catch up.

 

[HACO]

Ah. Have you properly modelled it though? I mean, even best case at 32 it doesn't need to be monumental.

Ironically most of your pension fund is probably growing thanks to property, lols.

I don't have any property funds in my pension portfolio, made sure of that There was one in the default portfolio and got rid of it when I changed to a more aggressive all-equity portfolio.

My goal is to hit the lifetime allowance (assuming it just increases by inflation from current levels) by 60, so assuming 5% inflation-adjusted return, I would need to contribute about 18% from now on (assuming my salary doesn't increase). So I'm overshooting by 7%. I review it every year and I may readjust to a lower amount later on. Just want to contribute as much as I can earlier on to benefit from compound growth.

 

[HACO]

No salary increases for 30 years?

Just expecting and planning for the worst. I am a pessimist. The increase has always been double-digit % in the last few years.

 

[HACO]

I still think your theory of avoiding buying property is flawed.

What's the probability of a landlord buying any property for sale? Shall we say 25% chance for simplicity?
So if you buy a smaller property to get onto the ladder - you may be taking away that opportunity from somebody else, but there's a 25% chance that other person was a BTL landlord. Then you'll give that opportunity back in a few years when you can move into something bigger and you'll get to choose the buyer so there's 0% chance it'll go to a BTL.
Every property you buy on your way up, and control the sale of, changes from a 25% chance of BTL to 0%. So really, the more properties you buy on your way, the more you'll have benefitted homeowners over landlords.

You do have a point there. Maybe I'm being a bit too difficult about the whole thing, but still can't bring myself up to relying on someone else's FTB purchase at a higher price to push myself up the ladder, feels like I'm pushing someone down to pull myself up and that's not how I want to do things.

 

[HACO]

I'm not suggesting that you need to rely on other people buying your house and the price to have increased to move yourself up the ladder. You're still saving towards your end goal of the house you want but saving indirectly by paying off your mortgage rather than paying rent and saving in a savings account.

That's not exactly the case in London, with rental yields close to 3% right now, and that's also what my interest would be on a 90% LTV mortgage (3.3-3.5%). So the rent is equal to interest part of the mortgage, and I can save the rest anyway, so no benefit to just getting on the ladder for the economics of it, unless there is price appreciation. I only want to buy a house because I want to live in a place I can call my own and customise to my preferences, and have stability.

 

[HACO]

Ok, that makes sense.
Where I am, rental prices and monthly mortgage costs are pretty much equal. I hadn't realised it was so different in London!

London is its own animal.

Just lol.

You know prices are rising yet still continue to bang your head against a brick wall anyway regardless.

This post and the other before it have been absolute gems. Not buying a house because some other FTB can have it.

Your tune changes more times than the wind.

Maybe I should listen to you and buy a £15k studio flat within 15 minutes of central London, by learning to travel at light speed and commute from Cumbernauld.

Yeh, no point getting on if the house prices aren't increasing (reads title of thread). Hmmm

Read context. I was responding to a post which assumed no price increases.

 

[HACO]

What’s the difference between you (a FTB) or anyone other FTB? How would you be pushing someone down?
If you mean outbidding/offering more then it’s just going to be worse with a more expensive house...or is the plan to stop that happening somehow?

No that's not the context. The context is buying a starter home to benefit from capital appreciation, then selling it to another FTB so that I can move up the ladder. I simply find participating in this scheme to be unethical and screwing over future generations for your own benefit.

The plan is, just wait longer until I can buy a home that I want to live in for the foreseeable future, e.g. something to raise a family in, rather than a starter flat for a few years until the price goes up so that I can use that to jump to a more expensive property. I may be financially worse off doing it my way and it may take longer, but I find it more ethical.

Generally people here object to my ethics and find it unreasonable

 

[HACO]

Your idea makes no sense really. Renting is just unethical surely as you support the BTL markets and prop up a landlord whilst paying their rent?

Unless your rent is stupidly cheap, you aren't building equity or helping yourself.

There are valid reasons to want to rent, i.e. not sure you like an area, not planning to stay somewhere mid-long term. job takes you all around the country etc.

My mortgage is about half the cost of the rent on the 2 bed flat next to me, and my house is bigger than the flat. Not only is it cheaper, but most of my mortgage payments go into the property value. I can call the place my own, I don't get kicked out by a landlord who wants to sell up on a whim, and I can make improvements for my own benefit.

Buying or not buying somewhere is clearly your choice in the end, but your reason doesn't make sense to me.

Well, my rent is cheap (3% of the value) and as @touch said, I'd be paying more than that in just interest alone. Right now I'm saving £2750 per month for the future deposit so I'll get there sooner or later.

 

[HACO]

You are saving £2750 and putting 25% of gross into a pension? Wowza. High roller.

You buying GME?

I wish... Only heard about it when it was already too late.

 

[HACO]

But seriously, are you putting 25% gross into your pension, and saving £2750/mo? And paying rent? Something isn't computing. Unless you mean £2750 includes pension.

I'm making six figures and spend like I'm still a university student. Covid makes it very easy to avoid spending.

 

[HACO]

Must be high sixes. Show us a payslip

No, low six, after pension comes to around the £100k mark. I don't have student loans though.

Hardly too poor to get on the ladder then !

I don't want to get on the ladder, I want to break the ladder (read with Game of Thrones music and some dragon roars )

 

[HACO]

Just did the maths. I think you are a wise man. I should definitely reassess my life decisions

Pension makes sense to offset the 100k tax problem as well.

Yeah losing personal allowance gradually after £100k effectively turns your marginal tax/NI rate to 62% which is absurd. Pension helps avoid that mess.