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Government vs Property – does Nanny know best? (as featured in The Yorkshire Post)

April 2016

Whether it’s to do with our sugar intake, types of cars we drive or consumption of fruit each day, it seems the Government have our best interests at heart. So one would assume that when the powers that be, “fine-tune” the property market, that they are looking to help us all. Their thinking is that by aiming to put off wealthier property investors through higher tax rates, they will open up the market to help first time buyers get on to the property ladder. This surely can only be a good thing, after all nanny knows best – or does she?

The current government intervention revolves around several points, the most significant of which is the 3% stamp duty surcharge for second home and additional property purchases. This has been widely seen as a tax on the wealthy who can afford it and effectively passing the savings down the line. Sounds fair, doesn’t it?

The Government have taken a new approach with the surcharge, having closed off many loopholes from the start. Married couples are classed as one entity, so putting additional properties in each other’s name would not work. Conversely, divorcing couples could still pay the surcharge, unless the main family residence was sold within 36 months. Even then, the charge would still have to be paid upfront and reclaimed down the line.

In addition, there are to be introduced tougher lending criteria and stress testing on hypothetical interest rates of up to 5.5%, plus investigation of one’s wider finances. Many would argue this already exists, but again is aimed by the Government to throw would-be property investors off the scent.

In the recent Budget Statement, George Osborne introduced rules that from next year, landlords being able to offset all their mortgage interest against their final year tax bill, will be phased out. Therefore, by the end of the decade, higher rate tax payers will be half the relief they do now.

If that wasn’t enough, Capital Gains Tax (which is the tax payable on realised gains) was reduced in the Budget. However, the sale of residential property was excluded from this. Therefore, there is effectively an 8% tax increase on any uplift if you sell.

So what is the Government’s problem and why do they feel the need to get involved?

The Government feels that property investors have a competitive advantage and are vying for the same types of properties as first time buyers. Their aim is to lend a hand to those trying to get on the first steps of the property ladder. By creating what they feel to be market stability, should the economy ever get tough again, then the UK was insulated from the storm, plus the banks were covered… again!

By increasing the upfront costs to property investors, the Government hopes to ease demand, creating a greater supply of first time buyer properties. What a great idea you may say!

In actual fact, Nanny has been caught unaware!

By effectively putting the brakes on buy-to-let investors, the Government has choked up the supply of rental properties for would-be first time buyers. As a result, demand has increased and therefore monthly rentals have done so too. Therefore, if you are a tenant, how are you now meant to save for your first home?

Don’t worry Nanny says, here is an increase on your annual ISA allowance, plus an all new “Lifetime ISA”. But hold on, if I’m a tenant paying more rent, how am I still able to find extra money each month to save in my new ISA!

The issue remains that first time buyers will still find is difficult to save for their deposit. Plus, now with the Government’s tougher lending criteria, everyone could potentially lose out.

Nanny better have her wits about her over the ensuing months and keep a close check. If you thought Nanny knew best when it came to property, you may wish to think again!