BBC BLOGS - Peston's Picks
IN ASSOCIATION WITH
« Previous | Main | Next »

A coalition housing crash?

Robert Peston | 08:07 UK time, Friday, 28 May 2010

George Osborne is learning the hard way that almost anything a chancellor says about tax can have unintended and potentially serious consequences.

George OsborneI am not referring to the incipient rebellion on the right of his party about the coalition's commitment to equalise the rate of capital gains tax with income tax - thus, for some people on higher earnings, increasing CGT to 40% or even 50%.

I should point out that this spat is a wonderful microcosm of the new politics: economic liberals, such as David Davies and John Redwood, are attacking a Tory chancellor for proposing to throw out an 18% unified CGT rate, which was introduced by a Labour government only a bit over two years ago (and was criticised at the time for being too hard on entrepreneurs).

Mr Davies and Mr Redwood are, in effect, saying that the then Labour Chancellor, Alistair Darling, was a free-market marvel. And that the great Tory tax-reforming chancellor of the 1980s, Nigel Lawson - whose CGT approach Mr Osborne seems to want to emulate - was wrong-headed.

And, by the way, Labour MPs are today more likely to be with Mr Osborne on the need to increase CGT than with his Tory opponents.

How an election changes everything!

But what I am really interested in is the effect on the housing market.

Because it is the uncertainty about what's going to happen that's doing the real damage.

If Mr Osborne had simply implemented the higher tax rate on the day the coalition said that's what it wanted to do, there would probably have been a one-off hit to house prices - as potential buyers of second homes and buy-to-let properties factored into their investment plans the potential increase in future tax they might pay.

But if the uncertainty persists about when the new higher rate will be introduced, the negative effect on house prices could be much greater.

Because for those sitting on significant capital gains above the tax free rate of £10,100, it becomes rational to flog properties pronto - to take advantage of the 18% rate and avoid a tax rate that looks set for most property investors to rise to more than double that.

In a housing market that is still weak, a wave of panicky sales could push down prices in a significant way.

Perhaps that doesn't matter. Certainly, if you are yet to buy your first home and feel priced out of the market, you'll say hooray if prices fall.

But the Treasury is only too aware of the inextricable link between the health of our big banks and conditions in the housing market.

There is a mechanistic link between falling house prices and rising bank losses - because banks are forced by accounting rules to incur losses when the housing collateral underpinning the mortgages they provide drops in value in a substantial way.

And if banks' profits recovery were to be set back by a housing market slump, that would have an effect on their ability to provide credit - which in turn would be a setback to the more general economic recovery.

Which is simply a way of saying that Mr Osborne presumably won't want the uncertainty about what's happening to CGT to persist longer than is strictly necessary.

Comments

Page 1 of 3

  • Comment number 1.

    This is just one aspect of the tightrope that the current govenment have to walk. It just happens that Housing prices are very obvious and impact many of us directly. The impact of the squeeze in government will be felt by all of us and the feeling of security and wealth that many have had in the past decade will be shown for the illusion that it was.

    Inflation is rising, interest rates will follow - impact on housing and jobs.
    Tax rising - impact on pocket and purchasing powers
    Unemployment rising - impact directly on those without work, indirectly on those who have to fund benefits and work longer hours to keep their job. Added uncertainty and reposessions impact housing market and all major purchaces.

    To be honest I think we have got off quite lightly so far, I just hoep that Cam and Co can keep it up!

  • Comment number 2.

    The low interest rate policy is designed to prop up the house price bubble purely and simply to protect the banks from their reckless loans made during the boom.

    Trying to keep the bubble inflated is distorting the whole economy, but with inflation rising it is only a matter of time before interest rates have to rise, and then we will get the long overdue correction.


  • Comment number 3.

    The sooner the uk realises the folly of economy being built on house prices and service industries and not actually making things the better. Houses are for living in and have no sacred right to keep rising in price. People have been using HPI (caused by the banks lending to ridiculous multiples to anyone that asked without checking actual income i.e Liar Loans) as an "investment" cash cow giving them free money. They have then spent this money which has caused the economic boom. We need to get this deleveraging period out of the way quickly with a return to sensible lending multiples otherwise we'll be in for an even longer and painful time. People should realise that the value of "investments" may go down as well as up. If the CGT increase speeds this process up then fine.

  • Comment number 4.

    I predict a significant fall in housing prices anyway, regardless of what the politicians do. The housing situation in the UK is awful.

    - Young people cannot afford to move out
    - People are trapped working endless hours to pay over-inflated mortgages
    - The market value of housing is crazy.

    There are terraced houses in Sheffield that are over 100 years old and in desperate need of being knocked down and yet these houses are apparently worth 150,000 pounds. Get real, you could build a brand new house on your own with your bear hands and still have plenty of change.

    The game is up, there is a big readjustment in pricing coming. The falls 2 years ago were just the start.

  • Comment number 5.

    Robert,

    This entire post comes can be summarised as thus:

    greedy property speculators could kill the banks and the economy by trying to 'avoid' a tax increase.

    All Osbourne has to do is keep schtum till the budget (next month), then whack it up effective immediately. Flooding the property market cancelled!

  • Comment number 6.

    Banks have been playing reckless games with the property market for years.
    US sub-prime, UK buy-to let, over-priced commercial and residential property.....for years banks would lend any amount, as long as there was a brick involved....until it all crashed down.
    Property was the cause of all our woes, and many would say that it is still overpriced, held up by crazily low interest rates.
    So it's probably not unreasonable to suggest that property should play a large role in correcting our national finances.
    If banks don't stop over-lending on property we may never get out of this hole.
    But the effect of sliding property values is serious for banks....in a sense they have dug their own drain.
    Greater CGT is a tricky conundrum....but perhaps a good idea in principle.
    That semi you've got on the market for 300k......Captain Mainwaring would say that it's not worth a penny more than 150k....and that's the stick of dynamite that we're all sitting on.

  • Comment number 7.

    Am I understanding this right?
    Most observers have concluded, that the constant (bubble) rise in the UK's housing stock has been a major factor in our overinflated, irresponsible banking, personal debt and irresponsibility, and a coresponding impoverishment of the majority of the UKs population.

    And now when a re-balancing tax is suggested that as a byproduct will start to make people look at a house as a place to live, rather than a magic money machine, it's suddenly a bad thing?

    Please, you cannot have your cake and eat it.

    If you want to profit from a housing bubble start a company, with it's attendant costs and responsibilities, don't look for personal tax loopholes to profit from.

    A fair tax system is just that: however you make your wonga, you are taxed the same.

    Anything that starts to reduce the average price of housing in this country is to be welcomed. I say this as a house owner, and a longer term view is required, folks.

  • Comment number 8.

    Its the extraordinarily high cost of housing which is damaging our economy, it prevents younger people getting on with their lives, enslaves people in heavy debt, raises living costs and therefore salaries which makes us uncompetetive. We need a large drop in house prices like was happening before the bailout. We can't artificially prop this market at levels no one can afford forever without serious consequences.

  • Comment number 9.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 10.

    Unintended consequences are a sure sign of woolly thinking and inexperience, which are the principal features of this strange government. It had better get its act together quickly or it's crusin' for a brusin', as they used to say in the seventies.

  • Comment number 11.

    High UK housing costs prevent UK workers from competing effectively on the global labour market.
    Rents (and prices) should follow wages, but the previous govt engaged in damaging price fixing.
    Support for high housing costs is the modern version of the corn laws, and will end the same way.

  • Comment number 12.

    If houses prices are a bubble then the Govt should want it pricked as soon as possible. Better to have a couple of years of falling house prices now than in the lead up to the next election. Any new problems for the banks can still be blamed on the previous Govt for a while at least.

  • Comment number 13.

    Mr Peston wrote....

    "But if the uncertainty persists about when the new higher rate will be introduced, the negative effect on house prices could be much greater.

    Because for those sitting on significant capital gains above the tax free rate of £10,100, it becomes rational to flog properties pronto - to take advantage of the 18% rate and avoid a tax rate that looks set for most property investors to rise to more than double that.

    In a housing market that is still weak, a wave of panicky sales could push down prices in a significant way..."

    SORRY ROBERT - BUT THE PROBLEM WITH THIS WOULD BE WHAT, EXACTLY?!

  • Comment number 14.

    This is pure speculation. It is not reporting.

  • Comment number 15.

    So, it is in the interests of the wider economy that house prices are kept artificially high because banks are struggling.

    Doesn't this provide even more proof of the absurdity of our economy and the fallaciousness of market theories and the wrong-headedness of liberalising credit?

    Banks should never have been allowed to become mortgage providers. Should have left it to the mutuals.

  • Comment number 16.

    Robert, in this case you seem to advocate that what's good for the banks is more important than what's good for the people. The sad truth is that this country has now become so directly dependent on rising house prices that everything else is secondary. I, for one, welcome the CGT increase, with in mind the limitations it could bring to housing speculation. We are just stealing from our kids. Housing should be as cheap as possible and not a vehicle of income or, even worse, a pension. The quicker the housing crash comes, the better for everyone. And I speak as a mortgage-free property owner

  • Comment number 17.

    I find it absolutely astonishing that so called economists did not see this one coming!

    The UK is being economically slaughtered by a house price collapse - indeed it is both unavoidable and inevitable - the house price bubble will crash as all bubbles crash. House prices are far too high and they have been so for over a decade.

    Some fools in banks developed and marketed a theory that they can continue to soak British workers of their pay for overpriced houses, by coming up with such inane ideas as affordability - exactly the same ideas that are also slaughtering whole Nations in southern Europe in sovereign debt. Affordability is a crass idea if it gets out of hand as it has done courtesy of the most stupid Bank in the World the Bank of England with the most stupid 200 economists and Governor.

    The arithmetic of affordability has to fail as a means of generating profits for banks for it relies on almost exponentially increasing house prices and workers pay for the banks to remain profitable - however interest rates have to become zero at some point and the income dries up as the Banks can them no longer raise the money to lend. Long before this, savers and depositors will be up in arms about theft level returns for their savings - and this in turn causes banks to resort to exotic money creation through CDOs etc. This is where we are now.

    Even now the Bank of England (surely now an oxymoron!) is engineering a 'recovery' based upon inflating house prices - THIS IS THE HEIGHT OF FOLLY and must end in economic collapse and a long depression.

    Georgie will not be able to wallpaper over the cracks now! He will face the music. By the way, it is absolutely no coincidence that the Governor of the Bank said that who ever wins the election will be out of power for a generation - he knows this because he knows that what he did in the last decade created the conditions for the collapse. (Also as the Governor knows this, why did he do nothing to prevent the problem?)

    House price collapse will allow lower wages to be paid and the workers be better-off too as less of their income will go in mortgage repayments even though interest rates will have risen. This in turn will improve UK international competitiveness and this virtuous circle will boost real growth. We have to escape from the trap of escalating house prices if we don't the only way is down leading to - depopulation - social collapse and anarchy - which in turn will lower house prices!

    Capital Gains tax will slightly accelerate the situation and nothing more - it is the inevitability of the economic arithmetic that drives the changes - the changes in CGT just reflect the huge overpriced trap that we have created (or rather created for us by the regulator responsible - The Bank of England and its last two gormless Governors!)

  • Comment number 18.

    Logistics of selling a house militate against speedy discounted disposal for BTL or second homes. It may be that the CGT fuss is merely the conspicuous bit of a slow-motion shift.

    Anecdotal evidence round here is of:

    Long-term BTL owner of nearby house deciding some time in April or earlier to give tenants notice, do up house and sell - now been emptied and presumably about to appear on market. Young family moving out intend renting rather than buying. They would like to buy, but not now.

    Youngish man we talked to yesterday wants to move. Is keen to get something larger for his family. Wants to rent. Trying to sell flat he emphatically thinks over-valued. Been trying to sell this spring but failed so far. Seems not to want to be stuck with the very large mortgage when the music stops.

    Know of six houses - less than ten percent - in this middling road in a 'desirable' SE town sold - completed or subject to contract - since last autumn. All for bad reasons. None to trade up. Four because mortgaged 'owners' not working, or not working enough [one sold on again for higher price after a few months]. One because of debilitating illness and the need for a bungalow. One after divorce.

    A couple of small families arriving as tenants here known or thought to have previously been buying.

    So what is going on in the auctions?

  • Comment number 19.

    > In a housing market that is still weak, a wave of panicky sales
    > could push down prices in a significant way.

    What an odd way to spin it - we are all _happy_ when the cost of living
    is lower...

    If we can get a lower cost of living by having high taxes for
    a few toffs with second homes, then rejoice - and the
    Schadenfreude is an extra bonus for hard pressed, working class
    families.

  • Comment number 20.

    Well hopefully the proposed rise in Capital Gains Tax will put a stop to wealthy foreigners being allowed to use London prime property as an offshore tax avoidance scheme.

    Wealthy Russians, Chinese, Greeks etc should not be allowed to hide their wealth from their own governments by buying property in UK and in doing so, avoid paying UK Stamp Duty and Capital Gains Tax like everyone else.

    With so many wealthy foreigners sitting on substantial Capital Gains from London property this would be an obvious opportunity for the Government to raise substantial taxes without upsetting the people who actually live, work and pay taxes in this country.

    It might also improve the UK government's relationship with foreign governments by putting a stop to UK property being used for money laundering and tax avoidance.

  • Comment number 21.

    In this time of spending cuts etc because of the excesses of governments etc why has there been no mention by the DWP of exactly how much is being spent to underpin the housing market in "Interest payments" for those who wwould otherwise be in default.

    There has been a lot of retrict and posturing about putting the boot into Incapacity benefit claiments with the introduction of the new ESA but what about the other excesses that are self inflicted.

    The taxpayer is funding those who overstretched themselves in the housing bubble.
    Read the small print on every secured mortgage. Yor home may be in danger if you donot pay!

    New CC limits which introduce a total value over all lenders(cards)should be set at 25% of certified annual earning to prevent a repeat of the credit crisis.

    We were also led up the garden path in the VAT reduction that temporarily reduced inflation which since being re-introduced has increases this years figures.

    This had 2 effects - it kept inflation related benefits down and stifled the calls for an increase in interest rates to control. A 12Million pound gamble by labour to try and introduce a feel better factor that ultimately failed to cling onto power.

    Wake up and smell the coffee. the credit binge must stop immediatley

  • Comment number 22.

    I assume moderation has come to a grinding hault as a result of the bank holiday weekend?

    Pretty much kills any chance of debate.

  • Comment number 23.

    Anything that helps towards the end of extend and pretend and the mark to fantasy accounting at the banks is a good thing.

    Average house prices are still 6 times average earnings with the long term average around 3.5, so they are going to lose value one way or another.

    As Hugh Hendry pointed out on Newsnight, we can have 20 years of stagnation or 3 years of pain. Lets get it on!

  • Comment number 24.

    The prospect of getting a capital gain out the property market for the foreseeable future has evaporated.
    Having read Vince Cable's book at Christmas thoughts on where the housing market might shortly be heading( down by upto 20% )made me act without delay and we sold our buy to let pronto.
    Where to keep our pension fund dosh safe now is proving a lot more problematic.

  • Comment number 25.

    So what you are saying Robert is that in order to maintain economic growth we need to keep house prices high, so that the banks can continue to have the money to lend?

    Or in other words, keep homeowners in the red so as to keep bankers in the black?

    Here's an alternative idea: let house prices fall to their long term average of around 3.5x earnings, let the banks who lent unwisely go bust, let the banks who lent wisely do the lending going forwards.

    By "saving" Northern Rock, RBS and HBOS all we have done is delay the inevitable day of reckoning for them and set ourselves up for an even bigger housing and banking collapse than 2008.

  • Comment number 26.

    "Because for those sitting on significant capital gains above the tax free rate of £10,100, it becomes rational to flog properties pronto - to take advantage of the 18% rate and avoid a tax rate that looks set for most property investors to rise to more than double that.
    In a housing market that is still weak, a wave of panicky sales could push down prices in a significant way."
    ======================================================

    Yesterday I had a load of 'experts' on these blogs telling me I was wrong to repeat suggestions from the Times that increases in CGT would cause a problem.

    OOPS!

    Cuts and gleeful promises of more cuts. Millions of workers stopping spending. Double dip on the way.

    Now their policies are going to drop house prices. Be interesting to see what happens to the banks as more loans default whilst in negative equity.

    I'm so impressed with this conspiracy of the toffs. No real change from the last lot on key issues. Impending disaster on the economy. What a combination - well done.

  • Comment number 27.

    #4 Snappy wrote
    I predict a significant fall in housing prices anyway, regardless of what the politicians do. The housing situation in the UK is awful.

    - Young people cannot afford to move out
    - People are trapped working endless hours to pay over-inflated mortgages
    - The market value of housing is crazy.

    There are terraced houses in Sheffield that are over 100 years old and in desperate need of being knocked down and yet these houses are apparently worth 150,000 pounds. Get real, you could build a brand new house on your own with your bear hands and still have plenty of change.

    The game is up, there is a big readjustment in pricing coming. The falls 2 years ago were just the start.

    -------------------------------------

    Chances are the houses in Sheffield are standard 2 up 2 down terraced houses built at any time from 1870-1930. You can find the same design just about anywhere in the country. If it is a really poor area then these will be of the back to back variety, with a small yard rather than any garden.

    Sadly the quality of building work during that period was probably higher than new builds now. With a bit of refurbishment these can make very nice houses for a small family. Too cramped for a family of 4 with a couple of teenagers but fine for a family of 3 (or even 4 with 2 kids of same gender at least up to about the age of 8-10).

    This is the problem with the last govts policy (I think it was called pathfinder) which encouraged councils to demolish thousands of perfectly good but old houses.


    As for house price falls there are lots of reasons why house prices should fall, some of which you have quoted but against that you have to take into account that based on the govt's own statistics over the last 5 years we have only built 20-25% of the total new homes the govt think we need and over the last couple of years not even 10%. Even if govt stats are massively wrong (always likely) and we actually needed half the new houses the govt thinks, we are still building up a severe supply shortage - at least in some parts of the country. That would tend to indicate the prices should face upward pressure.

  • Comment number 28.

    Houses way way overpriced still. The last governemnt pumped the deflating bubble for all it was worthm, and this, coupled with the "house prices can only ever go up" mentality of us the public, has kept them high.

    Interest rates must rise, house prices must fall, far. In the long run it will be good for everyone, and in the short run it will be good for many people anyway. Get the pain over with mr. Osborne!

  • Comment number 29.

    Yawn!!!

    Little effect, if any, on the housing market. Second homes are relatively few. (250,000 I think I read somewhere on the BBC website, so that must be right). It actually makes no sense at all to sell "pronto" into a weak market (if that does happen) just to save a little CGT at the margins. (I thought the whole world was drowned in negative equity anyway!). You also suddenly don't have a second home any more, whether it was a weekend bolthole or investment yielding 6%+. We will see what is in the detail, but a Capital Gains Tax problem is not that bad a problem in the scheme of things. I have a second home and I will not be selling it. I hope I pay loads of tax if and when I do.

  • Comment number 30.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 31.

    President Gaddafi in Libya is proved right. A huge luxurious tent is the answer.

  • Comment number 32.

    Looking forward to all these Buy to Let parasites panic selling and forcing prices down or waiting and being taxed more.

    I am a privat5e tennant in my early 30's who has been saving for a decade in order to be able to buy my own shoebox (lets not say house, I was born and continue to live in London!)

    In this decade I have seen prices DOUBLE. The fact I would have been better off buying a house with 100% mortgage in 2001 than waiting for a decade to save a good deposit makes a mockery of our economy!

    Lets not even mention what Buy to Let, silly low interest rates conflated from dodgy inflation figures and irresponsible bank lending has done for private rent, that too has near doubled in a decade!

  • Comment number 33.

    Yes Robert, it is only vested interest and no positive ideology or desire for fairness. It is unbelievable how the left-wingers (Labour)sided with the big business and it's now the right correction that a rightwing party has to bring some fairness into the system.

    As about the house market don't get me started. Enough to say that it is THE MAIN CAUSE OF THIS CRISIS both in USA and here so the current attempt to re-inflate the bubble leads us only one way -
    another sharp correction.

  • Comment number 34.

    House prices need to fall to what those houses are actually worth - probably only 50% of current levels. As other posters have said a system where young people have no chance of affording a house and many others have taken on horrendous levels of debt to get onto a fake housing "ladder" is fundamentally broken. The housing market is completely distorted by ridiculous planning restrictions, such that there is a permanent shortage of land, causing a completely false market. There's loads of monoculture agricultural land with no ecological, scenic or amenity value which could be built on - yet we have a system which tries to cram the plebs into ever smaller plots of land in our cities, using up whatever little green space remains there. Build on the green belts, and instead create and protect parks and green "lungs" in our cities and towns where people will actually benefit from them.

    As for the banks, we can't persist with this housing price madness just to protect them. If a fall in housing prices causes them to fail, so be it. And if that means that shareholders, depositors with more than £50k, and other money market creditors lose out, then actually that's all a necessary part of the destruction of the debt bubble. If the banks and creditors are 100% protecrted, then the mountain of debt can never go away,

  • Comment number 35.

    Consider these cases:

    House bought for £200,000.
    House sold for £300,000.

    Case 1:
    -------
    Capital gains of £100,000. Old tax of 18% gives £18k and new tax rate of 40% means £40k of CGT. Say that one has no outstanding mortgage. One decides to take out a new mortgage (refinance)for £280,000. Is the tax then calculated on £20k capital gains (minus mortgage liability)?

    Case 2:
    -------
    What happens in the case of negative equity. A property can go up in value (i.e. capital gains), but the seller will be hit with a "double whammy". Why? The mortgage (+ interest, etc.) might be higher than the selling price. And... in this case, will there still be a CGT liability (as the selling price is higher than the purchase price)? I pity those who have to move due to work reasons, etc.

    Case 3:
    -------
    Property developers. Again, here we get another mess - self explanatory.


  • Comment number 36.

    "But the Treasury is only too aware of the inextricable link between the health of our big banks and conditions in the housing market."

    High time, then, for someone to put the people before the banks.

  • Comment number 37.

    @ 8. At 09:22am on 28 May 2010, Si_555 wrote:

    > We need a large drop in house prices like was happening before the bailout.

    I know. But like drunks, the London money-men want to keep slugging it back
    like there's no tomorrow. It's time for _their_ hangover, not mine. Because
    they had the party, not me.

  • Comment number 38.

    #7,
    "A fair tax system is just that: however you make your wonga, you are taxed the same."

    So why are there tax bands then?

    After paying loads of tax (NI is a tax!), we invest our net salaries in shares, etc. Why are we whacked with a further 50% tax, while the lazy and unemployed get free money and whatnot from the state?

    The UK is not at all competitive. The "welfare state" nature of the UK will see it take 2/3 decades to truly come out of this recession.

    The UK will experience a permanent reduction in GDP and tax receipts.

  • Comment number 39.

    "Because for those sitting on significant capital gains above the tax free rate of £10,100, it becomes rational to flog properties pronto - to take advantage of the 18% rate and avoid a tax rate that looks set for most property investors to rise to more than double that."

    Not sure this will happen. I suspect accountants will be quite busy setting up companies to transfer the houses into or even bed and breakfasting them. The investor needs to take the 18% hit but needed to anyway.

    This is another example where "playing around with the tax system" only causes problems. It doesn’t seem overly enterpenureal to see the market of people needing somewhere to live. It is completely unfair that the owners of these properties pay tax at 18% on generally unearned income while the tenants have to pay around 40% to 50% tax on money they earn to pay the rent. It just another example where the rich get richer at the expense of the poor. I feel sorry for the young today, “progress” means they don’t have the opportunities we had 20 odd years ago and they need to mortgage 25 years + of their lives away just to have somewhere to live

  • Comment number 40.

    #13,

    Read the article again. The answer lies there! LOL

  • Comment number 41.

    Anything to simplify the tax system would be welcome, including counting capital gains as income and taxing them the same way. Otherwise you end up with the additional "tax" of having to pay an accountant to sort it all out.

    I believe CGT should be used to address the worst, most damaging speculation which has brought the country to its knees. That is the property market - specifically the primary residence. Taper relief down to zero (over 5 years, say) would kill the speculation without penalising the prudent homeowners who worked hard to pay off their mortgage.

  • Comment number 42.

    Why should taxpayers prop up a housing bubble to satisfy the greed of a select group of homeowners? People should be able to pay the equivalent price for housing whenever they were born and put in the same amount of work/man hours to be able to own an equivalent property. There should not be a government manufactured bubble to enrich certain sections of the population.

  • Comment number 43.

    # 16. At 09:46am on 28 May 2010, Stuck-Mojo wrote:

    "Housing should be as cheap as possible and not a vehicle of income or, even worse, a pension. The quicker the housing crash comes, the better for everyone. And I speak as a mortgage-free property owner."

    So you stand to lose what exactly? Doh!!

  • Comment number 44.

    One of the biggest problems that individuals face in this country, and have for perhaps 40 years, is the cost of housing.

    A large part of the average persons income is used to pay for housing - to what benefit, other than providing a home? If houses were very much cheaper, we would be materially as well off (we would own the same home), cash rich, but asset poorer.

    The benefit of being asset rich by virtue of the homes worth, is not one that an individual can normally enjoy. They cannot sell the home they need to live in.

    Whilst I am a Conservative, I strongly believe that a CGT should be applied to the sale of all homes, including your main one. It would act as a strong anchor on house price inflation.

    People would still be able to move up the ladder, because the CGT would not be too great if its intended effect was working - restraining house prices. Little growth in house prices would mean little CGT.

    I would advocate that the tax raised should be used locally to the property on which it originated to help provide finance for social housing. The benefit would be that areas with rapidly increasing demands for housing - and so high price inflation, would automatically have funds to build new homes, and so help those unable to get on the ladder (lessening demand).

    Lower housing costs would have so many all round benefits.

    Now would be a good time to introduce the CGT, with 2010 as a base year. Prices have fallen, but they are still high for people looking to buy their first property. Steps should be taken to ensure they do not rise rapidly again as the economy improves.









  • Comment number 45.

    There are far more people priced out by over-inflated housing than a hand full hoping prices rise for ever.

    Don't jump on the stupid wagon Robert...wake up!

  • Comment number 46.

    I work in the Northwest of England, and this is my experience:

    During the boom commercial property like domestic property increased dramatically in value.

    In the past investment property was valued as follows:
    Gross annual rent x Years Purchase multiplier = capital value.

    This method of valuing investment property was basically thrown out of the window during the boom.

    For example, buy a flat for £110,000, next year it’s worth £120,000; you didn’t need to rent it out to make money.

    The boom ended in September 2007 and we have now drifted back to the traditional method of valuing property.

    For example a flat in the Northwest of England capable of generating a gross annual rent is worth £6,000.00 x 12.5 = £75,000.00 as rough guideline.

    Now that same flat was likely sold for £120,000 in 2006/2007.

    The rents are not going up to any real extent, but the years purchase multipliers are still falling, and if what I’m seeing is anything to go by, for flats, particularly when encumbered with a ground rent and service charge, a years purchase multiplier of 10 is looking like where we’re heading.

    Therefore £6,000 annual rent x 10 YP = £60,000.00 capital value.

  • Comment number 47.

    The stamp duties on buying and selling houses need to be scrapped - that is what is a big drag on house sellers - putting people off from moving - ask any estate agent?

    Selling a £200,000 house can land someone with a £15.000 - £20,000 bill for 'costs'

    The CGT increase is good and should slow down some of these neighbourhood wrecking flat builders - housing has got too expensive for most first time buyers.

    Those who renovate older housing stock and period buildings, even if not listed, should get 100% tax breaks for their renovation, care and conservation ... this is environmentally friendly if insulation and solar power used also.

    We should stop worrrying about housing speculators and think that there are 800,000 empty houses in the UK and with a housing shortage for young British people. Those who keep houses empty without repair work in progress should be penalised with higher council taxes.

    Questions of common sense and getting our priorities right.

    Houses which are kept empty by absent owners etc should be offered for sale to the local authority at reduced market values.

    Government intervention is needed. Simples.

  • Comment number 48.

    A CGT grab by the government to help fund the bailout of the banks.
    Lets not forget why we are all going to suffer higher taxes, lower incomes, higher prices, fewer jobs and worse schools, uni's and health care.
    The banks were bailed out because 1% of the UK population has 94% of its wealth and they were in danger of losing it. In other words if the banks failed then 1% of the UK population would have felt real pain, as it is, only 94% will feel it now. If the banks had been allowed to fail then a real climate of change would be happening and not this false dawn we are being sold at the moment. Never forget that it was the 1% who decided to use our wealth to keep the status quo. We had no say in it. The 1% are still in their cosy world while we are still hard at work.
    We should not be talking about the rate of CGT but why the hell should we have one at all. My 2nd home was paid out of already heavily taxed income. I am being robbed twice over. This is the real story not the level of the tax crime.

  • Comment number 49.

    This doesn't make sense. There is only 3 weeks to go until the emergency budget. That might be long enough to sell shares but not long enough to sell a house. This is especially when you can't be 100% sure before the budget that the increase will not be backdated to say 6th April 2010. There just isn't enough certainty to proceed with a house sale (share sales are easier as if the rules turn out to be retropsective you can buy back and take advantage of the bed and breakfasting rules within 30 days and not trigger a gain)

    If the changed don't come in until April 6th 2011 then yes, you'll be able to say then that they are trying to engineer a house price crash. My view is that they should engineer the crash, get it out of the way quickly and blame the previous government otherwise it will be lingering there for their whole 5 year term.

  • Comment number 50.

    "newblogger" wrote earlier about 'Greedy Property Developers'. This is a bit of a stupid comment and certainly not fair. Investing in property is not merely the realm of property developers. I have a number of properties that I have on buy to let which will (hopefully) enable me to retire in later years without being a burden to the taxpayers of this country. Capital Gains Tax is an inevitable fact of life, but the uncertainty of what the impact is of the current situation has certainly lead me to consider off-loading the properties now to protect the investment I have made in my future.

    I'll give Mr Osbourne the benefit of the doubt as he's new in the job, but he has got to understand that from now on that any words he (or his department) utters will have direct consequences.

    Like it or not we are all going to have top feel some pain in this recovery regardless of who's fault it was.

  • Comment number 51.

    There is no limit to the amount of taxpayers money that this or any other government will throw at keeping house prices inflated to a level that would not be sustainable in any kind of 'free market'. This is long term and on going. The taxes of millions of people who are not 'home-owners' are being used to keep the property bubble inflated, their own government is using their tax money to price them onto the streets! If this was some kind of short-term deal for a year or 18 months then they might just get away with it, but it can't be, because once you start basing rising prices on taxpayer support then whenever you withdraw that support the prices will come down. The banks have issued their commands and the politicians will obey.

    Just how much money is the taxpayer into the housing market for? We pay peoples mortgages, we fund the shared equity mortgages for first-time buyers, and we pump our own money into the banks by the tens of billions to fund the lending...and aren't we also buying up mortgage backed securities as well? In the end you lose track of it all...

    At some critical moment the penny will drop with the wider public...just like the 10p tax fiasco...that their taxes are rising and their public services are being slashed so that the banks can enjoy ever increasing house prices...The 'free market' in house prices has gone, forever, that being the case people are going to want fairness and have a right to demand it.

  • Comment number 52.

    I have three buy to let properties and have owned them since 1991. I have families with low incomes living in them. I have over these years had many tenants and have made many improvements over this time in order to keep my tenants happy. The rents are not high, in fact lower than what the housing associations charge in this area, as I want to keep my tenants happy. I could be selfish and throw them out and flog the properties in order to beat the proposed increase in CGT. However, 1. I could not do this anyway as they have assured shorthold tenancies and I would have to give them 2 months notice, so could not have a 'fire sale'. 2. I would not want to get rid of them anyway, as where would they go? There is no social housing in the area available, and they could not afford it if there was. I am a caring landlord, not a speculator. Granted, the properities have gone up over these years, but I have also been there to attend to my tenants problems when they have had difficulties of various sorts, and have always helped them to sort whatever problems they have, whether personal or financial.
    I could have kept the money, instead of buying these properties, and gone to live abroad, spent it on holidays, fancy furniture, meals out every week, TV's etc., or improving my own home. I have not speculated on property for instant profits, or profiteering on the stock market.
    I have provided 3 families with homes on low rents for the past 19 years, the rents just about covering the mortgage interest.
    We are not all buy it quickly and make a quick profit people.
    The question is, what will happen to all the families who may be forced out of their homes in order that their landlord can sell their properties before the rise in CGT, can the Government answer that question, and also can they provide alternative housing for them at an affordable rent in short notice. Some councils actually rely on the private rental sector to help their housing sector.
    Please remember that not all people who face this CGT increase are mega rich, there are some who are ordinary people who chose to do this instead of putting their money in a pension, stocks and shares, in a bank and plainly some just spending their money on frippery, and now live on state hand outs.
    I really don't understand the Government's thinking on this, by piling what they consider non-business assets into one basket for the proposed GCT. I have also reassured my tenants that I wont be selling up. I am dissapointed that people like me who provide rental accommodation should be punished. Its spiteful and vindictive, of this Government. Even the labour party understood the above.

  • Comment number 53.

    One of things that never ceases to amaze me is why rising house prices are considered a good thing.

    As humans we need water, food, clothing and shelter.

    No one would exclaim with great gusto that rising food prices were good.

    Now as regards the banks, it again never ceases to amaze me, having worked and lived through the last boom – bust in housing prices in the 1990’s, why they never factored into their lending risk that such could occur again.

    It wasn’t as if there weren’t enough warnings in the press about it before hand.

  • Comment number 54.

    @ 34. At 10:47am on 28 May 2010, random_thought wrote:

    > House prices need to fall to what those houses are actually
    > worth - probably only 50% of current levels.

    But if house are only worth half of "current levels", then why
    would any person pay more? Why would anyone (in their right mind) pay
    more than a thing is worth? I just don't get it.

  • Comment number 55.

    Well, after a few minutes of depression after reading some of the comments on this board I have come to the conclussion that it is nothing to panic about. Whilst I agree that CGT should be comparable to Income tax I find it a little unfair the way it is currently talked about. The tax relief available of 10k is applicable every year, so on shares for example one could sell enough each year to stay below the 10k limit. However this is not possible on housing and is therefor a little harsh.

    On the whole though I expect it to make little difference as long as it is implemented in a fair way. The few BTL landlords I know are not in it for capital gain, at least not for the foreseeable future. They want the income generated from letting with an EVENTUAL capital gain problem which they will deal with when that arises. Others who profit from property in a capital way will not be subject to CGT anyway, they move in and do them up as their only home for 12 months and then sell for a profit. Being their only home there is no CGT to pay.

    However, if the implementation of this CGT change is done badly then we can expect a second strong dip, hugely increased repossesions and another election by the end of the year.

  • Comment number 56.

    #23. At 10:02am on 28 May 2010, Elduderino01 wrote:
    "As Hugh Hendry pointed out on Newsnight, we can have 20 years of stagnation or 3 years of pain. Lets get it on!"

    The pain, disgrace and financial consequences of losing your home lasts longer than three years.

    Will the negative equity on millions of homes resulting from devaluation be gone in three years? Have you considered the "lock in" all this negative equity will cause and how this will put upward pressure on prices?

    All the majority of bloggers on here are thinking about is money and bank bashing - which I agree they deserve - but generally it is to the detriment of society. You're primary concern appears to be money not people, the pain will last considerably longer than you think, people have long memories. The social consequences will be devastating and Governments of all persuasions know this, why do you think we've lived in a false economy for thirty years.

    JFH continues his mantra about interest rates and value of money, fine in a constant world with everything being known but that's not the world we currently reside in, we need to react to circumstances realting to now not from yesteryear.

    Property prices are too high, the UK has priced itself out of the international market, we are collectively in debt up to our dangly bits with no sign of that changing so we are right up the mucky brown creek. Devalued housing stock is not going to help, that is something for the future, it will happen naturally whether rates rise or not but forcing it onto an already near terminal patient simply because it's right and proper and the savers collective think it should be so will be fatal.

    If banks must be held to account get them to pay their money back, how about equivalent to £78Billion over four years i.e. the Tory defict cut pledge. By my reckoning that should leave them around £122Billion of taxpayers money left, that should stave off collapse and the recall of mortgages, I'm sure they could make a few "Efficiencies" to compensate. What's that you say, "They're going to need more." Why do we bother?

    If property values have to fall, which I agree they must, debts must be devalued as well by means other than "Selling their houses from under them" as previously advocted by a blogger on another topic a while ago. The problem is all this devaluation will be to the detriment of the banks, shame, but whatever happens they're going to get burned so it may as well be fair to society and justice seen to be done. Go on disagree I dare you.

    Waits for someone to argue that irrsponsible borrowers shouldn't get away with it.

    Debt isn't a crime and maybe those irresponsible borrowers will be more wary or heavily restricted by tighter lending practices in future.

    Many on here need to think beyond their own agenda, sorry that's Marxist we can't have that can we.

  • Comment number 57.

    Isn't this more a case of what a GBP 150 billion annual deficit plus an GBP 800 billion and growing national debt, excluding off-balance sheet deficits, can do?

    Before anyone starts moaning they should first take a deep breath and appreciate that New Labour rampaged on heat through the economy of this country robbing the poor, closing factories, encouraging debt, fiddling the figures before finally giving everything away to their friends in the City to cover their grotesque indebtedness.

    The current government is just trying to make some sense out of this madness so that public policy can proceed in a more certain way to enable the country to recover its equilibrium and begin to rebuild. I do not envy them the task.

    I can appreciate that the better-off sought to protect their interest during the Brown Terror by purchasing assets as no doubt said Chancellor had ruined their pension funds. He certainly wrecked my pension but I did not have any money to put into other assets despite the fact that compared with most I am reasonably well paid.

    So these people who are going to be expected to pay more in Capital Gains Tax are still those who have done very nicely thank you. The Conservatives problem is that many of those are the bedrock of their own support. Hence the whingeing from the backbenches: this is not what they voted for.

    Whilst I can appreciate their concern I think they also have a patriotic duty to show a lead to the people of this country. They are having their haircut so that in due course it makes it easier for the others who are to be shaven later. It is only proper that the better-off should set an example. If they don't then we can all kiss recovery farewell.

    For my part I look forward to a nation of Roundheads, strong in conscience, humble before providence and certain in rectitude. The mess the country is in is down to New Labour, there is only one way out of the mess and that is to clear the debt because there will be no economic recovery whilst it persists.

  • Comment number 58.

    42. At 11:22am on 28 May 2010, davidbfd wrote:

    Why should taxpayers prop up a housing bubble to satisfy the greed of a select group of homeowners? People should be able to pay the equivalent price for housing whenever they were born and put in the same amount of work/man hours to be able to own an equivalent property. There should not be a government manufactured bubble to enrich certain sections of the population.

    ......................................

    Besy idea yet! Let me see, I need a buyer preferably born 2007. When I have sold to him I can then buy anywhere at the price when I was born, 1950. And I can do this how many times??

    Well thought through proposal.

  • Comment number 59.

    Tax rates are always unfair to someone. Because they have to balance the need for precise rules whilst taking account of each taxpayer's circumstances. Precise rules become unfair because they create the possibility of loop-holes that the well-advised can take advantage of.
    Which is a very good reason for trying to make them fair and straightforward. And neither arbitrary nor vindictive.
    Moreover, specialised taxes that cost about as much to calculate and administer as they yield aren't much good either.
    All of the above were reasons why CGT was simplified two years ago. And why very unfair exemptions are still allowed. All gains on investments are subject to a single tax – no allowances and no wriggle room. Simples!
    Why aren't the realised capital gains on domestic property subject to CGT? Why not antiques and artworks too? The reason given is that CGT on those gains would be both unpopular and (perhaps) expensive to administer.
    There's also the very big matter of why investment incomes aren't expected to pay our secondary income tax: National Insurance Contributions? That NIC exemption is also unfair: why shouldn't millionaires pay NIC on their fortunes like anyone else?

  • Comment number 60.

    @43 NorthSeaHalibut

    I'm guessing a large chunk of equity with no associated debt. Doh!! :)

  • Comment number 61.

    High house prices have crippled social mobility, caused massive malinvestment and threaten to harm the economy. Perhaps its in the long term interest of the country for people to save money rather than rely on unsustainable house price inflation.

    The probable house price crash isn't the fault of the coalition, its the fault of Brown/Labour. The housing crash was only postponed with the SLS and printing money.

    Labour: borrowing from future generations to price them out of the housign market.

  • Comment number 62.

    44. At 11:33am on 28 May 2010, Eddie wrote:

    Lots......

    On the whole I think this proposal is fair and possibly workable. It also has the advantage of effectively pegging todays property prices which is something that I think Labour was trying to do in order not to undermine the fragile banks reserves.

    The only problem I can see at a first glance is the planning departments reluctence to allow any new development except in town centres.

  • Comment number 63.

    46. At 11:39am on 28 May 2010, Dempster wrote:
    Lots

    .................................

    Hmmm, I use a similar principle when looking at property but have to say your year multiplier of 10 has rarely, if ever been possible in the UK. You are saying that it should pay for itself via rental income in just 10 years? Now that does kind of fit with my rule of thumb that everything doubles in price across the space of 10 years but funnily enough has never been my experience with property. To date property seems to do much the same BUT in huge fits and starts, nothing much for 6 or 7 years then a few years of huge increase. In fact I believe that this was the problem with the last boom, it should have ended about 2003/4 but our collective masters of the day decided to all that was possible to keep the show running. That is the bit we have to pay for now over the next 10? years.

  • Comment number 64.

    "House price collapse will allow lower wages to be paid and the workers be better-off too as less of their income will go in mortgage repayments even though interest rates will have risen. This in turn will improve UK international competitiveness and this virtuous circle will boost real growth"
    Ah, not quite as simple as that. The pound, the euro, and the dollar are all loosing value together, due to the massive increase in the printing of money, which of course is leading to inflation and an increase in the cost of imports, particularly oil. This should help however, our economic competitiveness is not improving due to the fact that most of the world is suffering the same problems This means there will be no boost in real growth from demand from 'new' markets. I'm afraid we are sinking on the same ship. And dont hold out for China saving us, by buying all our stuff. They will have learnt from the mistakes we have made.

  • Comment number 65.

    House prices now in England might seem ridiculous to people who knew them in 2000 and want them to go back in time, but if you look at what Sterling has done relative to currencies like the Australian and Canadian dollars, then house prices in England are starting to look cheap!

    Don't forget in International Globalized Financial Markets, money goes to wherever it sees value, and because the Pound floats and has gone down against EVERYTHING in the last two years, house prices in the Poundzone are looking as cheap as they were four years ago.

    So on speculative terms there are various forces affecting the market:

    1) Retirees cannot afford as easily to sell up in England to emigrate to a dream retirement home abroad. Therefore less of their homes will be on sale

    2) Buy-to-Let Investors have been perfectly aware for the past 3 years that they are dependent on Rental Income and NOT on Capital Gains, so they will largely be unaffected by Capital Gains Tax Changes. In any case, what are they going to do with their cash if they sell? Stick it in the bank and earn less than Inflation after tax?

    3) The population in Britain is still rising, and becoming more addicted to modern global technological economic affluence, therefore they are more prone to sole occupancy of homes. Result? No increase in Housing Supply from this quarter.

    This blog post of Robert's is speculative. That is the most true thing that can be said. Economists speculate. Even Mervyn King did not predict the Credit Crunch of August 2007, nor did he understand until one year later at the Lehman Brothers collapse that the whole financial money supply needed structural attention. What had his economic models and inflation reports been based on prior to this time then? Seemingly speculation, with a poor attention to the risks in his premises and assumptions. So much for Economic Science.

  • Comment number 66.

    I've been warning about the housing market folly since I arrived in this country in 1998.

    I'm sure, so many of you that see it clearly now, engaged then in long and self-gratifying chit-chats around dinner tables (or walks around the Hampstead Heath) about "up-and-coming areas", "good schools", "holiday home abroad", "property investment", etc, etc.

    But I guess, it's easier for an outsider to point out the obvious - A house is just a house - it's not a productive factory!

    As for the chancellor Osborne, don't rely on him, his failure is as inevitable as death itself!

  • Comment number 67.

    With inflation at 3.7% and wages at around 0%, real negative earnings mean everything's up for play and we haven't yet got the interest rate rises still inevitably to happen.
    What WAS the prediction for growth again in 2011 ??

    'Wash and GO' Osborne is asking people to reign back on the speculation regarding the matter and to wait until the 'emergency budget' arrives.
    I think there is a clue in the name.

    ''frightened* the horses'' have we ??

    ['Frightened' The Fall;

    ''I've got shears, pointed,
    straight at my chest,
    And time moves slow(ly?),
    when you count it,'']

  • Comment number 68.

    Short term Capital Gains (Assets held for a year or less) should be taxed as though they are part of an individuals income. Long term Gains should be taxed at a lower rate to recognise the fact that the gain has occured over many years and to encourage individuals to keep an asset acquired. This was accepted prior to Labour changing the rules a couple of years ago.
    Re: The debate on capital Gains - I would suggest that a) there should never be any backdating when new rules are bought in (Labour ended indexation and tapier relief when in power) and b)buy to let property gains should be taxed at the business rate and so benefit from less penal tax charges (Currently it is just about impossible for an individual to argue a buy to let long term investment is a business.)

    The blog suggests owners of buy to let will sell out. It will obviously be an advantage for some owners to do this - but the long term investor with high capital gains is more likely to NEVER sell as 30-50% of the gain would be lost. Such actions would have harmful effects on the inland revenue,owners and the property market. Expect fewer house sales once the proposals are introduced!

  • Comment number 69.

    50. At 12:00pm on 28 May 2010, Jedra wrote:

    " "newblogger" wrote earlier about 'Greedy Property Developers'. This is a bit of a stupid comment and certainly not fair. Investing in property is not merely the realm of property developers. I have a number of properties that I have on buy to let which will (hopefully) enable me to retire in later years without being a burden to the taxpayers of this country."

    The problem is that in providing for your own retirement, you are making life incredibly hard for normal, hard working younger people. Why not invest in a pension like eveyone else. A house is not an investment, nor should it be seen as such. Owning a home is (or at least should be) about being secure and settled, not about making money.

    The definition of sustainability is often quoted as "meeting the needs of the current generation without compromising the ability of future generations to meet their needs". By this definition, the current house prices and second house ownership are simply not sustainable.

  • Comment number 70.

    I just love some of the vultures who have posted on here - positively salivating at the prospect of armageddon in the banking and housing markets. Yes, let's reduce house prices by 50% and rejoice in the impact on surveyors, architects, removal companies, builders, tradesmen, shops and stores that provide goods when people move house (OK perhaps you can have a quick smirk at the expense of estate agents). Then let's see what the wider ramifications are to the economy as a whole and see if this really will simply represent a couple of years overdue market correction or whether we all end up in the dog house - literally - for a decade or two.

    Goodness knows what the impact will be on the rental market if supply shrinks - the government will not be building social housing to take up the slack in either the short or medium term.

    It is probable that any increase in CGT will be introduced to come into effect in a year's time and there will be some tapering method so that if you hold an asset for a long period of time you are not penalised.

    Both these measures will lessen the impact.. . . . and the CGT is only on second homes, so not all landlords will ship out in the short term - I trust the vultures will continue to go hungry for a while yet!

  • Comment number 71.

    #47 Nautonier

    rearding empty properties the numbers banded about around are unfortunately wrong. The 800k figures is all properties, there are often good reason why properties are vacant in the short term e.g moving home etc, the number reported of empty residential properties for longer than 6 months is 300k. I say reported as every house which does not pay occupied rates are counted as empty. Out of interest i once checked a few of the local properties on the list as empty and the vast majority were clearly occupied.

    There really needs to be (imo) a robust audit whether properties are indeed empty.

    I would agree that your suggest that true empty propeties should have enforced sale order placed on them , i believe local councils may already have powers to do this, but imo only after the owners are given a fair opportunity to sell the property

    . I suspect the reality will be that council tax yields will increase rather than a vast number of empty properties become available for occupancy



  • Comment number 72.

    #54 jacques cartier

    "But if house are only worth half of "current levels", then why
    would any person pay more? Why would anyone (in their right mind) pay
    more than a thing is worth? I just don't get it."

    Fear mainly. People have had it drummed into them for so long by newspapers and television that house prices will only ever go up, that they feel they have to get onto the housing "ladder" somehow, even if the cost is financially crippling. Even if they feel fundamentally that the house is worth nothing like what they are paying for it.

    Markets don't really work when they are not in equilibrium. The actual value of a commodity (eg housing) no longer determines it's price so much as expectations of future changes in price levels - that's why we get price bubbles. Dampening this effect is why increasing CGT is so necessary.

  • Comment number 73.

    Jaguar to assemble cars in China this is bad news I will never buy a Jag again, talk about ruining a good name of a Company.

    Very bad Rubbish goods are made in China.

  • Comment number 74.

    51. At 12:03pm on 28 May 2010, muggwhump wrote:

    "we fund the shared equity mortgages for first-time buyers"

    No we don't. Shared equity is very similar to right-to-buy. The first-time buyer gets a personally funded mortgage for part of a home and rents the remainder of the government/property developer. In time, when they can afford it, they buy the remaining equity (at the then-current market value) with savings or another mortgage.

  • Comment number 75.

    to alison clark:

    so, basically you are offering Council Housing to those poor people whom cannot afford to live like you (because you hoard the houses they should be buying if they were cheaper)?

    That should be the work of the Government, not of a private speculator trying to dress herself like a philantrophist. Absolutely ridiculous.

  • Comment number 76.

    58. At 12:27pm on 28 May 2010, Uphios wrote:

    "42. At 11:22am on 28 May 2010, davidbfd wrote:

    Why should taxpayers prop up a housing bubble to satisfy the greed of a select group of homeowners? People should be able to pay the equivalent price for housing whenever they were born and put in the same amount of work/man hours to be able to own an equivalent property. There should not be a government manufactured bubble to enrich certain sections of the population.

    ......................................

    Besy idea yet! Let me see, I need a buyer preferably born 2007. When I have sold to him I can then buy anywhere at the price when I was born, 1950. And I can do this how many times??

    Well thought through proposal."

    For goodness sake, it was fairly obvious what davidbfd meant by "equivalent prices"! House prices should rise with inflation. Simple and fair. The problem we have now is that house prices do need to come down, but preferably without thousands of people being made homeless.

  • Comment number 77.

    The government does not and should not engineer a house price crash. It will enivatably happen anyway when scores of people leave the country for a better life, Simple supply and demand economics

    Even the Eastern Europeans are heading back home

  • Comment number 78.

    Actually the picture is a little worse than Robert says. Yes inflation is rising, which may result in higher interest rates and therefore impact the housing market. But if that means that the value of loans the banks are holding is lower, then their profits are ultimately lower too, meaning that they won't be paying so much tax. And further hindering the deficit. So does the government end up borrowing more, cutting more or taxing more?

    The problem is that they have to contain inflation without pushing up interest rates, unfortunately the government isn't in control of interest rate policy, the BoE is. So that means increasing taxes or more cuts. One of the better taxes that Darling put in was the 50% tax on bonuses, because the banks mostly globalised the burden, and increased the tax take. I suspect that particular tax may stay a few more years yet.

  • Comment number 79.

    'There is a mechanistic link between falling house prices and rising bank losses - because banks are forced by accounting rules to incur losses when the housing collateral underpinning the mortgages they provide drops in value in a substantial way.'

    I'd suggest you look at the debt investor statistics before waxing too lyrical about bank losses on housing. For example on one tranche of RBS debt, total losses to date are just under three million about 1.5%.

    I'd also suggest looking at the Land Registry data. On average across the UK prices are pretty much back to where they were in March 2006.
    I acknowledge that there are regional variations but there are also regional variations in average house price too which means potential losses may well vary substantially based on where price falls have had the most impact.


    In any event, this means that any reductions in value would relate to homes sold in the 2006/2007 period - say 2 million properties, say 15% of the owner occupied homes. Many of these will not be changing hands and people will be paying their mortgages. Many of the total will not.

    Indeed its merely speculation to assume LTV on the transactions were 100% or indeed that none changed hands for cash. The data I have looked at indicated average LTV of about 65%.

    It might be useful to consider who was providing buy to let loans in large quantities and who is still has a large range of products? Yes, Northern Rock. Our wholly owned outfit is still providing funds into this market.

    Now if you really want to assess what might be affecting bank valuations of assets you should look at commercial loans. You should look at the businesses that have gone under and who they owed money to. Look at those that want to renegotiate debt. To be frank, this is much more significant than potential, yet to be determined changes in the CGT regime and its impact.

    Finally, to calculate a gain, you are able to deduct some costs from the difference between purchase and sale prices including the cost of transactions and improvements. Anyone who bought additional property recently in some kind of speculative venture might find there was little tax to pay, in any event so frankly, why would you do it. Anyone considering that property is a safer bet than stock market realted investments or the return you might get on cash investments over the long term is not going to change their tack, either. Indeed, its possible there might be some that would see a short term depression in house prices based on changes in the taxation rules an opportunity not a threat, a blip in which gains can be made, even if they are taxed at 40%.

  • Comment number 80.

    Poor second-home owners. Bless the buy-to-let investors. How horrible it must be to have to pay some more tax on your unearned income.
    It's exactly these people, spurred on by greedy bankers, that has warped the housing market and pushed out first-time-buyers. It's not their fault, per se, as it's human nature to make easy money if possible but they have absolutely no right to complain at 40% CGT.
    How on earth did we get to a position where (in my neck of the woods) a family house is 250 grand, 300 grand if you'd like a garden. This is utter madness.
    How is it possible that earning £39,000 a year, with a £22,000 deposit I can only afford to house my family in a rented cottage because I don't earn enough to buy? And most people applaud when the Daily Mail says "House Price's Rise!".
    It's only my wife's mum that keeps us in the UK.

  • Comment number 81.

    Hi Robert,

    What a pickle, the whole Economy has become! I talk to you as an observer of economys if you will.
    first of all if i may take you back to just before the early 90's, i was in my early 20's, traditional broken family upbringing etc.

    I did notice as a young man strugling to find a job i would feel proud of, working for far less than the now "Minimum wage" i could see things just wernt working right, i had a sence that it was hard to find a good job then a home, then if i was really lucky, a family, being the icing on the cake etc, then cycle you might think should continue down the generations.

    I did observe the overwhelming feeling that "Education" was the key. i jumped on this Bandwagon in the hope this would improve my prospects in life.

    Late 80's...
    Still, it was hard, for a moment i thought, hang on! Wont this will just create an Educated unemployment queue???....
    I noticed the additional job vacancys were nowhere to be seen of any major significance.

    The 90's

    The success in the I.T. sector & what it brought to the Economy was phenominal, however the clock was ticking, how long would it be before the I.T. was saturated with overqualified people? driving down the wage expectations of people already in the industry?

    At this point in my life buying my own home was on the agenda but didnt seriously consider this until the very late 90's the economy was booming & everything was looking fine..

    Back to 1999 onwards...Note to self:
    this is amazing, as an observation you can buy a house on monday and make a huge profit on friday, this economic model is fabulous.. isnt it?

    traditionally after speaking to family & friends x3 times your annual income would be the standard limit.
    however considering my self to be in a "good job" earning 20k+ per annum, finding a house for 60k or less was impossible.

    TODAY.
    And here lies the problemm to my mind, the "Average wage" ?? goodness knows what that is but its no where neare the figure quoted typically on media channels. Today i live in the west midlands, ive been a contractor for the last x6 yrs and ive done extremely well. i feel very fortunate. i have met and know many people though of all walks of life & they also think the average wage is way way too high and does not reflect reality.

    So the only way to get on the housing ladder was to borrow x5 or 6 times more your annual earnings? Our grandparents & ancestors will be pleased and so reasured they did the right thing defending our country in years gone by for freedom equality and Justice for all!

    How long will it be before some one. Meaning US as a peoples / government actually says.. Have we shot ourselves in the foot with greed? no one can buy our houses any more. we dont build enough, & none that are reasonably priced. Will our children be living in boxes? and there children too? Buying a percentage share in property is worse, the economic model is the same. can you honestly say to your children i have a 25% share & its worth 5 or 10 times worth than when i paid for it? will it actually be worth the bricks & morter?...
    We need a new System! Realistic & Fair. Please? for the sake of our children?

    in the 80's i knew that jobs would not be created because we are reducing our ability to make anything anymore, so going to University has no effect, hence where we are today - "An Educated Unemployment queue" nothing more.

    in the 90's i knew that the bubble of house prices rising would have to burst itself in ratio to peoples earnings, so until we start looking to build descent housing for under 60 to 80k the youth of today & tomorrow will have no chance.

    REMEMBER - our country is now pretty much a Service industry, Catering, retail, support, - is where the bulk of workers are today? ask them as a whole, comfortably, what would be an acceptable cost of housing in relation to there income? Will it be anywhere near as much as the "National Average Wage"???
    I have no answers, but the people in power have known all along & are obviosly in complete denial because no one is showing any ulternative economic model.
    Good day.

  • Comment number 82.

    #54. Jacques Cartier wrote:

    >>> But if house are only worth half of "current levels", then why
    would any person pay more? Why would anyone (in their right mind) pay
    more than a thing is worth? I just don't get it.

    Whith all respect, they are not out of their minds, just sheep. Keep up with Jones'. I want it now. I can afford it (of course this is what the mortgage adviser told them). What can you do if the estate agent tells you "this is the price of property in this area, Sir / Madam..."

  • Comment number 83.

    > And if banks' profits recovery were to be set back by a housing market
    > slump, that would have an effect on their ability to provide credit -
    > which in turn would be a setback to the more general economic recovery.

    Look, Robert, rather than just sitting in your chair stirring things up, why don't you suggest something? Here are the requirements: a simple, usable money system for the country, without the parasitical fat-cats and scumbags.

    It's not that hard to figure out what we require - so give it a try, instead of getting everyone worked up about nothing.

  • Comment number 84.

    Perhaps a housing crash is actually just what we need? Several reasons:
    When trying to compete with other countries the costs incurred employing people in the UK are very high, most of this cost is the wages and taxes people require to pay for massively over inflated house prices. Even 'housing benefit' which comes out of taxation has to be high becaue of the cost of housing.

    Much inflation in the UK has been the result of people seeing massive increases in the price of their house and buying using loans on the 'equity'.

    The arguements about banks going under is of course valid, but to be honest losing some of these unproductive and over paid jobs would not go amiss, lets get back to jobs where people produce things. Britain was wealthy and powerful when we were the workshop of the world, USA took over the mantle and became powerful, now China is...
    We CAN and DO make great stuff, just not nearly enough..

  • Comment number 85.

    27. At 10:13am on 28 May 2010, Justin150 wrote:

    This is the problem with the last govts policy (I think it was called pathfinder) which encouraged councils to demolish thousands of perfectly good but old houses.


    Ten years ago I found myself in an area designated New Deal for Communities, or Pathfinder. The government's chosen "path" was community led regeneration. Capital projects were strongly proscribed and even if demanded by the community, they had to be completed within 5 years. The result was a hostile takeover of the scheme by the council and quangos from the local people. Of the 800 two bedroomed terraced houses where I live, that used to sell for around £30,000, everyone - tenants and homeowners alike - were evicted. Today, ten years later, the entire site is flattened. Schemes completed nearby tout signs for one/two/three bedroomed "properties", "prices starting from £61,000". I'd just like to correct the implication it was government policy. It was done in opposition to both government policy and local community opinion.

    52. At 12:12pm on 28 May 2010, alison clark wrote:
    I have three buy to let properties

    You sound like a really nice person and an asset to society. I am totally opposed to buy to let. I consider it immoral and welcome increased taxation and house price falls. If it happens, you'll have my commiserations, but many of your fellow private landlords aren't so nice. If there were more like you, we wouldn't be in this mess.

  • Comment number 86.

    Just have to say there are some excellent posts on here today, even from old adversories!

    Could it be that with WOTW some serious thoughts are put forward for a change?

  • Comment number 87.

    To 63. At 12:55pm on 28 May 2010, Uphios
    Assume you purchase a flat for £100,000, that produces a gross annual rent of £10,000.00
    From your gross annual rent you would need to deduct:
    Service charges
    Ground rent
    Allowance for unlet periods
    Management fees, unless you do it yourself
    Re-letting costs
    Internal repair costs
    The real annual income can often be nearer half the £10,0000 (£5,000)
    Which gives you a 5% return on your investment.
    Which in turn is a 10YP on the gross but a 20YP on the net.

    On the plus side, providing things don't get worse it should go up with inflation.

    Prior to the boom, virtually all investment property was valued based on the capitalisation of the gross annual rent.

    However on a more humanitarian note:
    What is better, protecting the bank's balance sheets or having affordable housing for the younger generation?






  • Comment number 88.

    So the solution to the banks problem could be to insist we don't build masses of much needed homes!

    Decent, affordable housing is a basic human need just as air is. We got rid of the slum landlords decades ago for a reason. Housing, poor housing or lack of housing has enormous detrimental effects on those afflicted, and in the long term huge social costs and affects the health of those who suffer it. All very well if you've seen your house property rise significantly. What about the next generation?

    Where on earth do you think your office cleaner can afford to live? The check-out staff down the local supermarket? When we are all old and looking for home-care, just where are these carers supposed to live?

    Isn't it the case that in real terms most people have seen a decline in their real-term income over the past few decades as is the case in the US?

    The homeless and council home renters will be rewarded what exactly in their heroic efforts to save the country?

    It is madness, truly madness. It is selfish, truly selfish for one generation to inflict this on the one following. And it is that generation of proud home owners who should morally bear the cost of fising this mess by paying for significantly more housing (and therefore reducing their own worth). And governments are there to serve the population, not just those who are sitting pretty and have either retired or are about to do so.

    A home is where you live, not a money pot. So sorry, I don't care about the banks, I really don't. I don't care about the investors. I don't care if you were stupid enough to pay 200K for a rabbit hutch. They all gambled, they knew what the small print said about investments going up and investments going down.

    House prices need to plummet.

  • Comment number 89.

    60. At 12:39pm on 28 May 2010, I_Despise_Labour wrote:
    "@43 NorthSeaHalibut

    I'm guessing a large chunk of equity with no associated debt. Doh!! :)"


    Most definitely.

    However, I would have been more impressed with the final gambit of the blog if the poster was up to his/her eyeballs in mortgaged debt with little or no equity. Easy to wish for a housing crash if you have a debt free "Home" you're not using for financial gain.

  • Comment number 90.

    Thanks Robert. Didn't even know there was an annual £10,100 free CGT free allowance? But the majority of us don't need to know that, do we?

    It seems absurd and rather contradictory why people subject to this tax are rushing to sell CGT applicable assets - one assumes they must be close to retirement or emigration, or death or something else their lawyers are advising etc., etc.?

    Having had a glimpse of one property program - the over-riding comment from one property buyer that stuck in my mind was 'I'll keep what I buy - because you only pay tax when you sell'. Was he right, Robert?

  • Comment number 91.

    why should I take out mortgage on an overinflated prperty, and work the rest of my life for the bankers prosperity.CGT is long overdue and could be the first step in the right direction in sorting out the housing mess

  • Comment number 92.

    76. At 2:01pm on 28 May 2010, toni49 wrote:

    For goodness sake, it was fairly obvious what davidbfd meant by "equivalent prices"! House prices should rise with inflation. Simple and fair. The problem we have now is that house prices do need to come down, but preferably without thousands of people being made homeless.

    .....................................

    You think that's what he meant?, I don't or if he did, he didn't explain it very well. If that is indeed what he meant to say then he already has his wish, house prices inflate. Now they may not inflate in the way you expect, for example they have not inflated recently at anything like the rate of Gold or Oil. They have over a period of a couple of years inflated faster than wages and they have exactly inflated with property. What measure of inflation do you suggest is a 'proper' measure?

  • Comment number 93.

    grayswood wrote:
    "I just love some of the vultures who have posted on here - positively salivating at the prospect of armageddon in the banking and housing markets."

    Why do you call them vultures? People simply want to be able to afford to buy their own home, like their parents did. Is this so terrible?

    Why do you hate the generation below you so much?

  • Comment number 94.

    As I suspected (and friends/family got bored of me telling them) in the mid noughties, "it will all end in tears". I also said that the BoE will back itself into a corner, and that`s exactly what has happened.

    Interest rates need to rise to control inflation - but that will hit the property market.

    CGT needs to rise to help pay off the defecit - but that will hit the property market.

    All we hear about is the ****** property market, it`s as though the UK economy depends on it. Oh, hang on a second, it does depend on it.

    Rising house prices should be the symptom of a strong REAL economy, not the result of endless ramping, loose lending and rampant speculation. For a country that rates itself as modern, wealthy and fair, I find it quite a contradiction that even those on fairly good incomes can often not afford to buy a place to live.

    I could type pages on the subject, but i`ll just state this.....

    Which position would you rather be in ?

    a) Having to pay, say £40K tax, on a £100k profit from a property sale (or share sale).

    b) Having to pay £200K to buy a modest house, when you earn £28K ?

    Those in position a) are whinging, yet they are part of the reason that there are plenty of people in position b).


  • Comment number 95.

    @ 72. At 1:49pm on 28 May 2010, random_thought wrote:

    >> #54 jacques cartier

    >> "But if house are only worth half of "current levels", then why
    >> would any person pay more? Why would anyone (in their
    >> right mind) pay more than a thing is worth? I just don't get it."

    > Fear mainly. People have had it drummed into them for so
    > long by newspapers > and television that house prices
    > will only ever go up, that they feel they >> have to get
    > onto the housing "ladder" somehow, even if the cost
    > is financially > crippling. Even if they feel fundamentally
    > that the house is worth nothing
    > like what they are paying for it.

    I don't understand ... they pay for a thing that isn't worth what they pay? That would be a mad thing to do. The must believe that it's worth it. I would NEVER shell out if I thought it was not worth it. Nope - they must be worth it today, or there would be no buyers.

  • Comment number 96.

    This point crossed my mind when the specualtion about CGT started.

    But there is no point in speculating about the affects of CGT rises on property values, unless we know the figures about what proportion of housing stock has been invested in for the purposes of letting.

  • Comment number 97.

    I dont understand what has driven the rebound in the house prices that the surveyors and estate agents keep going on about? SURELY everyone must have learnt from the last drop that the residential mortgage market has to be analysed in conjunction with the housing market. I believe the absolutely ludicrous 2 year fixed deals are drawing the naive joe public in and everyone is mopping up the local property supply. I am in my mid 20's, have £35k in the bank and earn over £40k, yet the bank wont lend me any money on a 5 or 10 year fixed deal for anyless than what is 5% above the current base rate. Banks know something we dont? Funny thing is, when all these post 2008/early 2009 new property owners find themselves facing the same rate resets the vast majority of the american public faced... we are all back at square one again, without even passing go and picking up £200 on the way!

    I would love to see house price deflation, bring on the tax, the rate hikes, the whole lot!

  • Comment number 98.

    Conservative party never mention on their election manifesto for CGT increase to standard tax rate 20%,40%,50% but they change their policy after the election. If Labour party mention these on their manifesto conservative party will criticise. They are double standard and change their policy to suit the advantage. CGT increase to non business people is taxing unfairly, its unfair tax on hard working middle income and poor working class people. They should tax on Hedge fund company’s on short selling on make quick profit rather than taxing poor working class hard earn money to pay for public sector waste. I have voted for conservative party at last election but never again.

  • Comment number 99.

    90. At 3:09pm on 28 May 2010, corum-populo-2010 wrote:

    Having had a glimpse of one property program - the over-riding comment from one property buyer that stuck in my mind was 'I'll keep what I buy - because you only pay tax when you sell'. Was he right, Robert?
    ............................

    Absolutely correct under current law of this and most other countries, you only pay tax when realising a gain. Long term Buytolet types will simply hold what they have, take the rental income and wait until they are either leaving the country or tax law changes. Governments come, governments go.

  • Comment number 100.

    Are we all forgetting why the crunch happened in the first place? As I recall (I'm no expert but I try to keep abreast of things) the banks suddenly realised they were holding assets which were not worth anything like as much as they had previously thought - and what were these assets? - mortgage backed securities of course!! So the financial markets were already saying house prices were at an unsupportable level even if the house buying public didn't know it. Now I'm sure everyone who follows this blog already understood this but it's worth repeating as we seem to have lost sight of the wood for the trees.

    So if a bubble has formed it has to either be popped or at least punctured to deflate slowly. Someone mentioned Hugh Hendry appearing on Newsnight - I've seem him a few times on TV recently and thought he was rather an odious man, openly gloating about sovereign debt, bankrupt nations and an imminent 2nd wave of bank failures, no doubt already counting the potential earnings for his hedge fund. But at least he's honest and he made a very sensible point this week - the bubble has to burst and assets have to reach a sensible value before we can move on. And we can draw the pain out over decades or, as he was suggesting, do it quickly and get it over with.

    Its like removing a sticking plaster from a particularly hairy part of the body. You can grit your teeth and do it with one quick yank or do it slowly hoping it won't hurt so much. We've all tried to do it slowly and realised it hurts just as much but the pain lasts longer and next time we just rip it off. We should do the same with the housing bubble.

 

Page 1 of 3

BBC iD

Sign in

BBC navigation

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.