From making sellers pay to scrapping stamp duty – five ways we can fix the housing market
THERE'S no magic wand to fix the housing market, which has seen sky-high prices keep wannabe home-movers locked in and hopeful first-time buyers off the ladder.
New chancellor Sajid Javid appeared to think he had the answer with grand plans to axe stamp duty for home buyers.
The shake-up would mean first-time buyers never pay stamp duty, while it would also help those buying bigger homes.
But it would probably have meant larger bills for those downsizing and Mr Javid quickly backtracked saying he'd never said this and wouldn't support the idea.
Mr Javid isn't the only one, however, with ideas of how to encourage more people to buy and sell homes.
So we've rounded-up five potential options to get the property market moving.
1. Scrap stamp duty on homes up to £500,000
During his campaign to become Prime Minister Boris Johnson hinted he'd like to see stamp duty scrapped on properties up to £500,000.
This would be a big shake-up of the current system where only properties under £125,000 - or £300,000 for first-timer buyers - are stamp duty free.
It would save a family buying an average priced home of £228,000 around £2,080, while Londoners buying an average priced home in the capital of £457,000 would save £12,850.
What is stamp duty and who has to pay it?
STAMP duty is a land tax paid by buyers on property that costs more than £125,000.
There are different rates of tax depending on the portion of the property’s value.
These are the current rates set by the government:
- 0 per cent - Up to £125,000
- 2 per cent - Over £125,000 and under £250,000
- 5 per cent - Over £250,000 and under £925,000
- 10 per cent - Over £925,000 and under £1,500,000
- 12 per cent - Over £1,500,000
Since November 2017, first-time buyers don’t have to pay stamp duty on the first £300,000 of their home.
You will then have to pay the normal rate of tax on anything above this threshold.
How does stamp duty work for shared ownership?
First-time buyers who bought through the shared ownership scheme don’t have to pay the tax on property worth under £500,000.
If you’re buying a property worth more than £500,000 then you will have to pay the normal rates.
You also don’t have to pay the duty on any shared ownership transactions that are worth less than 80 per cent of the property.
But if you staircase to an amount that takes you over 80 per cent, then you’ll have to pay the tax on the entire portion you pay to take you over the threshold.
For example, if you have a £400,000 home and want to buy a 25 per cent share, you won’t have to pay any stamp duty.
If you increase the share to 75 per cent by paying another £200,000, you still won’t have to pay any stamp duty.
But if you want to increase to 90 per cent, you’ll have to pay the full amount of tax on the portion of cash that took you from 25 per cent to 90 per cent.
If you want to avoid paying stamp duty completely then you should stay below the 80 per cent threshold, but it will mean that you will have to continue paying rent on 20 per cent of the property that’s still owned by the housing association.
Tory think tank Onward says the giveaway could be paid for by whacking taxes on empty houses and second home buyers.
Of course, another option is to ditch stamp duty altogether although mortgage broker, Andrew Montlake from Coreco, warns that this could push up demand for properties and that in turn could see prices rise.
Some have also argued for stamp duty to be axed for downsizers - those moving to smaller homes - but Mr Montlake does't think this is the answer given these people are the most likely to have benefited from lower house prices to begin with.
2. Lower stamp duty rates and up first-time buyers' tax-free threshold
Mr Montlake, however, believes that cutting stamp duty rates across the board could help the market.
"The key issue for me is reducing stamp duty rates across the board," he told The Sun.
"If you cut stamp duty rates to levels that don't put people off then more people would transact, and that would probably net the government even more tax."
He adds that increasing the stamp-duty free allowance from £300,000 to £500,000 for first-time buyers would also make a difference.
3. Introduce a land tax
While stamp duty is called "stamp duty land tax", property expert Henry Pryor says an actual land tax could be introduced to replace both stamp duty and council tax.
Both of these taxes are based on the property's value, but Mr Pryor says an alternative could be to introduce an annual land tax that's paid by those who aren't utilising their land.
So homebuyers simply buying a property to live in would likely pay no land tax but developers buying up land and then not building on it for years would be charged a tax as the land is going to waste.
Mr Pryor said: "If land isn't being used efficiently then a land tax might encourage people to make the most of it.
"And that includes property developers 'land banking' large areas of land when they could be using it to build more homes or for resources such as hospitals or roads."
This is similar to Labour leader Jeremy Corbyn's plans to ditch council tax in favour of a "garden tax" levy targeting larger homes with more land.
4. Bring in a capital gains tax on main homes
Currently, if you only own just the one home and you live in it then you don't have to pay capital gains tax (CGT) when you sell it.
In comparison, if you're selling a second home or a property you rent out then you'll need to pay CGT on it if the value has gone up by more than £12,000 since you bought it.
CGT on properties is 18 per cent for basic rate taxpayers and 28 per cent for higher rate or additional rate taxpayers.
And that £12,000 tax-free threshold is for all gains you've made in a year, so that includes any profit you've made selling investments or cryptocurrency too, for example.
But Mr Pryor says that scrapping the CGT exemption on main residences could be a viable alternative to stamp duty.
He told The Sun: "It's time to look at different ideas for how we pay taxes and scrapping the CGT exemption on main residences would make the system fairer.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa - It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move.
Help to Buy equity loan - The Government will lend you up to 20 per cent of the home's value - or 40 per cent in London - after you've put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa - This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25 per cent on top.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you're restricted to specific ones.
"First dibs" in London - London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative - A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest on the website.
"Here, only those who've made a gain would pay meaning those whose properties haven't gone up in value would have nothing to pay.
"People assume house prices have gone up and up but after inflation just over half of homes are worth less than a decade ago."
5. Build more homes
Of course the obvious solution to freeing up the market and to encourage more buying and selling is to build more homes.
This gives first-time buyers more of a chance to get onto the ladder, while also giving more choice for second-steppers or downsizers to move into.
The government has promised to build 300,000 homes a year by the mid 2020s.
But an unprecedented alliance of pressure groups and charities insisted earlier this summer that attempts over the last decade to build these 300,000 new homes a year have failed.
More on money
Lead by the National Housing Federation, the group includes charities Shelter and Crisis, the Campaign To Protect Rural England and the Chartered Institute of Housing.
Only by raising state spending levels back to those last seen under Winston Churchill in the 1950s will enough homes be erected, they argue.
They say 145,000 more social houses alone is needed.
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