What the Coalition mean for the housing market

The Coalition may be up and running, but its plans for the housing market leave a lot to be desired.

So we now have a new Government in place. After the viciousness of the campaign David Cameron and Nick Clegg are now a double act (more Dick and Dom than Ant and Dec though) rather than philosophical opponents.

The Cabinet is now in place, and plans being drawn up for its first year in office, but so far the signs for the housing market are mixed at best.

The Housing Minister

Because I’m a complete political geek, I spent much of last week with News 24 on in the background so that I could keep up with developments regarding the new Cabinet. So far, housing has not been a top priority for the current Government. The appointment of Grant Shapps as Housing Minister not only took two days, but Shapps will not actually be present at Cabinet meetings.

Personally, I think this is a worrying indication of how lowly this new administration views the housing market. The simple fact is that we are not building anywhere near enough properties to meet the demand in the UK. This is not a minor problem that can be sorted out in a couple of weeks – it will take a complete overhaul of the system as it stands, and that will take years. The Government may view housing as a minor issue at the moment, but I’d wager that will soon have to move up the priority list if they stand a hope of dealing with the looming underupply crisis.

To quote the new Prime Minister, we can’t go on like this!

Housebuilding

The fact that there are not enough homes in the UK only serves to support house price growth which many people view as unsustainable.

Despite ambitious targets to ramp up housebuilding growth, the final years of the Labour Government are damned by the statistics. In 2004-5, building work was started on a total of 174,540 new dwellings with 155,890 completions. By 2008-9, the last year that the Communities & Local Government has figures for, that had fallen to 90,320 new dwellings started, and just 133,830 completions.

Sadly thus far there has been not a peep from the new administration about what they are going to do. You would have to imagine that as a Tory minister is in charge of housing, they will push ahead with plans the party unveiled earlier this year, though as I wrote in Tory housing plans will only push up prices, there are quite a few flaws with the plans.

My biggest problem with them is that they expect developers to essentially bribe locals into approving planning work, a move that not only encourages a Not In My Back Yard attitude, but will also make housebuilding so expensive as to be impractical.

It’s simply not the answer.

Hip, hip, goodbye

One change to the housing market that was widely predicted is the proposed scrapping of Home Information Packs (HIPs). The packs have been viewed as bordering on farcical by those within the property market for some time now.

The original idea was a good one – to provide buyers with clear information on the condition of the property and its energy efficiency before they actually handed over the money.

Sadly, it was then watered down when the Home Condition Report was changed to only being an optional part of the pack. Since then it has not exactly had rave reviews for its usefulness, to the point that many consider HIPs to be one of the property market’s biggest wastes of money.

Inheritance tax

Recent question on this topic

• marko asks:

  My father wants to sign his house over to my brother and I but still live in it until he dies. What are the tax implications?

  • 
    MikeGG1 answered "If he gives it to you but continues to live in it without the market rent, then it would classify..."
  • 
    marko answered "Thanks Mike. No, my mother has passed away. Are we liable for any other tax other than IHT if..."
  • Read more answers

One of the headline pledges from the Conservatives during the election campaign was the commitment to raise the Inheritance Tax threshold to a cool £1million.

As things stand, if you leave an estate worth £325,000 (or £650,000 for couples), a tax of 40% will be applied before that money finds its way to your offspring. With the massive jumps in the value of property over the last decade and a half, that meant that far more people were facing shelling out on this tax than was previously the case, particularly in the South East.

However, those who voted blue on May 5th in order to try to avoid this tax will be disappointed, as the policy has been dropped as a result of the coalition agreement. Thankfully, so too has the Liberal Democrats barmy Mansion Tax idea.

Capital Gains Tax

Related blog post

• John Fitzsimons writes:

  Should you buy in the UK or overseas?

  If you're looking to invest in property, are you best off putting that money into a British property or buying abroad?

  Read this post

The new Conservative-Liberal coalition may have promised an end to old politics, but clearly elements of the old politics are still attractive to them – they’ve been furiously briefing behind the scenes that Capital Gains Tax has to jump, and jump quite a bit at that.

Capital Gains Tax currently stands at the flat rate of 18%, though if reports are to be believed it will soon be shifted up to at least 40%.

There are two ways of looking at this. Firstly, it is potentially a disaster for buy-to-let landlords, as the amount they can expect when they sell their portfolio will take one hell of a whack. The counter to that is that if indeed such a tax is brought in (and chances are it will not come in until the next financial year), many landlords will look to shift as much of their portfolio as possible, quickly. And that means the potential for some great deals in the next few months, particularly for first-time buyers.

It will be interesting to see how this plays out, but as things stand, first-time buyers may be the big winners (supposing they can actually get mortgages of course).

Arrears & repossessions

Another area that the new Government has so far been silent on, but it has some decisions to make immediately.

The Council of Mortgage Lenders and Shelter have written an open letter to the Government urging them to not just continue with the measures already in place to help those at risk of losing their homes, but to actually go further.

Related goal

Sell your home

If you want to obtain the best possible price when selling your home, then these ideas should help.

Do this goal

Shelter argued that current homeowner schemes – things like Homeowners Mortgage Support, where interest payments can be deferred for up to two years – are making a tangible difference, but highlighted they are due to conclude at the end of the year.

As a result it urged the Government to extend them as a matter of urgency. It also called on Messrs Osborne and Cable to start work on a new long-term homeowner support programme.

I would be amazed if the Government are daft enough to withdraw this support, though restructuring some of it would obviously help, as elements of the support package have helped just a handful of homeowners, which is clearly not enough.

Overall then, the Government has an awful lot to do with regards the housing market. It’s still very early days but it seems to me that it is risking underestimating just how crucial an area this will be in the next few years. It’s in all of our interests that it realises its error sooner rather than later.

If you've got a question about how the Government's plans will affect you, why not head over to Q&A to get free help and advice from other lovemoney.com readers?

More: Free online banking tool | You just lost £410 bailing out Greece! | Landlords: Cut your tax bill!