This weeks big news was the Tory Party pre-election conference when they found that they had just three days to explain to the public their plans for running the country ahead of Gordon Brown’s expected call for a snap election which could come as soon as next week. It turned out that many of the headline announcements actually revolved around property but what might be the impact on the UK property market of these proposals?
Raising inheritance tax to £1m.
House prices have grown by over 150% in most parts of the UK over the past 10 years but the threshold for inheritance tax has remained pretty stagnant despite a nod from the ex-Chancellor now PM when it was raised to £250,000. Since the average house is now about £200,000 the Exchequer is clearly going to coin it in as the tax take from middle class home owners starts to pour in. The Governments own estimate is that the IHT this year (2006-7) will be £3.6bn. Over 1.4 million homes were liable to Inheritance Tax in 2006 from just 300,000 in 1996 and Inheritance Tax on all residential property held at death has more than doubled over the past 10 years.
The Tory plan to raise the threshold to £1m is likely to exclude the vast majority of properties that might be left by the Saga generation and the majority of these one must expect to have good tax advice to minimise the impact of this. The upshot is that fewer older people will have to consider selling up to put their affairs in order. This should enable people to live out their days in their old home giving them a better quality of life and enabling their beneficiaries to keep a family home in the family!
The result is that fewer homes will come onto the market putting a modest upward pressure on house prices.
Abandoning Home Information Packs will not, we presume, include scrapping our European and Kyoto commitments to have Energy Performance Certificates in place by 2009. So, we can expect that an EPC will still be required when you sell your house but that it will not be necessary to prepare the other paperwork before you come to sell. The impact will certainly be felt by the 188 companies who have invested so heavily in HIP production process but there will be no obvious effect on house prices since the EPC was the only additional cost introduced by the diluted HIP that is presently being rolled out.
Abolish stamp duty for 1st time buyers.
Abolishing stamp duty is the one thing that will have a demonstrable impact on the housing market. According to The Halifax, the average first time buyer pays about £160,000 on their new home and unless they are buying from a developer with a special deal, the stamp duty money has to come out of their wage packet and competes for the scarce resources with moving costs and the inevitable decorating and furnishing expense that a proud new home owner has to fork out for.
Quite how you can identify exactly who a “first time buyer” is, I’m not sure. You could have done it easily before Mr Brown scrapped MIRAS (Mortgage Interest Relief at Source) in 2000 but anyway, the additional £1,600 that would stay in a first time buyers’ pocket would make a significant difference to either the deposit that he or she put down or to the other expenses that they have. The tax is a ‘one-time’ tax and fiddling with it is unlikely to affect what they can afford to spend every month on a mortgage. Prices should therefore be unchanged directly although the additional demand from more confident first time buyers would push prices up.
On balance then, the Tory plans would have a positive effect on the property market helping to support values. There are many who now think that by the time Messrs. Cameron and Osbourne make it into Downing Street it looks like the market will need all the support it can get so I suspect that it will be hard to find the impact of these proposals in house prices in 12 or 24 months time.