I was interested to read the thrilling news published by the Building Societies Association (BSA) that 42% of Britons see mortgage finance as a barrier to buying a house. Anothe case of G.O.B.O. – Glimpse of the Blindingly Obvious. Some of my friends who didn’t attend an approved school with me often say G.O.F.O. – I wil let you work that one out. What always intrigues me about these surveys is the ‘42% of Britons’. What Britons, where and were they even interested in buying a house? What I am interested in and is tangible, is the factual report by the Council of Mortgage Lenders saying that the start of this year saw mortgage approvals at their highest since 2008. That is fact and is measurable. It may not be the loftiest point at which to start, but it is movement in the right direction. Across the UK, house prices were up by 2.4% in England, but only 0.9% in Wales, evidence if ever it were needed that there is a huge gulf across geographical regions and a ‘national’ survey is anything but. It would make interesting reading to see the results of a survey of the nation’s homebuyers to see whether they thought the Council of Mortgage Lenders would be better off spending their time and resources ensuring that their members actually lent money to homebuyers as opposed to compiling surveys on ‘national’ (in)activity.
Chancellor George Osborne yesterday announced 2 schemes that will hopefully boost the housing market and therefore the economy. The first is the Help-To-Buy scheme whereby the Governement will actually add 20% to the original 5% of the buyer’s deposit. The buyer will then have a 25% deposit and a 75% mortgage (subject to the usual underwriting criteria). That bit is simple. What has yet to be clearly explained is when the house is sold, and the Government is repaid, are the Government owed the initil capital sum or 20% of the property value, (which could differ greatly)?
The more complicated part of the budget that dealt with housing, is the Mortgage Guarantee scheme. This is due to start in January 2014, by which time it may well have been forgotten or s0me more pressing crisis will take precedence. The scheme says that the Governemnt will guarantee 20% of a mortgage given to someone who can only afford a 5% deposit. What was not outlined yesterday was exactly how this will work in practice, because the Government are not actually putting any money up front, but are merely guranteeing 20% of the loan in the unfortunate event of the property being repossessed. Therefore at the outset, the borrower will still be trying to obtain a 95% mortgage, which is exactly the type of lending that no lenders want to be involved with. As many potential first time buyers have found out, 95% mortgages are as rare as rocking horse manure.
After the banner-waving headlines, it will be intereseting to watch the dynamics of how this is actually going to work.
On the back of last week’s slightly disappointing news that HMRC see buy-to let landlords as the soft underbelly of their quest to gather in more tax, I read with interest the Mail on Sunday (March 10) which screams off the pages that the buy-to-let boom is back. Let me declare at the start that I have always said that if all the expert financial journalists pontificating in the paper were so clever, they would actually be investors as opposed to jobbing journalists. However, this particular journalist does raise some valid points. There is indeed an increase in the 40 and 50-something investors who see buy-to-let as a way of giving their children financial security for the future; but I would advise any person thinking of entering the buy-to-let market to consider all the various component parts of their decision. Do not get carried away with the thought that the rent arrives every month without any prospect of hard work, heartache, frustration and many other emotional and practical challenges. Be prepared for prostitution rackets, drug raids and even shootings as well as those tenants who always pay and never complain. Before becoming a landlord, you must be prepared to adopt a long term approach, working hard for your tenant. Above all, remember that if you do not enjoy meeting people or if you get annoyed with minor irritations such as a boiler breaking down on a saturday evening or somebody ringing you up because they have forgotten how the central heating system works, the buy-to-let market is not for you.
So said Winston Churchill; and this week he may well be joined in his sentiment by many others following the announcement by HMRC that they are launching the ‘property sales campaign’, targeting those who have sold a property that is not their main home, and who have not told HMRC about any profits that they have made as a result. It is aimed at those selling homes where capital gains tax (CGT) should have been paid on the profits. One of the most obvious areas that is going to find itself the focus of HMRC is the buy-to-let market. There is a 9 August deadline for telling HMRC about any unpaid tax on the sale of a property and any tax owed must be paid by 6 September. After the latter date, HMRC has said that it will take ‘a much closer look’ at the tax affairs of people who have sold properties other than their main home but who appear to have paid no CGT. ‘By using this campaign to come forward voluntarily, people will receive the best possible terms, as any penalty they pay will be lower than if HMRC comes to them first’, said an HMRC spokesman (this was shortly before he went to catch his flight – at taxpayers’ expense – to collect his humanitarian award at The Hague).
Death and taxes: those are the two certainties of life and those who practise tax evasion put more of a burden on those of us who do pay our taxes. But there are a couple of queries that immediately arise from the new HMRC campaign. By law we are required to retain any invoices or receipts for a 6 year period from the date of issue. What happens if HMRC discover a property that was bought in 2000 and sold in 2005 with £25, 000 gross profit. The sellers spent over £20,000 on an extension, but as it is now 2013 (outside the 6 year retention period) they have discarded the receipts that reflect the proof of work. What happens then? Are they guilty of being foolish? Possibly. Have they broken the law? No, but…. ‘tough’ say HMRC.
HMRC have not confirmed whether they have the resources to investigate this properly nor have they given the figure that they anticipate to recoup in unpaid CGT. Without wishing to be accused of sarcasm one does have to wonder at the economic sense of going after unpaid CGT and those who have avoided paying thousands of pounds as opposed to the likes of Starbucks and Google who have made tax avoidance into an art form and ‘owe’ millions. I am aware that neither of the aforementioned companies have broken the law, but neither has the individual who no longer has his receipts thirteen years later…
Finally one has to ask where does it stop? If there is no defined exit strategy and external threats arrive in the form of further taxes on second homes, what happens to property prices as everyone dumps their buy-to-lets?
I leave you with the thoughts of none other than John F Kennedy; ‘The tax on capital gains directly affects investment decision, the mobility and flow of risk capital.. the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy.’ I couldn’t have put it better myself.
When shopping in a supermarket the price of a tin of beans is clearly displayed. This is based on what the national average has been calculated as being for a tin of beans of that quantity and quality. Have you ever tried going to the checkout lady and offering thirty pence lower than the marked price? One would have ample time to contemplate the error of our ways whilst being frog-marched out of the door by the security staff. In estate agency, vendors sometimes suggest an asking price far removed from the actual value of their property. This is based on factors ranging from how much money they need, to the expert opinion of their mate down The Swan. One of the major skills of an estate agent is managing peoples’ expectations and not promising them the world just to get the instruction. I mention this as I have just read a report stating that vendors are now more confident than at any time in the last four years that they will get their asking price. I say ‘Amen’ to that, as long as it is the right asking price. I wonder how many tins of beans Heinz would sell at a tenner a go?