opinion

Consequences of the coalition

It is probably wise to wait and see what the legislation says before rushing in to sell existing properties

by

Ray Boulger,

senior

technical manager, John Charcol

The general election exit poll was

amazingly accurate, being almost spot on in the forecast of the actual number of seats each party would secure. Most people, including me, were particularly sceptical about its forecast that the LibDems would only get 59 seats, two less than their number in the previous parliament. However, the end result was even worse for the LibDems, with a tally of only 57 seats.

In the light of the electoral arithmetic a CON-LIB coalition or a Conservative minority Government were the only two realistically viable options and so the LibDems negotiated expertly to secure so many compromises on manifesto promises from David Cameron, plus getting a good representation of Ministers. Having said that there were probably a few manifesto promises Dave was glad of an excuse to ditch. There was very little reference to housing policy in any of the party manifestos and hence not much to compromise on in this area. The LibDems’ pointless idea of re-introducing a CAT style mortgage appears to have been dropped, along with their dotty pledge to impose VAT on new homes. The Tory pledge to scrap national building targets is going ahead, as both parties favour a localised approach.

Hip, Hip Hooray!

Communities Secretary Eric Pickles and Housing Minister Grant Shapps moved quickly to suspend the requirement for homeowners to provide HIPs, pending

36 mortgage introduCer JUNE 2010

primary legislation for a permanent abolition.

Sellers will still be required to commission - but won’t need to have received - an EPC before marketing their property, and the government will consider how the EPC can play its part in the new drive for a low carbon and eco- friendly economy. However, the EU requirement is for a new EPC to be produced every 10 years, not every time the property is sold, and so this Directive can be complied with without automatically requiring a new EPC every time a property is sold.

Capital Gains tax

The coalition has said “We … agree to seek a detailed agreement on taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities.” It is generally expected that the Government will broadly adopt the LibDem policy of increasing capital gains tax (CGT) from 18% to the taxpayer’s marginal income tax rate of 20% or 40% but probably not to 50%. However, accountants have estimated that the other plank of LibDem CGT policy – reducing the annual allowance from £10,100 to £2,000 – would increase the number of people paying CGT by over 200%. It is far from clear that this part of LibDem policy will be adopted. Taxing people on small gains they

didn’t expect to pay tax on because of the annual allowance would in effect be retrospective legislation and this is another good reason not to reduce the £10,100 limit, although as a compromise future indexations could be dispensed with. The higher tax rate will obviously hit owners of buy-to-let properties and second home owners, but in the past any

change in CGT has always taken place at the beginning of a tax year. Therefore it is probably wise to wait and see exactly what the legislation says before rushing in to sell existing properties, which in any case might be difficult to achieve before the budget.

One possibility is that the CGT payable on assets held long term would be reduced, maybe even to nil after a suitable period. A simple tapering reduction in the rate of tax, as proposed in a recommendation to his Government by John Redwood, MP, would encourage long term investment, which is just what the buy-to-let market needs. In the absence of such relief buy-to-let will be significantly less attractive, resulting in less properties being available to rent. This will push up rents and reduce choice for tenants. Not a very clever housing policy.

retirement planninG

The default retirement age (DRA) of 65 will be phased out and the Government will hold a review to set the date at which the state pension age starts to rise, initially to 66, although it will not be sooner than 2016 for men and 2020 for women. Phasing out of the DRA means that employers will no longer be able to force people to retire at age 65, although even now 80% of employees who request to work beyond 65 are allowed to do so by their employer.

Lenders generally assume employed people will retire at 65 and they will need to revisit this aspect of criteria, both in terms of the maximum age they will lend to and the age up to which it is acceptable to base affordability on current earnings rather than requiring pension details. Failure to address this issue could result in some borrowers being discriminated against, which of course would be illegal. Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48