Second homeowners panic over CGT rise.

The forthcoming review of capital gains tax (CGT) is causing panic amongst property investors who own more than one residence and shares. Second home owners are eager to get rid of their extra assets in a bid to escape the levy, according to the Times, which states the tax threatens the stability of the coalition government. Conservative backbenchers are fiercely opposed to the changes, which are part of Liberal Democrats' desires to rebalance the tax system. The CGT rate is supposed to be raised from its current 18 per cent to a level "similar or close to" income tax levels, but there are widespread fears that it could be increased to as much as 40 or even 50 per cent. According to the newspaper, there are more than 250,000 second-home owners in the UK and many could be caught out by the changes, which could come before the emergency budget on June 22, when they sell assets. It could also deter new landlords coming into the market.

 

Scramble to escape capital gains tax

Estate agents say that many concerned owners are approaching them to offload properties before the emergency Budget on June 22. Anxious investors are preparing to offload second homes and shares in an attempt to avoid a government tax raid that is causing growing fury among Conservative ranks.
The coalition Government is facing its first serious rift after Lib Dem aspirations to rebalance the tax system ran into angry opposition from Tory backbenchers and grassroots supporters in the shires. In response, George Osborne has opened talks on watering down the planned increases to capital gains tax before his emergency Budget on June 22.

The unrest comes amid signs of a rebellion among high-earning Tory supporters preparing for a fire sale of shares and second homes because they are worried about the imminent tax crackdown. There are thought to be more than 250,000 second-home owners in the UK and it is thought that hundreds of thousands more investors could be caught out by the changes when they sell assets.

Simon Aldous, of Savills, the estate agent, said that he has seen a 40 per cent increase in valuation inquiries over the past ten days.

Stephen Herring, senior tax partner at BDO, the accountants, said: “We are being inundated, and I wouldn’t say that lightly.” Meanwhile, one wealth management chief said that his clients had issued instructions to sell their shareholdings in anticipation of a higher capital gains rate.

The mood of discontent among Tory backbenchers was underlined when MPs emphatically chose Graham Brady to represent their interests as chairman of the 1922 Committee. Mr Brady, who resigned from David Cameron’s frontbench team while the Conservatives were in opposition, won 126 votes while Richard Ottaway, the leadership’s favoured candidate, received 85.

The Chancellor is now holding discussions with Tory critics, signaling that he is prepared to negotiate a compromise. He is understood to be looking at a range of options, from minimising the rise to restricting the scope of tax so that it hits fewer people.

But Mr Osborne must still raise enough cash to satisfy Lib Dems that there has been progress on their signature plan for a tax break for lower and middle earners, due next April.

With many backbenchers expressing dismay at the rise in private, John Redwood, the senior Tory MP who chaired an inquiry for Mr Cameron into economic competitiveness, aired his concerns in public. He urged Mr Cameron to scale back planned rises in capital gains tax, insisting that they would be unfair and damaging.
Mr Redwood said that he had been “swamped with support” from those also opposed to increasing the tax on long-held assets.

An initial promise to raise the CGT rate from 18 per cent to “similar or close to” income tax levels prompted fears of an increase to something approaching 40 or even 50 per cent. The language was watered down in the Queen’s Speech, so that the pledge is now for rates “closer to” income tax levels, but the subtle climbdown has failed to quell opposition. Senior Tories predict that there will be problems for Mr Osborne with his party if the level is set above 25 per cent.

The Treasury is looking at further ways of limiting the impact, perhaps by scaling back the type of assets caught by the new tax. The coalition document says that it will only target “non-business assets” but Revenue & Customs does not have a legal definition for this term. A Tory source said: “If you have one holiday home, that isn’t a business asset. But what if you have three and get rental income? Or you have one then a relative leaves you a second? These are the questions this needs to deal with.”

Another unresolved issue is the level of the tax-free allowance, currently set at £10,100. The Lib Dems suggested lowering the level to £1,000 but this appears to have been vetoed by the coalition. The Lib Dem plan to raise the starting rate of income tax — a “longer-term policy objective” for the coalition — will cost around £17 billion.

Extracts taken from the Times online

What will errupt next?

What a tempestuous year it has been so far. If the elements, including snow and volcanic ash, were not enough to bring a level of uncertainty to the conveyancing market place this year, try adding a general election and a football world cup!

 

With David and Nick forming the first coalition government for more than 80 years we look ahead to see what this government has in store for the housing market and the investors that have driven it through the last few years.

 

The new government certainly hasn’t been slow to act in the removal of Home Information Packs.  Some would say that their decisive action in suspending HIPs on the 21^st of May was as reckless as the legislation was flawed, with potentially thousands of jobs lost as a result.  I firmly believe that quick, decisive action is always necessary as far as the housing industry is concerned.  If you are going to do it – do it.  Delaying the inevitable would have certainly effected the market with vendors delaying putting their properties onto the market pending the abolition of HIPs.

 

It is definitely going to be a very interesting year for the housing industry, as

we wait to see what the new Housing Minister, Grant Schapps, has in store for us and the effect that these housing policies will have on the property market in terms of activity and prices.

Referral fees don't harm consumers

There is no evidence that referral fees have caused consumer detriment within the conveyancing market, according to an economic analysis commissioned by the Legal Services Board.

 

The report stated that there was no evidence that referral fees have led to a decline in the quality of work or to increases in price.

Studies show the average conveyancing fee when a referral fee is paid is £543, while the average price paid by consumers when no referral fee is paid is £687.

 

The report said that while referral fees have risen from around £50 to £100 in 2004, to £259 to £400 today, conveyancing prices have remained broadly constant.

It found customer satisfaction was high among those who use referrals from estate agents, with 90% stating performance was better than others used in the past.

 

Firms have greater certainty in the volume of work they receive, so they have invested in technology to increase their efficiency, and these efficiency gains are passed on to the consumer.

 

 

The garage is the new space converter

The garage may not be used for housing the new Audi, bike storage or even that extra freezer anymore. It would appear that times are changing. Pantries, outdoor lavatories and coalholes are all things of the past, rooms that were at one time vital but are now confined to history. The garage in terms of its use may be going the same way.

More than one in ten of homeowners have converted or plan to convert their garage for some other use than keeping the car warm and dry. Garages are now being converted into an extra bedroom, studio or that all-important home office. More people than ever are working from home. It has been estimated that with 3 million now working from home, the garage provides workspace for approximately 500,000 home offices.

On average the typical garage conversion costs around £6,000 but it is thought to add an extra £7,000 in value to the property. At the height of the credit crunch, contractors noted a rise in requests for garage conversions, the new mantra being ‘improve don’t move.’
 
We are now seeing ‘green shoots’ within the housing market. Activity levels are still a way off where they need to be. The banks are still not lending anywhere near enough money out to potential homeowners, deposits required are high and of course there is tremendous job insecurity nationwide. These factors certainly prohibit many people moving simply for that extra room.

Homeowners, are turning to the less traditional areas of their abodes to create that much needed workspace etc. It seems like the next step after converting the loft and basement is to look to the garage for this extra space. It is no longer a necessity to house the family car within a garage as they are now far less likely to rust. We are also a lot less precious about our vehicles. Parked on the front drive is now the norm, there are various methods of  ensuring your cars security without having to lock it away from sight.

Those of us who drive the big gas guzzlers are also very aware that parking these ‘homes on wheels’in a somewhat restricted indoor space is no mean feat!!

The Banks to be broken up within twelve months

The new government have decided that there is to be a complete overhaul of the banking system. They are to establish an Independent commission to investigate this proposal. George Osborne is to chair this committee, with Vince Hill (business secretary) as a fellow member of the commission, not all members have been decided upon yet.

 

They are to introduce an extra tax on the industry and are to tackle the controversial practice of unacceptable bonuses. They have given a year as a timescale in determining whether separating retail and investment banking will separate the risk factor.

 

It is mentioned within the Conservative manifesto, that they want to investigate the question of competition within the industry. It is feared by analysts that any inquiries could cause uncertainty and delay the recovery of £65.5bn of taxpayers money invested in RBS and Lloyds Banking Group.

 

Many details are yet to be decided. It is still unclear whether the new bank tax will be the proposal of 10% of profits to raise £2 billion annually from the Lib Dems, or the Conservatives levy on liabilities, to raise £1 billion.

 

 

HIPs to go!

The news was welcomed yesterday that the government is indeed to scrap the controversial Home Information Packs. The Conservatives and the Liberal Democrats have both agreed that it is the right course of action. They will be keeping the energy performance certificates.

 

What is needed now is for this to be actioned as soon as possible to avoid confusion and any further damage to the housing market.

The HIPs have been a real thorn in the side of the Industry, they have failed to benefit homebuyers and have really discouraged sellers putting their properties up for sale.

 

The HIPs are supposedly aimed at reducing the time spent on all sale and purchase transactions by providing buyer information.

These packs costing approximately £350 are needed before you even consider marketing your home. They have stifled the housing industry at a time when it least needed it.

 

The speed in which the government acts is vital. There will be a vast number who will wait until these HIPs are gone to put their homes on the market. The implications of this ‘hold off’ could have a detrimental effect for the housing market.

 

 

Auction and the buying process

Auctions are fast becoming a popular way of selling and buying residential property due to their ease and speed. When the hammer falls it is equal to an exchange of contract, so the purchaser cannot be gazumped and there can be no last minute price battles.

The auction process

It is a whole different ball game selling via an action as apposed to sale by private treaty. The instant the property is ‘knocked down’ to a bidder, contracts are exchanged.

So it is vital that all the ‘homework’ is done before the auction, such as all preliminary legal enquiries, surveys and the arrangement of funding.

Sales particulars are distributed a few weeks prior to the auction date. The brochure contains full details of the property, these include  :

• Photographs
• Facts about tenure
• Possession
• Fixtures and fittings
• Rateable value, etc the conditions of sale a Memorandum of Agreement
• Details of viewing arrangements

Before the auction

1. Study the property particulars in great detail; there may be unacceptable conditions or disclaimers. Look for references to planning restrictions or refusals, and ensure these would not prejudice any alterations or improvements you would want to make.

2. Go and see the property.

3. Research the neighbourhood, Talk to neighbours and estate agents if you can.

4. Send the property details to your solicitor or licensed conveyancer, and arrange for him to carry out the necessary enquiries and searches.

5. Arrange a survey and a valuation.

6. Set your budget, and arrange the necessary finance. You'll need to be able to produce a deposit of 10 per cent (or the amount stipulated in the conditions of sale) on auction day, and the remaining 90 per cent within 28 days thereafter. A lender will insist on inspecting and valuing the property in the usual way before agreeing a mortgage, so allow time for this.

If you would want to make improvements to the property, obtain estimates at this stage, so that you can include the costs in your calculations.

7. Attend an auction if you haven't done so before, to familiarise yourself with the procedures.

You are now ready to bid ...

During the auction

Have with you two forms of identification, your chequebook and your bank details.

Don't exceed your price limit.

Bid clearly, by nodding (or shaking) your head, or raising your hand.

As bidding continues, the auctioneer will indicate what further increments he will accept. He may refuse a bid, and is not obliged to explain why. In any dispute, his decision is final.

In the majority of cases, the property will be sold subject to a reserve price. This figure is not usually disclosed, but the guide price should give an indication. If the bidding does not reach the reserve, the auctioneer will withdraw the property.

After the auction

If you are outbid, you lose not only the property but also the money you have spent on the survey, legal fees, and so on, just as you do when exchange of contracts fails to take place in a transaction by private treaty.

If the property for which you were bidding is withdrawn, it is worth informing the agent of the figure at which you are prepared to buy; the vendor may be willing to consider your offer.

If your bid is successful, you must pay the deposit to the auctioneer there and then. As confirmation of the sale and acknowledgement of receipt of the deposit, the vendor's agent will countersign the Memorandum of Agreement.

The remainder of the transaction follows the same pattern as a sale by private treaty. Completion generally takes place 28 days after the auction, with the balance of the purchase price being paid at that point. Penalties for failure to complete are severe.

Always seek professional advice before deciding to bid at auction, and remember that, once the hammer falls, you are legally obliged to go through with the purchase, at the price you have agreed.

Offset mortgages outdo Isa returns

First direct is advising homeowners that using savings to offset their mortgage could leave them better off than investing in an Isa.

Research from the lender shows that over the past 10 years, putting money into an offset product could have produced a better return than investing in the tax-free Isa, with the difference amounting to as much as £3,306.

Offset mortgages link a savings account to a mortgage account. For example, a borrower with a £100,000 mortgage and £10,000 in their savings account would only pay mortgage interest on £90,000.

Furthermore, with savings rates at today’s low levels an offset mortgage becomes a more attractive option for the higher-rate taxpayer as money “earned” by reducing mortgage interest payments is non-taxable.

However, the benefits of this type of mortgage remain a mystery to many, with earlier research from first direct indicating that 40% of homeowners don’t understand how they work and a further 35% have only a rough idea.

HIPs to be abolished?

After five days of deliberation and intense political drama, we have a coalition government. David Cameron and Nick Clegg are, as I write trying to work through exactly how this new government will work. The Conservatives stated within their manifesto that they will abolish the Home Information Pack "within a 100 days" of government.

If this is indeed the case, the question of the Energy Performance Certificate (EPC) rears its head.  This was created as a response to the EU Directive 2002/91/EC on the Energy Performance of Buildings.  Therefore it would not necessarily be easy to drop it IF the HIP is to be removed.

The Directive specifically states the following, "Member States shall ensure that, when buildings are constructed, sold or rented out, an energy performance certificate is made available to the owner or by the owner to the prospective buyer or tenant, as the case may be." All which suggests that the EPC may have to remain in place in a "HIP light".

Any proper Consultation into abolishing the Home Information Pack could also reveal opportunities to improve the Conveyancing process.  For example, in looking at the not-implemented Home Condition Report, or in the area of ordering and preparing documentation that is essential and could (and does) help speed up the process by creating Exchange Ready contracts.

The results are in!

As many commentators have pointed out, the election result is about as bad as it could be from a market sentiment point of view – strong government of any colour being vastly more to international investors’ tastes than the uncertainty and vacillation of a hung parliament.

So what’s going to happen? Well, Cameron is sure to have a go at forming a government of some kind, whether in coalition or as a majority. He has already said as much, vowing to govern as best he can ‘in the national interest’. He is thus set to be the next PM one way or another.

But his only chance of majority rule – and of getting to occupy Downing Street for anything like the full five-year term – is to forge an alliance with the LibDems. A pretty tall order – a poll this morning by Conservative Home estimates that 94% of Tory grass roots supporters want nothing to do with Clegg. In his favour, Cameron can probably count on Clegg’s support – despite having said the opposite only a few days ago. Nick’s only way to salvage anything from the dismal LibDem performance is to hook up with Cameron in return for a promised referendum on electoral reform. But he won’t find it easy to persuade his party to swallow such a deal either.

The alternative is a minority Tory caretaker government and another election, probably next year. Hardly a glorious prospect, given the urgency of action required to tackle our debts and get economic growth back on the menu.

 

Hung Parliament

We have a hung parliament and it is not an ideal situation by any means.

More than any other time Britain needs a strong united government.

David Cameron is to set out plans to form a "stable" government, after the Tories won most votes but not an overall majority.

With results still coming in, the Tories have 294 seats in a hung parliament. He will say he plans to govern "in the national interest".

Nick Clegg, leader of the third biggest party the Lib Dems, said the Tories had the first right to seek to govern.

But Labour leader Gordon Brown is also hoping for a deal with the Lib Dems.

Under the rules of Britain's constitution, the sitting prime minister in a hung parliament has the right to make the first attempt at forming a ruling coalition.

As counting continues the Tories have gained 93 seats, Labour have lost 87 and the Lib Dems five, despite hopes of a breakthrough for the third party.

We will watch and wait with interest to see what the next few days will bring, both for the Country and for the housing market.

 

 

Recovery glitch?

Nationwide’s April index shows that house prices have risen by 10.5 per cent since last year. This finding suggests that the election has not, despite some forecasts, filled the thoughts of the nation to the exclusion of all else. It is possible to discuss the respective TQs (telegenic quotients) of Brown, Cameron and Clegg while checking online the performance of property values in your neighbourhood.

Although the figures are a confirmation of the continuing recovery, the upward trajectory could be slowed by the larger number of properties coming up for sale and the deteriorating job prospects of many potential buyers. The uncertain outlook for employment is, indeed, one factor supporting the market.

Martin Gahbauer, Nationwide’s chief economist, notes that landlords, who may have been thinking of leaving the business, are now earning such good rental income that they have no reason to sell. Their tenants include many workers too nervous about the future even to contemplate house purchase.

Shed culture Some call it a shed. Others prefer the term summer cabin. But whatever name you give to this structure, the increase in its sales appears to be one unexpected side-effect of the mortgage drought. B&Q, which is reporting strong demand for any garden edifice, considers that the trend is caused by the larger number of young adults compelled to return to the parental home because they cannot climb on the housing ladder.

First-time buyers remain the group most likely to be refused a mortgage, mostly because they do not have large enough deposits. The shed/summer cabin provides them with a personal retreat where they can contemplate the woes of their generation. Or perhaps mums and dads go there when overcome with irritation at the invasion of their grown-up offspring.

As the banks are determined to shun first-time buyers whose parents can provide only shelter, not finance, shed culture seems set to flourish. The status-symbol purchase could be the £11,995 summer cabin, pictured above — more a home from home than a lawnmower storage facility. This sum, by the way, is equivalent to the 20 per cent deposit needed to buy a share in a one-bedroom flat in a Leeds affordable housing scheme.

Tesco homes might help

Home is traditionally linked to food. But the move of a supermarket into housebuilding has provoked a mostly distasteful reaction. You could almost hear the nationwide “er, yeuch!” at the news that Tesco will be creating four mini-villages in London and the South East, each grouped around one of its stores, but also including parks and schools. Even those who rely on the store for most of what they eat — at home or at their office desks — are deploring the “Tesco-fication” of Britain that this diversification appears to threaten.

Some of these concerns are justified; the ubiquity of Tesco outlets has added to the oppressive uniformity of city centres and out-of-town malls. But Spen Hill, Tesco’s development arm, is doubtless aware that its residential products will not sell unless they meet the highest customer expectations on convenience, quality, price and looks.

The elegant recycling of existing buildings must be part of the offer, as must clever, contextual architecture. Maybe the process could even throw up some ideas to improve the identical Tesco Express shopfronts?

Sneering at Tesco homes may sound smart, but the supermarket will at least nibble away at the problem of the housing shortage. Lack of affordable and other homes is one issue on which political parties agree, though all will struggle to deliver an effective solution because the banks are disinclined to get involved. Lloyds and its peers are at present more preoccupied with extricating themselves from the consequences of their past ill-judged associations with developers. Yolande Barnes, residential research director at Savills, points out that Tesco is one of the few groups with pockets deep enough to finance new housing. The supermarket’s own bank could also be one of the few sources of funds for mortgage borrowers — it plans to sell home loans by Christmas. In Tesco, as in other supermarkets, we are spoilt and sometimes almost overwhelmed, by choice. But without Tesco, the shelves could look awfully bare for someone shopping for an affordable home next year, especially as government funding for this sector will be scarce, whoever is having his dinner at No 10 after May 6.

How to make your home pay its way

When times are tough we all have to look to alternative ways of making money. What could be simpler than utilising your own home.

For years, we have stripped those floorboards, dipped our doors and painstakingly restored those thickly painted banisters and dado rails. As a nation of home improvers, we plough hard earned cash into our homes, either, for our very own ‘restoration project’ or simply just paying off our mortgage. So perhaps it’s time to make our homes pay us back. Listed below are a few ways in which we can maximize some payback from the very property that we have so lovingly nurtured.

1. Rent out empty space

Have all the chicks flown the nest? Are you looking at an empty room or two? If so why not rent out those empty rooms. The key is obviously finding the right person to let into your home. If you live in London or another big city, you could let to a commuter who needs a room only during the week. This is a growing market; You should charge 60% of what the rent for the whole week would be. Either way, provided the room is furnished, the first £4,250 per year you make is exempt from income tax under the government’s Rent a Room scheme.

2. Use the basement or attic

Many Georgian or Victorian terraces have a basement, and creating a flat in this area and renting it out can be a real money-spinner. If you don’t have one, why not dig one out?

You’ll need planning permission to dig a new basement, but request it as an extension, rather than as a separate flat, or you could end up paying two lots of council tax. If things get really tough, you can live in the trendy new basement and rent out the rest of the house. If they get really tight, sell the basement flat.

3. House swap cloudy Britain for sunny anywhere!

Don’t pay to go on holiday – do a house swap instead. You may be pleasantly surprised by what you get in return, especially if you live in a pretty village or tourist city, or near a coast or national park. Once you’re in that Greek villa or Italian apartment, you won’t be worrying about what’s going on back home. Leave detailed instructions on how everything works and what is and isn’t included. You will need to look into additional insurance if this is what you fancy doing.

4. The home office

About three million people in the UK work from home. If you set up shop at home, Revenue & Customs will let you set all sorts of at-home expenses against tax, such as part of your phone, heating and electricity bills. But watch out, If you claim that your home is an office, you may no longer be exempt from Capital Gains Tax.

5. Do you live next to Glastonbury?

If you live near a festival, concert or other event venue, you could make money by turning your home into a temporary B&B. And this doesn’t apply only to those who live in obvious places such as Wimbledon, Cheltenham or Edinburgh. With the ever growing amount of mini-festivals across the country, some-thing is bound to be happening near you. The Ryder Cup for example near Newport, some already claim that their homes are being rented out for £20,000 per week… Can’t be bad.

6. Money from using the great outdoors

Do you have a pool or tennis court that others would pay to use? Do you have a nice garden, with room for tables and chairs? Organise sports days. For a fee, tennis and swimming could be on the agenda. If you live in a pretty village or along a walkers’ route, and can bake, running a tea garden in summer can bring in profit for minimal outlay.

7. Use your power

With the average household energy bill climbing to £1,200 a year, your house should be working harder to save you money. Install enough solar panels, wind turbines and the like, and you can not only supply your own needs, but sell power back to the grid.

8. Rent out a parking space

If you have off-street parking or a garage that is unused during the day, rent it out – for between £50 and £300 a month, depending on location.

9. Roll film, camera action!!

Is your house interesting and photogenic? Film companies, advertising agencies and magazines are always looking for new locations. Handing over your home to a photographer or film crew can net you £500-£3,000 a day. Large and open-plan spaces in and around London are most in demand, but scouts look for properties all over the country, including terraced houses and cottages.

10. If it becomes desperate…

If you are fortunate enough to have a large garden, and can bear to lose a part of it, why not parcel it off for development. Sell of that piece at the bottom of the garden, sit back and relax. Of course its not as simple as it sounds, but it may be an option.