The coalition government and your home

The coalition has published its plans for the residential housing market, and George Osborne has now delivered his June emergency budget. Find out what the new measures are, and how they will affect homeowners and would-be homeowners.

The two main measures introduced by the coalition include:

• Abolition of Home Information Packs. A HIP was the pack of documentary information that homeowners had to prepare before they were legally allowed to market their home for sale. These have been abolished with immediate effect. Homeowners must still obtain an Energy Performance Certificate showing the energy efficiency ratings of aspects of their home.
• Changes to capital Gains Tax. The coalition has increased Capital Gains Tax, including on disposal of second homes and buy-to-let properties, for those who pay income tax at higher rates, from 18 to 28 per cent, with effect from midnight on 22 June 2010. Those who pay income tax at the basic rate will continue to pay tax on their capital gains at 18 per cent.

Shortly before the May election, the Labour government introduced an exemption from stamp duty for first time buyers buying a property worth less than £250k, but only until 25 March 2012. The Conservatives said, before the election, that they would make this relief permanent, but the Coalition Agreement entered into with the Liberal Democrats afterwards instead says that stamp duty relief for first time buyers will be reviewed, taking in to account its "affordability and value for money". As yet, therefore, we do not know whether they will do so.

HIPS gone
The abolition of HIPs removes a hurdle that slowed, or even prevented, sellers from putting their homes on to the market. It may therefore result in a small, short-term increase in the number of homes for sale. However, its abolition means there is no longer a financial disincentive to stop homeowners putting their houses on the market just to 'test the water', so some of these will not be serious sellers. And of course, the more homes there are on the market, the lower prices will drop.

Capital Gains Tax changes
The increase in Capital Gains Tax is not as large as had been feared - the general consensus had been that it would increase to 40 per cent. However, it is still a significant increase from the previous 18%, so it may still result in some owners of second homes and buy-to-let properties putting them up for sale. Property owners who had been treating their buy-to-let properties as their pensions, for example, may sell up and invest in other assets, to try to avoid the CGT they may have to pay if they delay sale until capital gains have built up in their properties.

However, the majority of owners are likely to be relieved that the increase is lower than expected, and hold onto their properties. They will instead try to save more of their rental income for their retirement - while hoping that CGT rules change again, in their favour, before they come to sell.

For those who do sell, they will find that more properties on the market are likely to drive prices down - although rental incomes may increase as the number of buy-to-let properties available to rent shrinks. This, though, will be offset for landlords at the bottom end of the housing ladder by cuts in housing benefits, which will mean rents at that end of the market are likely to drop.

Other measures
Other relevant proposals in the Coalition Agreement include:

• Home energy improvements to be funded by savings from lower energy bills;
• New measures to bring empty homes into use.
• More promotion of shared-ownership schemes to help people part-own their home, moving to full ownership when they can.
• Promotion of schemes to encourage farmers to convert farm buildings into affordable housing.

Mortgages and interest rates
But nothing substantive has been done to deal directly with the biggest problem facing homebuyers. This is the difficulty in obtaining mortgages without having to provide a large proportion of the purchase price from their own funds - funds that they are going to be less prepared to risk as the government's austerity measures start to bite generally and, for many, income falls and the risk of redundancy rises. The risk of redundancy is likely to be particularly acute among public sector workers, so that areas reliant on the public sector, such as parts of the north-east, are likely to be hardest hit.

There are also fears that interest rates may start to rise at some point. If this happens, many homeowners paying the variable rate rather than a fixed rate may find they cannot afford their mortgages, putting more houses onto the market.

Recommendation
Property owners are likely to find they must accept lower prices in the next few years, as homebuyers become increasingly reluctant to borrow form the banks, and risk their own funds, on house purchases, or find they cannot afford the mortgages on their current homes.