What does the coalition mean for your home?

From fragile prices to the social housing shortage, the new Government has an overflowing in-tray of property problems.
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The Independent Online

The early days of the coalition Government have not been promising for homeowners. Plans to increase capital gains tax in next month's Emergency Budget – to be announced on 22 June – are "a grave error of judgment on the part of the coalition, according to Philip Booth, of the Institute of Economic Affairs. "The move has the potential to reduce access to affordable housing and drive up rents," he warns.

At the same time there have been pleasing announcements for potential home buyers and for those living in more expensive properties. The scrapping of the Liberal Democrats' so-called Mansion Tax – on properties worth £2m or more – will please the latter. Meanwhile homebuyers and sellers will have been happy to hear yesterday's announcement scrapping the much-criticised Home Information Packs, albeit with the Energy Performance Certificates kept.

How else will the new government's policies affect property owners?

House prices and the property market

Prices could slide upwards as details of the coalition Government's policy towards housing becomes clear. Estate agents have already experienced a relative boom in the number of enquiries in the last week as potential homeowners who have been worried about buying in a time of uncertainty have re-entered the market.

"Prices will be dependent on the short to medium management of the economy and none of us at this stage can predict how the coalition will fare with this," says Alex Thompson, director of Winkworth Notting Hill. "Prices are already touching on pre-credit crunch prices so it is difficult to imagine them going much higher, but I would be surprised if they were to fall in any significant way. This all assumes continued low interest rates of course. Should this change to any significant degree, then we could be looking at a very different picture."

While there could be a number of additional properties coming onto the market if landlords decide to sell now to take advantage of lower capital gains tax rates, the number of people hoping to snap up a bargain could be reduced by continued lender reluctance, warns Liam Bailey, head of residential research at Knight Frank.

Mortgage availability will remain tight over the next two years, especially as the banks begin to repay government loans extended through the Special Liquidity Scheme at the height of the credit crunch," he says. "The banks will also continue to ration mortgages using sharply differentiated lending rates depending on deposits."

He forecasts that house prices in the UK will end the year 3 per cent lower than they were at the start of the year, while prices in the central London prime market will rise by 3 per cent.

House construction and sustainability

A record 4.5 million people are on housing waiting lists, according to the National Housing Federation, yet we're building fewer houses than at any time since the Second World War.

There are several reasons for this, not least the recent collapses in the value of development land. But the lengthy planning processes that developers have to go through have led many to complain that red tape is holding back construction. Property experts warn that the Government's plan to give more power over planning to local councils could make things worse.

"The reforms involving localism being introduced into planning should be carefully thought through and tested, so we don't end up with essential development being unintentionally stifled," says Roger Hepher, head of planning and regeneration at estate agents Savills.

"A swifter and more flexible planning process is needed, together with a sustained increase in property prices, to enable currently mothballed sites to be developed," says Guy Jenkinson of property consultants Bidwells. "This scenario could be hampered by the Liberal Democrat/Conservative plan to give more power to local government in planning decisions and is of concern to house builders who perceive a lengthening of the already lengthy planning process."

Meanwhile the green agenda – ever popular with voters – could create further problems for developers, warns Tim Hawe, head of the estate agency George F White. "We should expect to see more legislation and initiatives to encourage sustainable development, with a push toward carbon neutral construction and homes," he says. "However, this is something that's difficult to achieve in a good market, never mind a recovering market, as at present."

Social housing

There is a huge shortfall in the provision of social housing across the UK. That's why Shelter has called for the coalition Government to make a clear commitment in its first Budget, on 22 June, to extend support measures for borrowers in the most financial difficulty. The charity's chief executive, Campbell Robb, says: "Hundreds of thousands of homeowners desperately need the new Government to continue the help that enables them to keep their homes."

He warns that many of the support schemes now in place are set to be wound up at the end of the year, but they could be pulled at any time. Such as move would leave many people with no safety net and facing the possibility of repossession.

"These schemes are directly helping homeowners every day and there is no question they are making a real difference. If the funding for these schemes is not urgently reconfirmed, the new Government is likely to see a huge number of people losing their home by the end of the year."

Currently 1.8 million households are on council housing waiting lists and more than a million children are trapped in overcrowded housing, says Shelter. And the crisis will only get worse over the coming months if the new Government doesn't offer positive support. At least 50,000 homes are predicted to be repossessed this year, and evidence from Shelter's front-line advice services suggests that more and more people are struggling to afford the roof over their heads.

Landlords and taxation

Capital gains tax is currently charged at 18 per cent. The coalition Government plans to increase it to as much as 40 or 50 per cent. That won't affect normal homeowners, but it will hit anyone with a second home, or with investment properties that they rent out.

"An increase in capital gains tax will arbitrarily penalise those involved in the rental market, driving out investors and pushing more people to try and buy their own home, who cannot afford to do so," says Booth.

The Government will announce details of the new rate in June's Budget, which means those who could be affected have a chance to sell ahead of the change and pay less tax. It may even be worth taking a lower offer ahead of the potential increase.

For example, if you paid £100,000 for a property and sell it for £200,000 after the capital gains tax hike, you'll only get £160,000 after paying 40 per cent tax on your £100,000 profit. But if you sell now for, say, £180,000 you'll get £165,600 after paying 18 per cent tax on your £80,000 gain.

However, the law firm Moore Blatch warns people not to rush into selling property. "Even with the proposed rise in CGT many investors would be better off holding onto their property, unless they were planning a sale within the next 12 months," says David Charlesworth, head of wealth management at Moore Blatch. "Those who want to keep property for retirement planning or inheritance should consider putting them into a trust as this could remove capital gains issues."