Is the Conservative Party Selling Off the Final Part of the Family Silver?

5,146 Carlisle Housing Association Households & the Right to Buy Their Homes

In 1979, Margaret Thatcher was voted in on a Tory landslide with the ‘right to buy your own council house’ being a mainstay of Conservative policy. She encouraged people to buy their own their own council flats and houses, although it might interest you to know, that the council tenant right to buy idea was first proposed in the late 1950s and formed part of the manifesto of the Labour party. Yet Maggie’s version was based on massive discounts for tenants and 100% mortgages (i.e. no deposit). However, the real bugbear was that half the monies raised form the house sales went to central Government and the other half to the local authorities … but that money had to be used to reduce the local authorities debt rather than building new houses – so houses were being sold and not replaced.

6,217 council homes in the Carlisle area have been bought in the last 40 years (an average 155 per year)

Interestingly, the Conservative Party relaxed the rules in 2012 for right to buy and raised the highest discount on a property to £75,000 (it has subsequently increased further, to £100,000, in some parts of the UK) meaning 62,114 council houses have been sold nationally since the rule change, raising £6.228bn since 2012 alone.

The issue, stated by many existing council house tenants, is that those tenants turned homeowners subsequently sell on their ex-council homes at a huge a huge profit, meaning the demographics of those areas has become ever more transient, more specifically, properties that were once council homes are now owned by buy-to-let landlords who rent them out on a short-term basis.

Yet up to this point in time, nothing has been said about ‘other’ type of social housing – housing association properties. Whilst council houses are properties owned by the local authority providing low cost social housing, housing associations also provide lower-cost social housing for people in need of a home, yet they are private, non-profit making organisations.

The Conservative Party state one of the biggest divides in our British society is between those who can and cannot afford their own home, so plan to establish a new national model for shared ownership which allows people in new housing association properties to buy a proportion of their home while paying a lower/subsidised rent on the remain part – helping thousands of lower income earners get a step onto the housing ladder. 

So, what for the tenants of the existing 5,146 housing association households in Carlisle? The Conservatives have said they will work with housing associations on a voluntary basis to determine what right to buy offer could be made to those Carlisle tenants, although there are already existing rules which give most housing association tenants the right to buy their home, yet with only modest discounts of £9,000 to £16,000 depending on where you live. So, what does all this mean for the current homeowners and landlords of Carlisle properties?

The Conservative Party sold off 5,345 council houses in Carlisle whilst in power between 1979 and 1997

This really created waves in the housing market in the 1980’s and was a contributary factor to the housing crash of 1987 when Dual-MIRAS tax relief was removed by Nigel Lawson. By the selling off of council housing in those years they were accused of selling off the family silver cheaply, thus created the foundation of the buy-to-let boom of the early to mid 2000’s, because of major shortage of affordable housing being sold in the previous two decades.

Yet this time round, note the Conservative Party state it is just for new housing association properties, not existing. Also, that tenants will have the right to go into shared ownership – NOT OUTRIGHT OWNERSHIP. This means this policy will have hardly any effect … unlike the Thatcher policies of 1979.

Carlisle Property Values 2.1% Lower Year-on-Year

It seems that quite a few Carlisle homeowners and Carlisle landlords have become acclimatised to living with the uncertainty of Brexit throughout most of 2019, as figures show many of them decided to get on with living life, started reinvesting their money into Carlisle property and buying and selling their Carlisle homes and BTL investments. Land Registry stats confirm that. Current data shows that…

Carlisle property values are 2.1% lower than 12 months ago

Whilst the newspapers were stating prime central London property values were now 17% below the levels being achieved a couple of years, that message seems not to have been heard by certain sectors of the Carlisle property market!

Speaking with other property professionals in Carlisle, many weren’t expecting the usual autumn rebound after the summer holidays. Many were anticipating a dormant Carlisle property market on the run up to Christmas believing many Carlisle home-movers would put off the their home moving activities until the new year, yet in many sectors of the local property market, I have seen (and the stats back this up) that those Carlisle property buyers who are able to hold their nerve (whereas others were hesitant) have found themselves in a better negotiating position to get a great property deal. Putting aside the fluff of newspaper headlines, the real foundations of Carlisle housing market remain sound with record low unemployment, ultra-low interest rates and low inflation.

Interestingly, there are 7% more homes for sale in Carlisle compared to two years ago, meaning more choice for buyers

However, there are still parts of the Carlisle property market that remain stagnant, with some homeowners being slightly unrealistic with their marketing pricing. To them, the property market appears to be slow, as they stare at their ‘for sale’ board for months on end, yet nothing could be further from the truth.

The key to a balanced (and healthy) property market is realistic pricing by the homeowners when they place the property on the market, mortgage affordability for buyers (which was discussed a couple of weeks ago in the Carlisle Property Blog) and buy to let landlord activity which creates and maintains forward momentum. One measure of momentum is how long a property remains on the market, and interestingly…

The current average length of time a Carlisle property remains on the market is 91 days, up slightly from 86 days two years ago

Now the number of properties sold locally is slightly down year on year (even though we had a burst of property sales in the summer locally) and interestingly, Rightmove reported recently that nationally, the number of properties sold in the UK was only just over 3% less year on year, so a similar picture nationally.

So, what does all this mean for Carlisle homeowners and Carlisle landlords?

We have always had issues that were game changers for the housing market; for the last few years it’s been Brexit, 10 years ago the credit crunch, 18 years ago the dot com crash, the ERM and 15% interest rates issue 27 years ago, dual MIRAS 32 years ago, hyper-inflation 40 years ago, the 3 day week 45 years ago – the list goes on. Everyone needs a home to live in, the local authority just has not got the money to build council houses, so buy to let will continue to grow for the foreseeable future which in turn creates a stable foundation for all homeowners. Maybe you should use this time, like many are in Carlisle to take advantage of the property deals to be had in Carlisle. Please feel free to get in touch if you would like to chat about investing in property.

Changes to Capital Gains Tax

Major changes to the way that Capital Gains Tax (“CGT”) is collected are coming into force from April 2020 which coincides with a number of other changes which could increase the amount of tax due on residential property sales.

Those with rental properties, second homes or properties they no longer live in as their main home should consider what effects the new rules have on them.

30 Day Reporting and Payment

From 6 April 2020, disposals of UK residential property must be reported and any tax paid within 30 days of the completion date. This is a major shift from the current payment date of 31 January following the end of the tax year of disposal.

The disposal must be reported on a ‘residential property return’ and the tax paid within 30 days.  Where you sell a property in which you have lived as your main residence and Private Residence Relief (“PRR”) reduces the gain to nil, or the disposal is a transfer between spouses or civil partners, no return will be required but the rules on these reliefs will also change from 6 April 2020 – see below.

HMRC have confirmed that a £100 fixed penalty will apply where the filing deadline is missed, with additional penalties accruing if the failure continues past 3 months.

It is also worth noting that taxpayers who complete self assessment tax returns will also need to include the details again on their year end tax return, doubling the reporting requirements for some taxpayers.

Loss of Exemption

From 6 April 2020 the government will further reduce the deemed occupation period allowable under PRR and remove Lettings Relief. These measures could considerably increase the amount of CGT an individual will pay following the sale of a property which was previously used as their main residence.

Generally any gain realised on selling your home is exempt from CGT. The exemption applies to the period you are living in the property and also the final 18 months of ownership if you move out before you sell. This final period exemption was originally 3 years being introduced during a slump in the property market to assist people struggling to sell their former home after moving on to another. The exemption was reduced from 3 years to 18 months in 2014. However, from 6 April 2020 the final period exemption will reduce to just 9 months which given the current property market seems counterintuitive.

Perhaps more importantly, a further relief known as Lettings Relief is to be effectively abolished from 6 April 2020 (unless you continue to reside in part of the property which is being rented). This is a valuable relief for people who let out their former main residence which can reduce the gain on sale by up to £40,000 for each owner.

The withdrawal and restriction of these reliefs could result in individuals paying over £12,000 more in CGT if a property is sold after 5 April 2020.  As relief is available per individual married couples could be in excess of £24,000 after 5 April 2020.

Example

A common scenario would be an individual purchases a property in 2000 in which they live for 10 years.  They then purchase a new property to move into, retain the first property to let out and obtain a small rental income from.

In 2020 they are looking to sell the first property which has risen in value by £100,000.

If the sale concluded before 6 April 2020 their tax liability would be, at most, £700.  However, if it concluded after 5 April 2020 their liability would have risen to £12,950.

Planning Opportunities

There are, however, ways to protect this valuable relief as long as planning is undertaken in advance of the tax year end.  If you are considering selling a property in which you have lived and rented we would strongly advise that you contact us to consider if there are any planning opportunities available.

If you are considering selling your property and are concerned about the tax implications please contact Graham Poles on 01228 690198 or email graham.poles@armstrongwatson.co.uk