Why the 1% mortgage deposit scheme is unworkable

Longer term the property value will increase and any negative equity will be cancelled out, so the taxpayer should not have to pay in the long run.

The taxpayer, along with the landlord, currently picks up the tab for all unpaid rent, which I suspect will be much more than the value of defaults on schemes such as this, especially if these buyers have guarantors.

I think it's worth a try.

People striving to buy their own homes make better citizens than long term sofa surfing tenants subsidised by the taxpayer.

I agree, but this faux-Conservative government think that homeowners will vote for them. They have a shock coming.

Andrew

I think mortgage debt is generally good debt as property tends to appreciate relatively quickly and the borrower keeps all the gain in return for paying the interest.

On the other hand, debt to buy fancy cars,
mobile phones or holidays isbad debt and any aspiring home owner would be crazy to take these on.

Some 50 odd years ago I wasted 2 years building up the necessary 10% deposit, whilst paying rent and watching house prices continue to rise and being powerless to do anything about it.

I was paying around £800 per annum in rent plus Domestic Rates, Energy bills etc. whilst earning around £2000 before 33% income tax and my wife around £1500. Despite saving her entire after tax salary, it took over 18 months to get a mortgage in principle of around £9500 and nearly 2 years before we actually bought our first brand new house, which went up £500 to £11500 while we were waiting on it being completed and getting to the front of the mortgage queue, as they weren't instantly available then, unlike now.

Had a 1% deposit deal been available, we could have bought the same type of house over 18 months earlier for around £9500 and saved around £1500 in down the drain rent payments.

I have been lucky enough to let my 3 kids avoid waiting on building up decent deposits and I think any scheme to help less fortunate aspiring house owners to do the same should be supported and the cries of woe from the money men forced to change outdated rules should be ignored.

Jo

Surely one solution is to work 50 hours instead of 37.5, giving 1/3 more extra income (without any overtime uplift) without any additional outgoings?

During our 4 years in our first home, my wife and I each did around 20 hours of tuition every week for about 40 weeks each year in addition to holding down responsible day jobs which demanded substantially more than 37.5 hours each week.

This allowed us to sell our relatively modest 3 bed Wimpey for £17500, a profit of £6000 over 4 years and buy a large house in an affluent area for £35,000.

Nearly 46 years later, we're still in it, although it's now far too big for our needs - but high moving costs are dissuaded us from downsizing until we need the additional support available in a retirement flat or care home. Today's Daily Telegraph says people in affluent areas live longer so we're going to hold on to our longer life entitlement for as long as possible. It also says that 1.29 million people over 65 live in 4 bedroom houses and 68.8% of England's homes are under occupied.

Providing incentives to older home owners to downsize would make more modest homes available for first time buyers.

Instead high stamp duties make people build unsuitable extensions instead of moving and builders build 5 bedroom 5 bathroom boxes miles from anywhere to compensate for the lack of larger properties becoming available through downsizing.

The Government has made crazy decisions in terms of disincentivising landlords and downsizers, but promoting greater home ownership with 1% deposits isn't one of these crazy plans.

Robert - you're quite right. People COULD work more hours. I certainly used to work 84 hours a week and do up houses in my spare time. I didn't get to see much of my children though.
Some people prioritise spending time with their families. I was never very good at that bit.

I did the downsizing thing about 12 years ago when the Council introduced an Article 4 area. We lived very close to a university in a 5 bedroom bungalow and knew if we didn't sell when it still had the right to let it would be virtually impossible to sell. So we downsized into a modern 4 bedroom detached house with my husband's dream garage. It's a 5 minute level walk to a railway station and Tesco. Straight staircase for a stair lift should we need one, etc.
We looked at dozens of properties to downsize into and anything smaller just didn't have the non-negotiable stuff like a utility room, study or good parking.

I am firmly of the opinion that building desirable properties for people to downsize into would go a long way to resolving the housing situation. Freeing up well established family size housing close to existing schools has got to be better than building further and further from existing amenities. But that housing has to be attractive for older people. It not the same as FTBs are willing to buy. A poky little bungalow by the sea that previous generations of pensioners aspired to isn't good enough to get us out of our family sized houses. I'm sure a great many older people would love to lose a couple of bedrooms and a big chunk of their garden but they don't want to lose the rest of what goes with a family size house.

Jo

I totally agree with you!

We're also "fortunate" enough to have a very nice seaside holiday home with equally "fortunate " neighbours that we hardly ever saw when we were all working long and hard to become "fortunate" before we started to "retire", which probably means only working about 30 hours a week now.

We had originally intended to sell our main home (CGT free) and move there full-time time on retiring but it's too far from hospitals, cities, our own working kids and grandkids - so we're not selling up until we need a retirement flat or care home.

If we sold the holiday home, or even gave it to our kids, we would have a huge CGT bill, so that's not happening either.

Thus the current taxation system is causing two septagenareans to rattle around in two homes with some 14 rooms including public rooms whereas a couple of 2 bed bungalows would meet our own (but not extended family) needs. Instead of providing any tax incentives to free up much needed larger homes, the SNP are doubling our Council Tax from April.

If we could put up with the hassle we would replicate what we have done elsewhere and turn our own second home into a full time holiday rental, probably completely avoiding both Council Tax and Small business rates, but we've got enough hassle with what is already let out either short or long term.

Bob

I would propose 20% CGT paid to the Government, 30% as a price reduction to the buying tenant, repayable to the Government over 10 years and 50% reduction in CGT to you as incentive and compensation for giving up future years' rental income, only repayable if you buy any further properties to rent out.

Andrew

There are 168 hours in every week The first 40 hours pay for the day to day essentials and a further 10 or so can build up the funds needed to deal these problems.

As landlords, we set our rents to ensure we can deal with these issues and our tenants pay for them being dealt with whether they need dealt with or not, just like an insurance policy on which we hope to make the insurer's profit for taking the insurer's risk.

Young aspiring home buyers will hopefully have sufficient sense and work ethic to deal with both the predictable and the unexpected.

True Robert but most only want to work the bare minimum, you and I are of a different generation, when an employee if there was overtime available I took it, most run a mile from any overtime now

Andrew

I know you are right as far as lifetime renters and public sector employees (not workers) are concerned but hopefully most aspiring home owners will have or develop a better work ethic?

I have complained a lot about how taxation and government policy is counter productive. For example, any doctor working extra hours to help bring down waiting lists will pay anything between 45 and 62% of the extra earnings in income tax.

If I were Chancellor, I would levy income tax on the basis as if every full time worker did 50 hours a week but then charge zero tax on hours worked over 37.5 hours so everyone had a real incentive to work at least 50 hours a week and was penalised for not doing so.

Before parents start screaming about child care cost, I would also keep kids at school for 50 hours a week to teach them a proper work ethic.

Robert - the problem with working more hours is the huge tax take.
People working in industries such as construction or road haulage are now looking at losing their Child Benefit if they get a payrise or do any overtime.
One of my sons is facing an 87% tax bill on his recent payrise. His employer is constantly asking him to do overtime but what's the point if he only keeps 13% of the extra pay? Especially if he has to pay an extra days travel costs to get to work.
He was earning around £50K a year. He will be on just over £55K. So on some of it he will be paying 40% tax plus 2% NI and he will lose some of his CB. He has 5 children so will lose £455 for every £1000 he earns over £50K. That's a total of £875 out of every £1000 that the government will take off him.
Because he's a homeowner he isn't entitled to any UC. If he was a tenant he would get £610 a month UC. He also wouldn't have to pay thousands a year to maintain or insure a house as that's all included in rent.
This government has absolutely screwed young, aspirational families with their obscene tax policies. Our generation didn't have such blatantly vicious treatment or the same barriers to financial security.

Jo

I agree. I would put up the current income tax rate to 30% for working up to 30 hours a week with zero tax on additional hours worked.

That would give an incentive to the best workers without employers having to pay higher overtime rates.

I think the Child Benefit anomaly will be fixed in the next budget and be based on household income over £100k.

Not moving is really the crux of it. How many FTBs can afford to buy their "forever" home?
Last time I moved (downsized) the combined cost of SDLT, estate agents fees, solicitors and removal company was £25K.

One of my former tenants is hoping to move soon but needs to find £40K to make it happen. It's certainly put one of his former housemates off the idea of buying any time soon.

Jo - If your income grew then you could upsize. My niece, who just got married has just bought her first home with a deposit from her mum. It is a 4 bedroom house with a massive garden. She bought it at a knockdown price as the owner had been trying to sell for around a year without any viewings let alone any offers. It is going to be a major project for her. There is no kitchen, no heating, the electrics will have to be completely redone. She wants to move the location of the kitchen to the other side of the house and install a downstairs toilet. I hate to think how much this is going to cost her, even though she intends to do a lot of the work herself. When it is habitable she will be renting two rooms to relatives to help with the costs. It could be her forever home.

John - what your niece has done is fine for anyone who has reasonable practical skills, plenty of spare time and who doesn't mind living in a building site. I imagine that's exactly what several of us have done but most of us are property people. It doesn't mean it is what most young families would choose to do or would have the skills or time to do.

Upsizing or downsizing both cost huge amounts in fees. It's only FTBs that don't have many costs mainly because they aren't selling a house and get much cheaper SDLT. Everyone else is paying a lot of fees. It's those fees that are the real dead money in the housing market.

Jo

That's exactly why 68.8% of homes in England are under occupied and 1.29 million home owners over 65 still have homes of 4 bedrooms or more!

Punitive SDLT rates were brought in by Gordon Brown along with making everyone else's final salary pension scheme unaffordable- only Public Sector now has this as a Ponzi scheme.


Unfortunately most voters can't remember the shambles of the last Labour Governments and we're about to suffer them again, but with even less financial acumen and more bitterness and envy of those who have worked hard to become "fortunate"!

John.good on your niece for doing so, that's how I started even with a young family, it's well worth it in the end

Probably the best we can hope for in the budget is that there is a change in plan to reduce the capital gains tax allowance to only £3000 from April 2024.

Scrapping capital gains tax (very unlikely) would, of course, give us a window to sell everything before the next general election.

The main concern for landlords may be that Labour will increase capital gains tax and, at the same time, introduce even more stringent rental reform legislaiton.

As for inheritance tax, it seems the Conservatives would like to scrap this, but that is unlikely in the budget. They could increase the tax free inheritance tax allowance perhaps.

Previous suggestions have included aligning capital gains tax rates with income tax (currently 20%, 40% and 45%) and abolishing or adjusting business asset disposal relief.

That is not likely to happen in the March 2024 budget but could occur under Labour perhaps.

It may be that if we are thinking of selling that it would be wise to do so sooner, rather than later, since capital gains tax may become even more punitive.

exactly right Ray we can see just that happening