Holiday Gifts for Homeowners Homeowners are critical to Britain’s housing market and our communities. But a heavy tax burden can prevent homeowners from letting homes. To encourage home letting and ownership, the government needs to do more to help homeowners to pay their mortgages.
Homeowners have to balance their personal property, interest rates and returns on their rental properties to try to achieve an acceptable financial return – sometimes up to 60%. If they run out of money, their property and, potentially, their lives will be left in peril.
Due to the relatively large proportion of home-owning families in our society and the importance of their home in their everyday lives, they face a higher risk of financial stress. Money earned from property can take a disproportionate and important role in their lives – but it’s a risk. According to the Financial Conduct Authority, the average household faced about £10,000 in mortgage debt in 2016, even before housing prices rose. The government offers a property tax subsidy but only applies these payments to those whose homes are valued at above £1m.
Private equity houses are trading at record highs this year thanks to their track record in landlords’ housing investments. Lenders must surely be concerned about these seemingly high returns, particularly as they vary with property movements.
Borrowers on a 30-year mortgage have until the moment of purchase to repay their debts and can expect to pay the tax even if they sell their homes before the mortgage is repaid. If the lender pays the tax directly, it removes the temptation to pay later.
Exempting mortgages for owners would encourage new homeowners and allow them to purchase homes at low prices with lower mortgage payments than they’d be able to do when using the more favourable tax regime. When homeowners do sell, much of the money paid to the taxman would stay in their pockets.
The current tax burden on home owners is disproportionate to the amount they earn from their homes. A recent National Audit Office report, entitled To sell it or not to sell it?, found that around half of the £60bn of benefits that is due to be spent on debt servicing between 2015-16 will go on interest bills for households.
Providing greater relief to homeowners would encourage more people to own their own homes, a significant private and public-sector initiative. This would help meet the government’s housing affordability objectives as well as enhancing equity in existing homes, thereby allowing owners to increase their positive impacts on their communities.