The latest monthly survey from the Royal Institution of Chartered Surveyors paints an alarming picture for retired people stuck in a home they want to sell. Estate agents have reported record numbers of homes for sale on their books but buyers are few and far between.
New enquiries and completed sales both slumped last year, and few property agents predicted any improvement over the coming year. According to latest figures from the Bank of England mortgage approvals fell in December to the lowest level for three years, reflecting a continued squeeze on houseghold incomes.
This is bad news for retired people looking to downsize or move home to be closer to family members – or indeed for a change of lifestyle.
The rot started in 2008 with the credit crunch, since when the market for large country homes in particular has been particularly difficult. The ripple effect has now caused all sectors of the housing market to stagnate.
The annual wealth tax proposed by the coalition government at the behest of Liberal Democrat cabinet members did untold damage to the upper end of the market. Even though this proposal was eventually dropped, many prospective buyers decided to delay upsizing.
Changes to Stamp Duty by Chancellor Osborne did further damage to the property market, with a swinging 12% tax on any amount over £1.5 million, and huge tax increases for lower bands.
Does this matter to owners of cheaper or mid-range properties? Yes it does. Large families require large homes and save hard to buy them. But stamp duty on a £1,000,000 home (a modest house in much of London) amounts to £43,750. This is a huge amount to find in addition to a deposit. No wonder so many people are struggling to get onto the housing ladder or off the first rung.
So now it takes over 3 months on average to sell a home in London, with other parts of the Country not far behind. Indeed in rural areas it is not uncommon to see properties unsold after a year.
The government has belatedly recognised the problem, and has thrown large sums of money at the housing market to alleviate the housing shortage. However, this has mainly benefited the building industry with record profits and management bonuses. Not only are they enjoying record sales, but prices have increased by up to 10% as a direct result of government incentives. This scheme was ill-advised from the outset, but apparently still to be rolled forward. One wonders why the Chancellor feels tempted to favour his friends in the construction industry.
The stamp duty (or Stamp Duty Land Tax) problem could be solved at no cost to the Exchequer by transferring the liability from the buyer to the seller. The cost to the seller would be more than offset by the benefit of a faster sale at a better price. The cash burden would be transferred to the seller, who would be in funds once the transaction completes. Interim measures to obviate a double tax penalty could be put in place to protect sellers who had only recently purchased their home.
Simple measures of this nature seem to be beyond the imagination of successive governments.
Meanwhile, other changes to the tax regime have added to the problems of the rental sector, where for some reason landlords are now considered to be the villains of the piece.
There are many good reasons why retired people may wish to move into rental housing even if they have cash available from selling their previous home. For one, rental offers the flexibility to move to a new area, without making a long term commitment. If you move to a rented home you don’t need to make a snap decision about buying before you really get to know your way around.
Renting also gives you plenty of time to wait for the right property to come on the market. And then being a cash buyer means you can jump in quickly when you find the home you want to buy.
Add to that the freedom from worry about maintenance costs and another major upheaval make renting a very attractive proposition.
So one has to wonder why the government saw fit to penalise and discourage landlords with both an added 3% stamp duty and restricted tax deductions for legitimate and necessary letting costs.
London house prices fell by 3.5% last year, with sellers reducing asking prices by an average of £9,000 in December alone. In addition the gap between asking price and completion price has increased to 10% in London, with former hotspots in Oxford and Cambridge following suit. This is a worrying sign for sellers, buyers and indeed the national economy. In the past the property market outside London follows trends within the capital. We can only hope the government will make the necessary structural changes to the current tax policy that has caused so much damage.
Pensioners and retired folk could benefit just as much as anyone else.