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Home of Choice: Chancellor fails the TCF test

Homeowners can insure property against accidents, foul play and malicious damage. But none of us are immune from Gordon Brown’s property wealth taxes.

It seems remarkably short-sighted that an industry so pivotal to the economy can be plundered so ruthlessly. Yet for the past decade, the Treasury under the leadership of a prime-minister-in-waiting has treated home buyers’ most valuable asset as a cash machine, with cradle to grave tax-raising powers generating 4.6bn from Stamp Duty at the start of the housebuying process and 3.5bn at the end from an Inheritance Tax system that affects one in 10 properties. It doesn’t sound like treating customers fairly.

But it is not just the Treasury which has filled its boots on the booming property market. The cost of moving home has more than tripled over the past decade. Although the largest factor in this is the almost ten-fold increase in Stamp Duty, recent research shows estate agency fees have risen by 141% from 1,257 since 1996 – boosted by the rapid rise in house prices – and there have been more modest increases in removal costs, up 20%, and legal fees, up 17%.

The house price boom has been key to the wealth of the nation – not just the Treasury, estate agents, solicitors and removal firms – with the average UK property tripling in value over the past 10 years, due to rapid immigration, low interest rates and lack of supply. But after three recent rate rises, and despite the rhetoric of previous Budgets exhorting prudence to avoid the boom and bust of the past, the chancellor must surely be concerned his legacy to the nation will be a property market slump, fuelled by an expected further interest rate rise.

With inflation at its highest for 16 years, and some 11.6m homeowners with mortgages on red alert for a fourth interest rate rise, economists expect rates, already at a five-year high of 5.25%, to rise to 5.5% sooner rather than later.

It is ironic that rates have to rise to cool inflation, which is fuelled by the rising cost of mortgages. The Office for National Statistics said soaring mortgage interest payments are the main reason behind rising inflation.

We are informed that further rate rises are necessary to keep a grip on inflation. But with mortgage interest payments increasing by 22% in the past year (source: Office for National Statistics), another rate rise would surely push many homebuyers over the edge. Not necessarily because of increased mortgage borrowing costs, but the additional unsecured debt load.

And while most borrowers could cope with a modest decrease in the value of their property, because unsecured lending often ends up being converted to secured borrowing – either through remortgaging or additional secured loans – a fall in the value of the home becomes significant.

Is the fear of a price dip driving borrowers to remortgage now to extract maximum value from their properties? Certainly the threat of a rate rise is not deterring new mortgage business – nearly 1bn a day is still being lent in mortgages according to the Council of Mortgage Lenders.

The ramifications of rate increases to staunch inflation permeate specialist borrowing sectors too. Some landlords who are not playing the longer capital appreciation game may balk at subsidising tenants, therefore the problem of mortgage costs outstripping rent may slow down buy-to-let investment.

Brown was ultimately responsible for the introduction and subsequent volte-face on HIPs, Sipps and pensions term assurance. If I had been one of the lenders or providers that had invested millions only to see these innovative schemes scotched at the last minute, I would have hoped our prudent chancellor would have done more in what is expected to be his final budget to improve pensions, investments and the property market.

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