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New coalition cautiously welcomed

by: Mortgage Solutions
  • 17/05/2010
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The mortgage industry has cautiously welcomed the new coalition Government, but has called for a clear commitment to the housing market.

The new Government has already announced a handful of decisions and proposals that will affect the industry in its first few days in office.

The housing ministerial post, taken by Grant Shapps, has been left out of the cabinet, a move which Ray Boulger, senior technical manager at John Charcol, described as ‘a disappointing indication of how important they see it’.

The controversial Home Information Packs (HIPs) are to be scrapped (but no date has been set), and the Tory plan to scrap the FSA has been shelved, although the Bank of England will gain more regulatory powers.

The Conservative manifesto plan to extend the Inheritance Tax threshold is no longer a priority, but landlords will reassess their buy-to-let portfolios in light of potential Capital Gains Tax (CGT) increases up to their highest rate of income tax.

Boulger believes that increasing CGT could have the most serious effect on the housing market. He explained: “It could lead to some landlords, especially higher rate taxpayers, selling up before a new rate comes in, and it will make investment in the buy-to-let market less attractive.

“If the Chancellor decides to do something more sensible, the effect will not be as great. He could provide something similar to taper relief on Inheritance Tax, so that a 40% CGT rate would reduce by 5% a year down to 20%, for example.

“Regarding HIPs, it is no surprise that they are going to be scrapped, but the Government should make an announcement soon that they are to be suspended. This will stop potential sellers deferring putting their property on the market to avoid paying for a HIP.”

The BSA, CML, Citizens Advice and Shelter have already written to Chancellor George Osborne and Business Secretary Vince Cable, urging the Government to make a clear commitment in its first Budget to continuing support for homeowners in financial difficulty.

They said that the modest reduction in mortgage arrears and repossessions (see below) is highly dependent on interest rates remaining low and support schemes remaining in place.

Adrian Coles, director general of the BSA, warned that there was a risk of the new Government pulling schemes early, “resulting in many homeowners being left with no safety net”.

Sally Laker, managing director of Mortgage Intelligence, is more positive about the coalition: “We now have two new fresh heads who want to make a difference, and they have to work together or the coalition will fall apart in weeks. The Budget is the next step that will give a clear guide to the game plan. But, for now, I’m optimistic.”

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