The upcoming election will be a choice between Boris Johnson and Jeremy Corbyn as Prime Minister. But what would a British Government led by Jeremy Corbyn mean for the UK property market?
In a Labour-commissioned report entitled ‘Land for the Many’ published in June this year, there were a set of proposed reforms which aimed to stabilise house prices, end the "buy-to-let frenzy" and revolutionise tax policy.
From scrapping council tax for tenants and putting the cost on landlords, to taking land into public-ownership to fix the housing crisis, we look into the key proposals, plus what they could mean for tenants, homeowners, landlords and the housing market.
Note: The following are proposals to the Labour Party as stated in the report ‘Land for the Many’, the Labour party will consider these as part of its policy development process in advance of the next general election.
“Change is coming”
Before we dive into the specific proposals in the Labour report, what would the UK economy look like under Jeremy Corbyn? The Financial review gives us a glimpse:
‘A Corbyn government promises a genuine revolution in the British economy. Labour’s leadership intends to pursue not only a fundamental change in ownership and tax but a systemic effort to embed reform in a way that future parties will struggle to unpick.’
“We have to do what Thatcher did in reverse,” says Jon Lansman, founder of the Corbyn support group Momentum. “We have to take decisive steps to both achieve a significant redistribution and create a constituency of an awful lot of people with an obvious stake in a continuing Labour government.”
At the heart of everything is one word: redistribution. Redistribution of income, assets, ownership and power. The mission is to shift power from capital to labour, wresting control from shareholders, landlords and other vested interests and putting it in the hands of workers, consumers and tenants. “We have to rewrite the rules of our economy,” says Mr McDonnell. “Change is coming.”
So how could Labour ‘rewrite the rules of our economy’? Let’s take a look at some of the proposals in ‘Land for the Many’.
1. Replace council tax with a ‘progressive property tax’ & place a new levy on second home
One of the most notable proposals that the paper suggested was introducing a new “progressive property tax” which would be set nationally instead of by local councils and paid for by landlords instead of tenants.
How would it work? Under the proposed plans, homeowners would be subject to a reformed tax, with each of the top four bands of property by value taxed at progressively higher rates which are “updated annually”. As we just mentioned, rates are decided nationally instead of by local councils, and the tax is to be paid by the owner/landlord not the tenant.’"
The report also suggested a radical overhaul of stamp duty land tax (SDLT), which would be “phased out for those buying homes to live in themselves”, and increased for second homes and investment properties.
A further suggestion is to make homeowners pay capital gains tax on the profits of their sales, while increasing the rate of capital gains tax (CGT) for second home sales and landlords’ properties from the current 20% rate to reflect income tax rates up to 40%.
What is the aim? The aim is to reduce the tax paid by the majority of households and discourage the use of homes as ‘financial assets’.
The report states: “We recommend that a Labour government replace the regressive and unpopular council tax with a progressive property tax based on contemporary property values… Unlike council tax, this tax would be payable by owners, not tenants…
…This would result in significant administrative savings, lower levels of arrears and less court action… Unlike council tax, the progressive property tax rate would be based on regularly updated property values, and the rates would be set nationally, rather than locally determined.”
The report also stated: “To further sweeten this tax change we recommend that Stamp Duty Land Tax be phased out for people buying homes to live in themselves, since it unfairly penalises people who need to move house.”
Jeremy Corbyn spoke about this issue to Hackney Gazette just last month, reiterating that he would like to introduce a tax on second properties if he were to win the election:
"Houses are homes, not assets. We need to clamp down on buy-to-leave by charging a levy on second homes and strengthening councils’ powers over empty properties, as well as building one million genuinely affordable homes."
According to government figures, London has more than 67,000 homes with no permanent residents.
Who will it hit / benefit? Those with a second home or homeowners not resident in the UK would be worst hit.
- Landlords will see their profits further eaten into if Corbyn seizes power and the reform goes ahead. Some 218 landlords - 94% of respondents to a Landlord Today poll - said that they disagreed with Labour’s plans, and many could end up selling up
- Those who have second homes or holiday homes in popular seaside towns like Cornwall and Norfolk will also be subject to much higher tax, as will those with pied-a-terres in London
- Tenants in rented properties are exempt from the scheme and will no longer have to pay council tax, which will obviously come as welcome news. However, many reports suggest that if a large number of landlords sell up, economics of supply and demand will come into play and rents will increase as a result
2. Set up a ‘Common Ground Trust’ to help prospective buyers
One of the other radical proposals laid out in the report was the notion of a ‘Common Ground Trust’.
How would it work? The Common Ground Trust would act as a non-profit institution that helps prospective buyers purchase homes by taking land into public-ownership.
The report states: “One function of the Common Ground Trust is as a non-profit institution that helps prospective buyers purchase homes. At their request, it will buy the land underlying a house, making the upfront deposit for home ownership much more affordable. In return, the buyers pay a land rent to the Trust…
…The new buyers would sign a lease that would make them members of the Trust, and entitle them to exclusive use of the land in return for paying a land rent. When moving house, members would sell their bricks and mortar, while the Common Ground Trust would retain the title to the land…
What is the aim? Land now accounts for an astonishing 51% of the UK’s net worth. Labour argue that homes are so expensive not because of the price of bricks and mortar, but because land now accounts for 70% of the price.
The report claims that the ‘Common Ground Trust’ could reduce the price of house buying by as much as 70% through effectively separating the ownership of land and property: “By bringing land into common ownership, land rents can be socialised rather than flowing to private landlords and banks.”The party also added that it would allow people to put down much lower deposits and take on much lower mortgage debt than is currently the case, particularly in high land value areas.
Who will it hit / benefit? While on the face of it, hopeful homebuyers would hugely benefit, there have been claims that it is potentially unaffordable and Briton’s taxes would have to increase to pay for it.
Others are worried that if people do not own the land under their home they will not be able to build up wealth, or have something to leave to their children or borrow against for entrepreneurial ventures.
What’s your view?
3. A 'Right to Buy' for the private rented sector, allowing tenants to purchase their landlord’s property at a discount
This is an idea that was not first proposed in ‘Land for the Many’ but by Jeremy Corbyn himself in his 2015 leadership bid. Then last weekend, Shadow Chancellor John McDonnell again proposed 'Right to Buy' for private rented sector.
How would it work? Modelled on Margaret Thatcher's 1980s policy giving social tenants the right to buy their council homes, McDonnell's ‘right to buy’ scheme would essentially allow private tenants to buy the homes that they live in from their landlord at a discounted price.
McDonnell was not clear whether a Labour government would subsidise the purchases or what the discount would be:
'You'd want to establish what a reasonable price is, you can establish that and then that becomes the Right to Buy,' he told the FT. '[The Government] sets the criteria. I don't think it's complicated….
...We've got a large number of landlords who are not maintaining these properties and are causing overcrowding and problems…. In my street now... a third of the houses are right-to-buy [sic], badly maintained, overcrowded. It's horrendous.”
McDonnell also said he would raise taxes to be paid by private landlord. There is some more useful information on the proposed scheme on This Is Money.
What is the aim? John McDonnell told the Financial Times that he wants to “tackle the burgeoning buy-to-let market”.
Who will it hit and benefit? It appears to be great news for hopeful first-time buyers who have a good sized deposit, but critics worry that ultimately both the landlord and the tenant would end up losing out because of the scheme.
Interestingly, and reported in a recent article on The Telegraph, ‘research from the charity Shelter found that the flagship Help to Buy scheme is mainly being used by relatively high earners. Just 0.2% of England's private renters who earn under £30,000 used the scheme in the last year, a tiny fraction of the average private renting household.’
Even with a hefty discount therefore, the poorest renters may not be able to afford to buy their landlord’s property. Another point that doesn’t seem to have been acknowledged is that a lot of renters choose to rent because they value the flexibility that it brings - not because they can’t afford to own a home.
4. Other proposed tax changes
As for Labour tax proposals, the following ideas were mentioned in the Labour-commissioned report:
- Tax offshore property ownership
- Replace business rates with a land value tax
- Replace inheritance tax with a lifetime gifts tax; the effect of which might be to tax gifts in excess of £125,000 at income tax rates.
5. New legislation for landlords
Landlords were certainly the main target, and on top of the proposals already mentioned, the report recommended more major reforms in terms of legislation:
- Open ended tenancies
- Landlords should lose their power to evict a tenant who has not broken the terms of the tenancy agreement for the first three years of the tenancy agreement, and should have to provide grounds for eviction after that point
- A cap on annual rent increases, at no more than the rate of wage inflation or consumer price inflation (whichever is lower).
- Buy-to-let mortgages should be more firmly regulated and restricted
A new Corbyn-Labour government may cause more uncertainty and hesitation from sellers and homebuyers, but as we’ve said before, it’s important that you make property decisions based on your personal situation and what you want to do, rather than gambling on how the market will plan out.
If you’re considering selling your property or your rental property, or if you are looking to buy, give us a call today on 0207 099 4000 or try our online instant valuation tool.!!