There is a lot of controversy at the moment about the Chancellors intentions to withdraw higher rate Tax Relief and the effect that it will have on Buy-to-Let investors and the Property Market generally.
In order to understand the attraction of Buy-To-Let investments we need to take a few steps back and look what successive governments have done to private pensions since Buy-to-Let investments are de-facto, quasi pensions.
In the early stages of Mr. Gordon Brown’s chancellorship he, foolishly, withdrew the Tax Credits from pension funds and insurance companies that not only held back the FTSE Index for 5 years against world indices but also created a massive problem with both private and corporate pensions, such, that even today some of these schemes are ‘underwater’.
He also withdrew Tax Relief for private pension contributions (a habit that the last coalition government continued) that in-aggregate served to undermine this hitherto excellent life time investment vehicle that took the pressure off government schemes and helped to protect and shape peoples retirement earnings.
Is it any wonder that the public turned to Buy-to-Let investments as an alternative/supplement to private pensions and why are we so surprised?
Yes, Buy-to-Let investors do put further pressure on the finite supply of homes that in more difficult markets, where there is limited purchasing power, is a great advantage but not so much in bull markets as it exacerbates them.
We do need more housing stock but rather than attenuate the Buy-to-Let investor by reducing the Tax benefits why doesn’t the Chancellor look more carefully at the root cause of the problem and what is holding back development of new homes?
Funding for residential property development is still not easy and, all the more so, by the new regulations that have been recently imposed on lending institutions. Planning Departments and the culture of the local borough councils is the biggest ‘fly in the ointment’ where rather than being single minded about planning matters perfectly eligible scheme are being mired in a bureaucratic morass with the usual assortment of ecological, conservation, localism and nimbyism. When these all conspire the development scheme needs to be pretty hardy to get through all these hurdles and, as such, perfectly good schemes fall by the wayside.
Chancellor, you need to take a holistic view of this housing problem. Otherwise, before you look around, you will injure those who are most needy and who are trying to protect their family’s retirement so that they are less dependent on the State.
Instead, you should be clearing the log jam of planning applications and either absorbing these into the Department of the Environment or do a ‘root and branch’ reform of local council planning processes. The entire country will benefit and if you have to ‘tread on a few corns’ ……so be it.
The writing is on the wall, please read the message.
Written by Trevor Abrahmsohn.
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