Stop buy-to-let tax breaks to help first-time buyers
Despite the financial meltdown in 2007, the average price of a property in the UK still stands at just over £200,000 but the average wage in Britain is just £26,000. If you work to the principle that you shouldn't borrow more than three times your salary to fund a mortgage, a homebuyer needs a deposit of £125,000. Not very realistic is it.The government has come up with a number of scheme to help first-time buyers, including underwriting mortgages, part-buy/part-rent plans. But there is one simple solution that I think the government has overlooked: tax the buy-to-letters more.
The rise of buy-to-let property owners is destroying the chance for young to get a foot on the property ladder. The buy-to-letters are snapping up the smaller properties, such as one bedroom flats, that are perfect for younger buyers, in order to take advantage of soaring rental income (another thing which is preventing renters from saving up enough deposit).
However, I can see why people have jumped on the buy-to-let bandwagon – the tax breaks.
Rent from buy-to-let properties are taxed as income but the owners of the properties can offset a number of costs against the income, including: estate agent fees, insurance policies, maintenance costs of the property and crucially, mortgage interest payments (something that was abolished for homeowners with one property in 2000).
Unmarried couples can also arrange their affairs to avoid capital gains tax when a property is sold.
The fact of the matter is that buy-to-let is too attractive, an increase in buy-to-letting pushes up property prices and freezes younger generations or those on lower incomes out of home ownership.
So why isn't the government, which has stated its intention to help people on to the property ladder, clamped down on buy-to-let?
Personally I think it's a political move, the age of those who can afford to participate in the buy-to-let boom are those white collar workers whose votes are lusted after by the political parties.
By failing to tackle the inequality of homeownership the government is creating a divide in society, and many hard-working people are finding themselves on the wrong side of that divide. It is also creating a generational divide, which holds young people back from establishing some financial security.
Making buy-to-let less attractive would go some way to bridging the gulf, it may not be a vote-winner but it would introduce some degree of fairness to what is an unlevel playing field.