The sales market has had its first stutter in almost a year. Having made a quite remarkable recovery (given the global disaster banded about everywhere) over the past 12 months, Vendors and Agents alike have seen the market slow considerably.

Traditionally, of course, the summer months are quieter months due to the holiday season….maybe this is all it is. We will soon know by mid October!

Of course, some also blame the abolition of HIPs. Hated by Agents and public alike for so long, Agents have come to realise one good thing about them- you knew Vendors were serious about selling. Very few Vendors would be willing to shell out £300 just to ‘test the market’. With the departure of HIPs, we are back to the days when listing a property costs nothing (at least not to the Vendor if you user an Agent). This has meant that a gluttony of property has hit the market, far too much of it at over-inflated, un-sellable prices, softening the market with over supply.

Of course, over time, it will adjust….but this is not doing anyone any favours!

The rental market on the other hand has had its foot on the accelerator since early May and has no intention of slowing down. Demand is constantly climbing, and prices with it, much to the delight of Landlords and Letting Agents all over the City.

Of course, we are in the Letting Boom Months now and every Agent will be madly scrabbling to secure every deal they can before October arrives.

Why before October arrives? Quite simply- because none of us know what will happen as we climb back in to the winter months. With December and January traditionally very quiet due to festivities and the expense of the time of year, deals are usually thin on the ground. Could this year be different?

Who knows, we all have to just wait and see! But if you are a Landlord, the market is great right now- give your local agent (or me) a call….you might be surprised how much better rents are than last year!

The Emergency Budget earlier this week started with some of the cuts and taxes that had been rumoured. We all know this to be a necessary evil, having buried ourselves in debt over recent years.

What applied to the property market?

Capital Gains Tax (CGT)- Rumoured to increase to 40-50%, the actual increase to 28% for higher rate income payers is far more digestible. With fears this would de-stabilise the private rental sector, whilst making investment less rewarding for many in London, this is manageable.

VAT- this will rise to 20% on 1^st January 2011. Causing a nominal increase to those using agent and other property related professional services alike, the 2.5% increase will dent the pocket without, hopefully, over-burdening.

Council Tax- this will be frozen for a year in 2011. This is good news for the private rental sector avoiding increase in living costs for tenants. This helps keep this sector more viable and should help reduce rental defaults.

Unemployment- stats suggest that this should peak this year at just over 8% with a gradual reduction over the next 4-5 years as the country, and its economy, recovers. As this number does reduce, in theory, this means more viable buyers/renters on the market and therefore we should see a gradual growth over this period of demand across the board.

Overall, many would agree that the property sector has escaped relatively unscathed. How we fair in future budgets, and how well these measures work, remains to be seen.

Comments by Labour attacking many of these measures seemed ridiculous- the government that had systematically buried us up to failing point in debt still seemed to think borrowing more was the way forward! I know they have to comment, and couldn’t possibly agree, but really?? Maybe you should have just kept your heads down this time and tried to let us all forget that it was you that put us in this mess in the first place!

Under some circumstances you can claim various expenses that were incurred before the first letting period.

Repairs may be able to be claimed as an expense against Rental Income when:

-         The property was habitable before the repairs were effected

-         The property was fit for purpose

-         The repairs were for the purpose of making good the existing state of the property.

The general rule is that expenditure on additions, alterations or improvements is of a capital nature but the cost of repairs, ie restoring to original condition, is an allowable revenue expense.

Claiming the above expenses will reduce your tax liability and any excess expenses over rental income can be carried forward to be used against future rental income.

The difference between revenue expenses and capital expenses can sometimes be vague and it is of vital importance that you seek advice from a firm of qualified accountants in order to minimise your tax liabilities.

If you would like to discuss this further and join us at GC Accountants please contact our Tax Partner Harry Charalambou FCA FCCA on 020-8886-3672.

This blog has been provided by Harry Charalambou FCA FCCA of GC Accountants visit: www.gcaccountants.com

Disclaimer

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken by GC Accountants or Base Property Specialists Limited for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

OK, so my prediction last week was sort of right- not that predicting a Conservative win was a particularly profound guess. A coalition government could genuinely be an excellent solution for the country providing that they can work together efficiently over the long term period.

So what changes have been mentioned already and what does this mean to London property?

HIPs- It has already been made clear that HIPs will go….the only problem is there is no mention of when. This is actually disastrous. With no timescale people looking to sell don’t know whether to sell now and potentially waste several hundred pounds or wait. The government needs to act fast and put a timescale in place for this urgently so that owners and agents alike can be clear on the best route forward. It has been made clear that EPCs (Energy Performance Certificates) will remain.

CGT- Capital Gains Tax- In a bid to tackle the deficit one of the first areas discussed is Capital Gains Tax which currently stands at 18%. Talks are currently being held for this to fit a structure in keeping with the earning brackets of 20%, 40% or 50%. The structure is yet unknown but the likelihood is London will face the higher tax bracket. This could decimate the private rental sector as investors deem it unviable with sales returns decimated by high tax liability.

Still to come…..

Mortgages- as mortgages played a huge part for both the UK and USA in the financial crisis there are huge changes on the way for the mortgage market. Measures are still being discussed and finalised to make the mortgage market a lot more stable and secure. Again, the potential impact on the London market could be huge with rumours of the end of Interest-Only Mortgages and mandatory protection products for redundancy, etc. The specifics are, as yet, unknown but keep your eyes out….big changes are ahead.

With the upcoming elections buzzing in our ears it is only sensible that we look at the housing policies and what the parties are proposing. At around 70% the UK has one of the highest owner-occupied rates in Europe so the intended actions apply heavily to all. All the parties have made various proposals and for most people it is essential that you found out all of these to see what affects you. Below are my thoughts on just some of the proposals:

Stamp Duty- Both Labour and Conservatives are proposing at least a temporary stop of the minimal (1%) Stamp Duty tax to first time buyers on a property up to £250,000. As discussed in a previous article I don’t think a 1% break will make any dramatic change to the problems first time buyers face and think this will be a waste of government money. The government would be much better off negotiating special mortgages for first time buyers with either lower deposits or fixed lower interest rates for the initial period (approx 5 years).

Abolish HIPs- Conservatives have stood by this for a long time now. I think this is a mistake. In a still fragile economy to endanger hundreds of jobs in a recently formed sector is reckless. What I like about HIPs is it ensures the Vendor (seller) is serious and motivated to sell. What should be done is a review held between lenders, surveyors and solicitors to ascertain what needs to be in a HIP to create a genuinely fast and efficient sales process and what protocols need to be established to ensure this information is accurate and reliable. The draconian, highly unreliable and drawn-out sales process that we have in this country costs millions a year in lost sales.

Energy Improvement Packages- The Liberal Democrats are proposing a £10,000 grant for homes to become more energy efficient which is to be paid from the savings in bills. However, unless this means bills reduced to zero (which I highly doubt) I cannot see how these figures will stack up. Factoring in bills of £1500 per year, if your bills decrease by 20% that is a saving of £300 per year which would therefore take over 30 years to pay off the grant without factoring in any interest. Why not simply reward occupied properties that reduce their energy consumption over the year?

As you have probably gathered I am not a fan of any of the parties’ plans. My biggest criticism of all the parties is their failure to consult with the public and the industry’s governing bodies to see what people actually think of current/proposed policy and what is actually wanted/needed. More worrying, when they do consult, they ignore what they are told. One plea I make to whichever party makes it in to power next month- listen to the people, they will tell you exactly what is needed.