Tuesday, Dec 15, 2009
So what? House prices are rising, keep interest rates down!
BBC News: Petrol prices push up inflation
UK inflation picked up pace in November, driven largely by higher petrol prices, official figures show.
The consumer prices index (CPI) rose faster than expected to an annual rate of 1.9%, compared with 1.5% in October.
Posted by flintster1994 @ 10:52 AM (2005 views) Add Comment
22 Comments
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1. mark wadsworth said...
Yup, why not capture the Home-Owner-Ist vote by offering them interest free loans? The govt can side-step the banks and lend them the money directly. And make it illegal for any HO to ever be repossessed. And scrap Council Tax and SDLT while they're at it.
2. kruador said...
And this will continue to happen until the politicians get some balls and get the financial speculators out of commodity markets! They are not a hedge against inflation, they are a major cause of inflation.
3. Shoebox said...
In principle, aren't interest free loans a good thing ? usury was (and still is in some circles) forbidden as immoral as it allows banks/lenders to earn money without doing any work, or taking any risk ?
4. estrader said...
@2 That would apply equally to housing. Buy-to-let should be banned. The Government should be encouraging people to invest in Oil and then do everything in their power to ensure Oil prices keep rising. The public wants whatever they own to go up in value forever...makes them rich.
5. flintster1994 said...
@3 The funny thing is though that most folk don't OWN their houses; the banks do! Interest only mortgages=renting from the bank and being responsible for the maintainance costs as well, DOH!
6. timmy t said...
Flinster - exactly - houses can't be allowed to crash because of what it would do to the banks. Until of course the decision gets taken away by the IMF... shortly after the election I reckon...
7. mark wadsworth said...
Estrader "Buy-to-let should be banned."
Why? How would it be enforced? What if you just sub-let a spare room? That's the sort of thing that Home-Owner-Ists say, whose aim is to encourage everybody to mortgage up to the hilt and buy (or remain in) the largest and most expensive property possible (with a fixed supply of houses, thanks to our NIMBY friends, all this does is push up house prices). Ditto those who blame it all on immigration.
Far better to get Land Value Tax-Man on the case, he'll sort it all out.
8. matt_the_hat said...
4. flintster1994 - the even funnier thing is they do own their homes that's why they can't hand back the keys and walk away like they do in America.
9. fallingbuzzard said...
No, they own the debt. Here you can walk away from the home whenever you like, but not the debt.
10. estrader said...
@6, Mark I wasn’t being entirely serious. I was pointing out that a Government has more chance of banning BTL than they do getting speculators out of commodities. Speculators aren’t responsible for commodity prices as much as people think. If there is a drought in Australia which causes a major loss of wheat crops and China needs wheat, you can bet your bottom dollar that the price of wheat will soar. Retail speculators are a tiny fraction compared to China. The raw commodity makes up a small fraction of the final price of any goods consumers buy. The price of wheat could double and it won’t double the price of a box of cereal. Take a look at how much tax is levied on petrol. The price of a barrel of oil is now half what it was a while back and yet petrol is going up! Blame governments not speculators.
One last thing...governments create inflation at the stroke of a pen when they create £$Billions out of thin air whilst sitting on their lazy fat arses whereas a farmer must toil in the field from dusk till dawn to “create” one million bushels of wheat. They deserve to get paid. Can you imagine Gordon Brown breaking a sweat harvesting wheat for the sake of Britain?
11. ben said...
@4, "Interest only mortgages=renting from the bank and being responsible for the maintainance costs as well"
The key and important difference is that when you rent normally the rents generally go up over time, whereas with an interest only mortgage the amount you owe is fixed and so you effectively fix the "rent" (Interest Payments). Ok it fluctuates with the rates but the trend will be level over a long term.
So initially the renter and the interest only mortgager would be about the same financially, but in say 10-20 years time the renter could be much worse off.
That said, I personally wouldn't advise buying a house now on an interest only mortgage. If/when the rates go back up to 5+% you'll be paying 8+% which means your mortgage payments will increase 200-300%!
12. vindicated said...
@11 - Ben
I have been renting the same house for 6 and a half years and the rent is the same now as it was when I first signed the lease (lower than a mortgage would have been if I had bought the same house at the time rather than renting it)
13. timmy t said...
Back to the article... Fuel prices up = bad thing, whereas house prices up = good thing... we all need petrol in our cars and we all need somewhere to live so why the opposing views? Come on Beeb, explain your rationale...
14. growler said...
we should tax ALL property gains.
It's easy.
Purchase creates a record of price paid
Sale create a record of sale price
Allowable expenses are deducted
Accountants are employed
Taxman collects a capital gain
.... just like any business.
Why are houses tax-free - and then why are we surprised that any tax-free asset rises in price?
Remember the "bridge" that went for a couple of million recently? Remember all the hypocrites up in arms about this "monarchical dinosaur"? The same (or with home "ownership" at circa 70%) majority of people silent about their own tax-free project.
Discuss:
;-)
15. andrew said...
Growler, I do believe you have found the solution to the problem, not being facetious.
Absolutely would like to see it implemented, can you imagine what everyone would do with all the money that is freed up if houses were cheaper ?
The only problem is that there would have to be legislation to stop overseas buyers snapping up large parts of our housing stock, any solutions you could offer ?
16. growler said...
Andrew:
My thoughts?
If you introduce the plan going forward, then any title transfer from date X going forward sets the first marker. Thus all those gains made so far are banked. On sale, only the bit from date X is taxable.
Would an existing house lose value? No. The existing seller still makes the profit tax-free as the law was changed after he/she purchased. Every sale effectively brings another residence into taxable income.
We have a tax self-assessment that already looks at second or further homes. It just needs to apply to any property disposal for which the acquisition date is LATER than the new "1st Residence law"
Since foreign nationals already "snap up" UK properties unabated today, the only change would be that the UK earned income would now not be tax free, but be taxed just like it is in THEIR country. So, if anything, there is a disincentive to "invest in UK real-estate income".
17. timmy t said...
andrew - your problem would solve itself... interest rates are being held down artificially at the moment to protect homeowners. If they were allowed to rise the pound would go up and overseas investment would become more expensive
18. mark wadsworth said...
@ Estrader 10, commodity speculators are another easy target for bashing, but I have never done so as they cause more good than harm.
@ Growler 16, the fatal flaw with capital gains tax is that is discourages people from moving, so discourages efficient use of assets, in particular trading down (same goes for Stamp Duty).
Land Value Tax on the other hand (or a progressive property tax like in Northern Ireland or like Domestic Rates was originally supposed to be) encourages "right-sizing" and could replace Council Tax, SDLT, Inheritance Tax etc etc. The rate could also be increased to capture some or all of the typical long-run capital gain (which historically in the UK is about 5% over and above inflation) and a hike in that tax enables other taxes to be reduced. Or indeed our ballooning public debt to be repaid a bit quicker. Or whatever.
19. growler said...
Hello Mark
Normally 99% with you on your writings... but...
I don't see anything fatal at all. Very much the opposite.
People would consider the purchase a lot more. They'd defer it to later. They might rent and save. Houses would be more for living in: either considered owner occupier or rented. The speculative element would not die - it would just be attenuated.
Just like it is in the example you've quoted elsewhere here - such as in Germany. A country with historically strong growth, reasonably prudent banks, various strong automotive brands employing lots of people, a population that typically rent and buy in retirement and apply their long-term "investment" discussions less on a property punt but on considered and professional advice with a wide portfolio.
On a more light-hearted note, as a country with of one of the highest divorce rates, it would be a lot easier to sort these issues out ;-)
Finally, on a general point, I would argue a labour force in a rented house with the investment element elsewhere (not in property) is a more mobile labour force. That's got to be good.
And besides,
I don't get any justification that says it's OK to get taxed on any trading or work - but not to tax property gains. I'm no great socialist, but this directly helps those in the position of having cash in the first place.
20. paul said...
The reason property hasn't been taxed is because the number one speculators on property over the last decade have been ... MPs!
The expenses scandal was effectively the unravelling of that little legislative conflict-of-interest scam. It has at least put property/land value tax on the agenda - when MPs were busy flipping homes it wasn't even entertained.
21. Shawkie said...
I totally agree with growler. I've been saying the same thing for ages. In fact, I think that it should apply to all property as soon as the law is passed. Any future seller would simply have to declare its value at the time the law came into effect and pay tax on all capital gains made since then. The normal heavy penalties would apply to anyone found to be submitting fraudulent valuations to avoid tax. I don't see why it would discourage people moving house either. The tax is going to have to be paid at some point so you don't save anything by staying put. The banks would simply find that they would need to take the capital gains tax owing into account before allowing any muppet to remove equity from their home.
22. growler said...
@paul. Indeed. To be honest, 3/4 of people in the UK own a place - and are not likely to volunteer to reduce their investment. But it's sorely needed.
Back to my point re jobs and homeownerism: and article from the BBC: http://news.bbc.co.uk/2/hi/business/8412141.stm
"The loss of a job or a drop in income were the most common reasons given for mortgage arrears, and low-income households were the most likely to lose their homes, the charities said."
So if you rent, have your savings elsewhere, you could tap into them for a while to pay the rent. It would help you a lot more than a forced sale, all the hassle of the public humilitation, paperwork changes, poor credit record, thus future higher interest charges....