Why governments will eventually stop milking the UK property market

Why governments will eventually stop milking the UK property marketThe UK property market has become such an easy target for politicians to raise additional funds that many people automatically assume that the proposed “Mansion tax” is fair and just. They do not appreciate that those with relatively expensive properties already pay a higher rate of stamp duty, a higher rate of council tax and that is before we even look towards the higher cost of upkeep. However, governments are now coming towards the end of the property market tax frenzy for a number of reasons.

Property taxes affecting more people

When property taxes were seen as a tax on the “rich” this did not make much difference to the voting patterns of those supporting the major UK political parties. Indeed even the Conservatives, traditionally seen as a party for the more wealthy of society, managed to convince supporters that it was fair for them to pay an additional tax on their assets. However, slowly but surely those impacted by higher property taxes, whether direct taxes such as the Mansion tax or stamp duty, has grown over the years.

We are now in a situation where a prolonged attack on relatively expensive UK properties will begin to eat into the voting share of all political parties. As a consequence, many political parties are now beginning to look elsewhere for their next tax take with so-called “tax evasion and tax avoidance” high on the agenda.

UK competitiveness

At this moment in time the UK property market is benefiting from turmoil across the world against a relatively balanced and strong UK economy. There are also various currency movements to take into consideration which have again assisted the UK property market. However, as we touched on above, a prolonged attack on UK property taxes will reduce competitiveness, reduce the number of foreign investors and open the door for other countries to take foreign investment away from the UK.

This is a situation which has been ongoing for some time although after the next proposed round of property tax increases it is something which the incoming government will need to address.

UK property demand

Even though growth in UK property prices has slowed in recent months there is still significant demand from domestic buyers and those looking towards renting properties. This has created enormous demand in the buy to let sector with average rental prices across England and Scotland increasing by 2.1% over the last 12 months. As a consequence the UK property market is currently positioned in a long-term squeeze situation with domestic buyers and those wishing to rent pushing demand and prices higher.

All of the indications suggest that the UK economy will continue to grow, new build numbers will be running behind the trend and demand for UK property will maintain its long-term upward trend. Even though political parties have promised a significant increase in the number of annual newbuilds they have failed to deliver in the past and even if they do deliver this time it will take many years to catch up. All in all the UK property market is well positioned for the future and if, as many expect, future governments reduce “unfair” attacks of high-value properties then this could create yet more demand.

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