I mentioned a few weeks ago that the forthcoming rise in capital gains tax may reduce house prices, however it seems that many landlords will be looking for the exit if large rises in CGT are announced.
Apparently 26% of landlords plan to sell their portfolios if large increases in CGT are announced in the emergency budget, according to research by LSL Property Services PLC.
If a quarter of landlords do place their properties on the market then that would be a sudden influx of stock into a market that is not looking particularly strong at the moment.
With 71% of landlords saying that they would reconsider making further property investments under a new CGT regime, the problem for the property market would be exacerbated because there is less chance of other landlords buying up the new housing stock.
It seems that it is not just me that thinks that a large CGT will hit house prices. Simon Embley, CEO of LSL Property Services, also says this:
“Over the past two years, investment properties have accounted for 30% of sales across our network – over 40,000 transactions. Foisting a tax-hike on property investors will drive many from the housing market – at a time when its recovery is still perilously fragile.
“If potential landlords are discouraged from investing, we will see a large proportion of the demand for house purchase disappear, and house prices may fall. A further fall in house prices will see more home-owners in negative equity potentially triggering a significant rise in repossessions as owners lose confidence in the market”
So it makes me wonder if the new government realises that house prices may fall as a result of their CGT increases (surely they must do!).
Maybe they think that a fall in property values would be short lived and that there is enough pent up demand to drive the property market in a nice and controlled way.
The thing is that when our houses increase in value, whether we want to sell or not, we feel more wealthy and perhaps more confident about the future. We may well go out and spend a little more on luxuries and flat screen TVs ready for the world cup. Extra spending by consumers helps the economy and creates better economic prospects for the future.
So there is surely more at stake than bowing to pressure from the Lib Dems to increase CGT. I just hope that the government realise that too.