Home ownership in the UK could be increased significantly in the UK at no cost to the Treasury, by giving tenants and landlords a rebate when a rented property is sold by the landlord to a sitting tenant, it is claimed.
A report from think tank the Centre for Policy Studies sets out a comprehensive blueprint for how such a scheme could and should work at a time when there has been a collapse in home ownership across the country, particularly among the young.
Britain now has the fourth lowest rate of home ownership in the European Union and the proportion of young people on average wages owning their own home has shrunk from two thirds in the mid-1990s to only a quarter, during which period house prices have risen by 160% in real terms while young people’s incomes have grown by just 23%.
The report proposes that for a single year, the Government should turn the Capital Gains Tax payable by a landlord on sale of a rented home into a rebate shared between landlord and tenant, to the former as an incentive to sell, and the latter to contribute towards a 10% deposit so that they can purchase the home.
It says that this rebate would be split 33% to the landlord and 66% to the tenant, capped at 6.66% of the property. The landlord would receive 33% of their capital gains back. All tenants would receive 6.66% of the value of their property toward a deposit.
There would be a mechanism to pool capital gains receipts, and further shared ownership schemes to help those whose landlords were reluctant to sell, or who could not afford the entirety of their property.
In order to ensure fairness, the tenant would have to contribute 3.33% of the value of the property to the deposit, although they would be given time to save or find this money. This would be a hand up on to the housing ladder, not a handout for nothing.
This scheme, entitled Help to Own, would mean that for every £1 a tenant invested to buy the property they rent they would receive a total of £3 for their deposit. For an average property worth £228,000, they would be putting in just over £7,000 and getting £22,800 back.
The report contains detailed modelling which shows that the levels of capital gain across the rented sector have been sufficient to pay for this scheme and shows how, by putting in place highly generous caps on the payments to any individual tenant or landlord, the scheme would not only cross subsidise other first time buyers but produce revenue for the Treasury. It would also offer landlords a substantial incentive to sell, rather than punishing them for having made rational financial decisions.
It argues that if just one in 10 landlords took advantage of this policy this would allow over a million people to move in to home ownership, a massive shift in a single year. If one in four landlords took advantage of this rebate and offered it to tenants it would allow 2.5 million people to move into home ownership, more than the entire first decade of Right to Buy.
‘The housing crisis is one of the great public policy challenges of our age. A fully costed policy to increase homeownership which requires no increase in spending by Government is therefore something of a policy holy grail in the current political climate,’ said Robert Colvile, director of the Centre for Policy Studies.
‘By implementing this policy, the Government would be giving private renters up and down the country the help to own that they so desperately need. Like the original Right to Buy, this would promote mass ownership and be welcomed by those who need, want and deserve homes of their own,’ he added.
Alex Morton, head of policy at the Centre for Policy Studies, pointed out that the great transformation in the property market recently has been the rise of private renting and the collapse of home ownership among younger people.
‘This report shows how landlords can be incentivised to sell to tenants at a discount, promoting mass home ownership in a way that is fair to everyone and at no cost to the Treasury,’ he added.
