tax free -ve equity repayments....

Zulu

Hi folks, I'm hoping you can help me debunk an idea of mine. I was thinking...

Payment towards your pension are tax free, I'm not entirely clear how this benefits the state (as you still get a state pension), but it's a good incentive to look after your future.

Why isn't it a good idea for the government to encourage the current % of the population who are in negative equity to clear their debt, by running a scheme where: payments made towards clearing a -ve equity balance are tax free?

Wouldn't this ease the burden on a significant % of the population?
Wouldn't this, in the medium term, revive the property market?
Wouldn't this strengthen the banks, and provide a firmer basis for their balance sheets (as opposed to just throwing money at them)?

I'm finding it difficult to see how this would be a bad thing for us (which means I'm clearly over looking something blatant).

I'm no economist - so go easy...

OMD

Zulu wrote: »

I'm finding it difficult to see how this would be a bad thing for us (which means I'm clearly over looking something blatant).

Many things but mainly the cost.

murphaph

Zulu wrote: »

Hi folks, I'm hoping you can help me debunk an idea of mine. I was thinking...

Payment towards your pension are tax free, I'm not entirely clear how this benefits the state (as you still get a state pension), but it's a good incentive to look after your future.

Why isn't it a good idea for the government to encourage the current % of the population who are in negative equity to clear their debt, by running a scheme where: payments made towards clearing a -ve equity balance are tax free?

Wouldn't this ease the burden on a significant % of the population?
Wouldn't this, in the medium term, revive the property market?
Wouldn't this strengthen the banks, and provide a firmer basis for their balance sheets (as opposed to just throwing money at them)?

I'm finding it difficult to see how this would be a bad thing for us (which means I'm clearly over looking something blatant).

I'm no economist - so go easy...

being in negative equity is only a problem if you wish to sell. if you're not looking to sell and can afford your mortgage, being in negative equity is not a problem.

Riskymove

Zulu wrote: »

Hi folks, I'm hoping you can help me debunk an idea of mine. I was thinking...

the main problem is that negative equity and affordability are two different things

why should the state intervene where the price of a home drops lower than a mortgage...its only an issue where the house must be sold.

there are many people who are in negative equity who can still pay their mortgage...the bigger problem is people losing their job or otherwise becoming unable to pay for their mortgage and risking losing their home..thats where any ficus should be

Zulu

Doesn't hindering people from moving cut your stamp duty take, and strangle the housing market?

Doesn't reducing the -ve equity balances boost the value of the banks balance sheets??

murphaph

Zulu wrote: »

Doesn't hindering people from moving cut your stamp duty take, and strangle the housing market?

I think a calmer housing market is a positive thing, no? we also need to move away from stamp duty as a major source of government revenue.

Zulu wrote: »

Doesn't reducing the -ve equity balances boost the value of the banks balance sheets??

No. The mortgage outstanding is all the bank really cares about and that's what's on their balance sheet, not the actual value of the house, be it in positive or negative equity.

Zulu

I understood the value of the house acted as collatoral against the loan. As such, when the value of the house is only approx 50% of the loan does that not -ve impact the banks balance sheet?

On the point of stamp duty, while I agree we shouldn't be a major source of income, any income is better than no income (no?).
Also, a calm market is a good thing - no market is a bad thing (no?).

murphaph

Zulu wrote: »

I understood the value of the house acted as collatoral against the loan. As such, when the value of the house is only approx 50% of the loan does that not -ve impact the banks balance sheet?

No, so long as the loan is being serviced they don't care what the property is worth. Banks can't realistically know what every property on their loan books is worth at any particular, so it would be practically impossible for this information to somehow be included on the balance sheet. It only makes its way onto the balance sheet if it is repossesed.

Zulu wrote: »

On the point of stamp duty, while I agree we shouldn't be a major source of income, any income is better than no income (no?).Also, a calm market is a good thing - no market is a bad thing (no?).

There still always be a property market. People will always want to buy and sell houses etc. The property market hasn't stopped dead. People are still buying and selling property right now, just in reduced (healthier, less frenzied IMO) numbers. It focuses the government on establishing sustainable sources of taxation, income tax primarily.

Zulu

Sound, ok so, the only real problem with the above idea is that it'll reduce the tax income for the government?

sceptre

The comparison with pensions isn't really valid. Pension contributions are given a tax rebate under the logic that contributing to a pension is deferring income in a manner approved by the government. The contribution is definable, the benefit time is largely fixed, it's also regarded as good and prudent in the public interest. When the benefit from the pension contributions is realised - when the individual begins to receive payments from their pension fund - that's taxable.

Buying a house is different for a few simple reasons: it's already given a tax break, in that capital gains tax on the value gain realised on sale is already non-taxable on a primary residence. The tax break is already there.

Stamp duty is a bit of an oddity in the tax sense as it makes sense pretty much only on the basis of a government (and tax fund) kickback (although given that tax tends to work like this one could say that pensions are the oddity). Then again, because of the zero stamp duty on properties not in excess of c300k, the government can logically claim that it applies only to "larger" homes and hence to people who can afford it. Of course because half the country went nuts on the house-buying, that hasn't necessarily universally applied for a time..