Housing and Planning Bill — House of Lords, 2016-03-03
Topic: Housing
Dale Norman Campbell-Savours (Labour, Centre-left): My Lords, the thrust of these amendments, as I read them, is to try to deal with potential abuse of the system. I had thought of giving notice of my opposition to the clause as a way of dealing with these matters, but I think that I should deal with a number of issues on the back of these amendments because all my comments basically deal with the potential for abuse. Perhaps I may go through some of the figures, because it seems that there are substantial profits to be made out of this scheme. Let us take as an example the starter price of £450,000 for a house or flat in London, which will probably be at the lower end of the market. I know that the Government say that there will be cheaper properties than that available in London but I certainly do not believe it from what I have seen recently of the property market in London. The market price of that property will actually be £560,000 but it will be sold for £450,000. Working out the figures on the basis of a 4% increase per annum, over five years there would be a 25% increase. I say that because the latest survey from the Royal Institution of Chartered Surveyors predicts a 25% increase in prices over the next five years. An increase of 4% per annum compounded gives £582,000 in the first year, £605,000 in the second year, £631,000 in the third year, £656,000 in the fourth year and £682,000 in the fifth year. In other words, you buy a house for £450,000 and, at the end of five years, you make a profit of £232,000 on the back of the people, because essentially this is funded by the people Let us take a starter price of £250,000 outside London. The actual market price of such a property is £310,000. It is worth £322,000 after the first year, £335,000 after the second year, and it goes up to £377,000 in year 5. So if you buy a £250,000 house, you will sell it with a profit of £127,000 on the basis of the RICS valuation. I think that these valuations are very low. It is quite possible that in London the prices will go up substantially more than that and we will see far greater capital gains. The same obviously applies to the £150,000 purchase that we talked about the other day. The market price of that property would be £187,000 and you would end up with a £78,000 profit on the basis of a 4% increase per year. I was doing these calculations in bed last night at one o’clock in the morning and I think they are fairly accurate Substantial profits are available under this scheme, and we all know what happens when a lot of profit is available, particularly in schemes where the Government are involved. People very often will organise their private affairs to maximise the profit that they can make. Therefore, in the regulatory arrangements that are introduced we have to be absolutely sure that we have covered all the potential arrangements that might be introduced, and I will just give one or two of them A qualifying person is set out in Section 57AA(2) of the Finance Act 2003 as a person who has not acquired freehold or leasehold residential property in the United Kingdom or elsewhere in the world. In other words, it is their first home. What happens when the beneficiary to a will inherits a £40,000 house in, let us say, the area where the noble Lord, Lord Greaves, is a councillor? That is the price of a house in Colne or other parts of Lancashire. Does it mean that the person who inherits that house—effectively, they have acquired it, which is what it says in the 2003 Act—loses the right to buy a starter home? They would already have acquired a house through their inheritance, and the Act does not say "purchased", it says "acquired". What would happen in that particular case? Would they still retain the right to buy a starter home, having already inherited that £40,000 terraced house in Lancashire? What about the cash purchaser who the noble Lord, Lord Shipley, referred to? The noble Lord argued that cash purchases should not be allowed in these circumstances. He said that we should be sure that these houses are purchased under mortgage arrangements. However, someone could buy a house under a mortgage arrangement but it is the scale of the mortgage that matters. In other words, if we are to preclude cash purchasers, the regulations have to define how much of the purchase price of the house can be cash if there is a requirement to have a mortgage on the house. Will the Minister answer that? Again, that should be set out in the regulations What about a sham mortgage followed by a cash payment? Someone could take out a mortgage but then, three months later, pay cash; they always intended to pay cash but knew that the only way round the scheme was to take out a mortgage. Again, that has to be set out in the regulations What about the circumstances where a parent or relative, or even a friend, purchases in the name of the legitimate purchaser and then takes a charge on the property to take out a proportion of the profit at the end of the five years? In other words, the purchaser in fact was not the person whose name is on the deed and, by way of some charge, the actual purchaser is able to take the profit out of the deal at the end of the five-year period. Some might say that I am going a bit over the top by suggesting that these things might happen. However, there is a lot of profit in this and a lot of people will see great advantage in getting involved in these deals to take out the profit at the end of the five-year period. So again, we must ensure that the regulations cover the circumstances in which something like that might happen What happens if people acquire by purchase another property during the five-year period; in other words, they now have two homes? They have the home which has been subsidised with its vast profit potential and then they buy another home during that period. Whereas at the moment it is the second home which is subject to capital gains tax, in those special circumstances it might be that the first home should be subject to it. If someone can afford to buy a second home, having bought the first home under a subsidised arrangement, surely the starter home should be treated as the second home and be subject to some sort of tax gain to the Exchequer I move on to the question of the developer. How do we know that the developer will not inflate the price? The developer is supposed to offer the property at 25% less than market value—