Second Home Mortgage
The government's recently released housing white paper is being touted as a solution-laden response to our ongoing housing crisis. But is it? Furthermore, are the reforms mentioned in the white paper likely to have any real effect on the availability of housing for those who need it most? Probably not. It definitely will not affect the second home mortgage market or people who already own homes but simply want to move.
Local government and communities secretary Sajid Javid released the white paper on 7 February, saying that the "housing market in this country is broken and the solution means building many more houses in the places that people want to live."
The problem now at hand is that the white paper doesn't really address what it maintains is broken with any viable solutions. Financial Adviser's Samantha Downes says that the strategies outlined in the paper do little more than trim a little fat while sending only limited resources to local councils now struggling to provide adequate housing. The plan really doesn't call for anything new.
What It Means to Homeowners
Owners of existing homes will likely not care much about the white paper because it doesn't directly affect them. The government plan only outlines strategies intended to encourage building new homes that will get first-time buyers from the rental market into home ownership. Those who already own homes wouldn't qualify for any of the proposed benefits anyway. Having said that, the good news is that the plan is not likely to negatively impact what existing homeowners can do in the future.
A homeowner who decides to get a second home mortgage to buy a holiday or rental property should notice no impact from the strategies outlined in the white paper. Banks will continue lending on second home mortgages as well, knowing that profits go up as demand increases. We expect to see greater competition among lenders looking to take maximum advantage of the second home mortgage market.
One thing property owners do have to remember is that the government is holding the line on higher duty for second homes. And if homes are bought as rental properties, property owners are no longer able to deduct mortgage interest as a business expense. That means any rental income that goes to pay mortgage interest is still taxable income.
Builders Need a Reason to Build
The second home mortgage market aside, we are presented with a stark reality in the government white paper. That reality is this: builders need a reason to build. It's not as though they are purposely holding back because they want to punish people looking to get into their first homes. They aren't building as fast and furiously as the government wants because there is no financial incentive to do so.
The best way for us to handle the housing crisis is to remove the fetters currently shackling the housing industry. Builders need to be free to do business in whatever way best suits them while investors need the opportunity to make money in housing without being punished for it.
Further attempts to artificially control housing is only going to exacerbate an already difficult problem. Government controls are artificial controls, and they seldom work.
In summary, you need not worry about the recent government white paper if you're in the market for a second home mortgage. Whether you plan to purchase a holiday home or rental, you are in a very good position to do so as long as you have the income to support a second mortgage. You should do just fine.
FT Adviser â?? https://www.ftadviser.com/Articles/2017/02/10/Feat-housing-white-paper-SD-23.02.17
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