Half the council tax tenants pay should be saved for a home deposit – SMF

In a bid to help tenants save for a deposit to buy a house, half of their council tax payment should paid into a dedicated savings account, one think tank says.

The novel solution by the Social Market Foundation (SMF) acknowledges government efforts to help first-time buyers but argues they haven’t addressed the issue in high-demand areas.

SMF identifies deposits, mortgage payments and property taxes as the key challenges.

‘Obstructing homeownership for the middle class’

The report, authored by SMF senior researcher Gideon Salutin, says: “Upper income households tend to spend less as a proportion of their income than lower income households, obstructing homeownership for the middle class.

“Our recommendations would reverse that, making home taxes more equitable, and turning council tax into a vehicle to bring renters closer to homeownership, rather than further away, by directing half of private tenants’ council tax into a personal home deposit savings account.”

He also says that the UK should copy Canada’s mortgage insurance system which allows for lower deposits by mitigating risk for lenders.

Helping tenants to save for a deposit would help them meet the big rise in how much is needed.

The deposit needed in 2007 was £16,400

Research shows that the deposit needed in 2007 was £16,400, but it has jumped to a hefty £50,051 today.

Another proposal involves extending the availability of long-term fixed-rate mortgages, making homeowners less susceptible to interest rate fluctuations.

However, SMF says this would require adjustments to affordability rules and increased demand for such products.

UK’s property tax burden

The UK’s property tax burden is one of the highest among similar countries such as Canada and Australia relative to GDP and disproportionately impacts lower-income earners.

The report recommends regular property revaluations to ensure fair council tax distribution alongside the tenant tax redirection scheme.

To compensate for potential revenue loss from abolishing stamp duty and limiting capital gains tax exemptions on additional properties, the SMF suggests that ‘housing sin taxes’ targeting foreign buyers, unoccupied homes, and quick property resales should be implemented.