UK should reform council tax and build more homes
Some propety experts say the figures show the new regulations are slowing lending in the market. Photograph: Martin Keene/PA
Britain needs to reform its council tax system, build more houses and make changes to the Help to Buy scheme to stop the propery boom getting out of control, the European Commission has warned.
The
EU's executive body urged the government to reform the "regressive"
council tax system as taxes are relatively higher on low-value homes
than high-value ones.
The commission also called on the coalition to bring more people into paying tax to help with deficit reduction measures which have so far been "heavily skewed" towards spending cuts.
It warned in its 2014 economic policy
proposals for the UK that demand for housing was outstripping supply and
that action was needed to increase the stock.
"The authorities should continue to monitor house prices and mortgage indebtedness and stand ready to deploy appropriate measures, including adjusting the Help to Buy 2 (loan guarantee) scheme," the commission said.
"Reforms to the taxation of land and property should be considered to alleviate distortions in the housing market. At the moment, increasing property values are not translated into higher property taxes as the property value roll has not been updated since 1991 and taxes on higher-value property are lower than on lower-value property in relative terms."
The commission said the UK should "remove distortions in property taxation by regularly updating the valuation of property and reduce the regressivity of the band and rates within the council tax system" and "continue efforts to increase the supply of housing".
The commission also recommended a broadening of the tax base and an increase in capital spending to help reduce the structural deficit and promote growth.
A Treasury spokesman said: "The European commission continues to support the UK government's strategy, including its commitment to deficit reduction. The commission's recommendations are in line with the government's approach."
The commission delivered its warning after the number of mortgage approvals hit a nine-month low in a sign that tough new affordability tests for housebuyers are having an effect. Approvals fell for a third month running in April, according to figures from the Bank of England. The introduction last month of new rules on lending is thought to be behind the drop.
Mortgage applicants must submit three months of bank statements which will be checked line by line to ensure the borrower can withstand higher interest rates.
The seasonally adjusted figures showed that 62,918 house purchase loans were approved during April, the lowest number since July 2013 and markedly below the previous six months' average of 70,132.
However, experts said it was too soon to tell if the tests brought in by the mortgage market review (MMR) would have a permanent dampening effect on the market.
Figures published last week showed a still-vibrant market, with house prices in England and Wales rising 6.7% in April compared with the same month last year, according to the Land Registry.
Experts said the spectre of the MMR had at least had a short-term effect.
Richard Sexton, the director of e.surv chartered surveyors, said: "Borrowers must now prove that they can withstand potential interest rate rises up to 7%. Lenders have invested time training staff and implementing lengthier advisory meetings, which has capped their capacity to process applications."
The slowdown means that mortgage lending to homebuyers in April was 17% below its recent peak of 75,838 in January.
Remortgaging has also dropped off since the start of the year, with 31,703 loans approved for existing borrowers who were not moving, compared with the previous six-month average of 34,316.
The total value of mortgages approved fell to £15.7bn in April, down from £16.3bn in March. "This strongly suggests that the introduction of the MMR has at least temporarily taken some of the steam out of housing market activity," said Howard Archer, the chief UK economist at IHS Global Insight.
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