Plans by both the Labour and Liberal Democrat parties would impose a mansion tax for properties worth £2 million or more if they win the election.

In the UK there are about 58,500 properties valued at over £2 million according to property analyst Hometrack.

Others estimate a higher number such as Savills with about 97,000 and Zoopla with 108,000. Taking Zoopla’s figure, about 88% or 85,461 are located in London and 14,261 in the South East of England.

The aim of the Labour party is to raise £1.2 billion to fund the NHS charging each household on average about £11,111 each year.

Very few first time buyers have the resources to buy homes at this price level and home movers need both the equity and earnings to secure the mortgage from a lender.

£2m plus property market slows

In March 2014 the Land Registry recorded 192 properties sold above £2m and of these 167 were located in London.

As a result of the mansion tax proposal, the market for properties over £2 million is slowing according to Savills as homeowners consider the risks and this will continue right up to the election.

Only a very small proportion of homeowners in this market are asset rich and income poor according to the labour party.

Older homeowners with considerable value in their property offers the equity release buyer access to cash using a lifetime mortgage to consolidate debt or maintain their lifestyle and pay for rising costs.

In the event of homeowners in this position, provisions would be made to allow them to roll-up the tax liability until the property is sold.

Approach to the mansion tax

Labour have said the tax would be progressive. This means that the higher the value of the property the higher the tax.

This approach would mean that a billionaire buying a £140 million home in Westminster would pay proportionally more in tax. Currently the tax for this type of property would be only £26 a week, which is the same a two bedroom flat.

There is uncertainty about how homes are valued as current council tax is based on tax bands for valuations made in 1991.

The type of properties valued over £2m varies considerably. According to estate agents Knight Frank about 36% of homes are detached, 31% terraced, 22% flats and 11% semi-detached.

Home movers at the £2m price level are considering selling just below this level. The mansion tax is also stimulating greater interest in properties below the £2m level.

For remortgage buyers at the end of your mortgage deal, it is even more important to rebroke to a preferential rate to reduce your monthly repayment costs and meet any additional tax charge.

What are your next steps?

Talk to our London City Mortgage advisers if you are an older homeowner releasing equity from your property, we can recommend the lifetime mortgage to access wealth for home or garden improvements and holidays.

At LCM our mortgage brokers can provide advice if you are a first time buyer, moving home, want to remortgage your existing home to a new cost effective mortgage deal or are a buy-to-let investor.

Learn more by using the equity release calculator, property value tracker chart and mortgage cost calculator. Start with a free mortgage quote or call us and we can take your details.

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