Only about 130,000 homes were built across Britain last year – a historic low
An EU plan to slap VAT on new homes will send prices soaring, experts warned yesterday.
Brussels has quietly issued a consultation document that proposes scrapping the current zero VAT
The move to charge the full 20 per cent is part of a plan to standardise tax rates across Europe. It
would drive up the average price of a new home by £48,000 from £238,000 to £286,000 and have a
catastrophic impact on the UK.
The huge increase would price people out of the market, make it even more difficult to get a
mortgage and bring the building industry to its knees.
Only about 130,000 homes were built across Britain last year – a historic low. Any reduction in
numbers would exacerbate the country’s housing crisis.
Steven Lees, director of SmartNewHomes, said: “A new 20 per cent tax would have serious
consequences for the market and render useless every initiative the Government has introduced to
help increase the supply of homes.
Most housebuilders simply could not absorb this cost and build profitably
Steven Lees, director of SmartNewHomes
“Most housebuilders simply could not absorb this cost and build profitably. Adding the shortfall on
to the asking price would make new homes uncompetitive and push prices beyond the reach of most
Richard Jones, of the Residential Landlords Association, which sounded the alert after studying the
EU report, said: “Both buyers and landlords would be badly hit if this were to happen.
“This consultation has the potential to cause catastrophic damage to the housing market in the UK
and we hope any such moves will be firmly resisted by the UK Government.”
John Stewart, of the Home Builders Federation, said: “In the midst of a housing crisis, with a
desperately fragile UK housing market and historically low house-building rates, any threat to the
zero rating of VAT on new-build homes would be catastrophic. It is vital that the Government joins
with industry to combat any VAT imposition.”
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Experts say the EU is proposing to remove the zero VAT rating from all building materials apart from
the ones which offer the best energy efficiency and lowest carbon emissions. But Richard Tamayo, of
the National Housebuilding Council, said: “This would have exactly the opposite effect to that
desired by the EU of improving the overall energy efficiency of the housing stock.”
Andrew Frankish, of leading broker Mortgage Advice Bureau, said: “Developers could not afford to
absorb an extra cost of this size yet could not pass a 20 per cent price rise on to buyers because
they wouldn’t be able to afford it, besides which mortgage lenders would flatly refuse to lend.”
A spokesman for the European Commission said last night: “This is a consultation pre-empting nothing
and looking at VAT in general. There is no proposal on the table.
“Any change would need the UK Government’s approval to become law.”
And there was doubt yesterday that the Government would ever agree to change the tax-exempt status
of new homes. A spokesman for the Treasury said: “The UK Government will not change the VAT
zero-rating of new-build homes.”
Replies to the EU consultation document must be received by January 4 next year.