EU proposes '20% VAT rise on new build homes' which could spell disaster for fragile UK housing market



The EU could try to scrap the UK's zero VAT rating on new homes in a move to standardise tax rates across Europe.

A consultation document has been issued that proposes bringing in a standard 20 per cent VAT on all new-build homes - which would spell disaster for the UK's fragile housing market.

If the proposal were to be agreed and rubber stamped by Europe and the UK government, it would drive up the average house price of a new home in the UK by £48,000 the Daily Express reported.

If the proposals were approved it could spell disaster for developing wanting to build new homes

But the government has denied that they would ever bin the zero VAT rate on new build homes.



The huge increase would push first-time buyers out of the market and make selling a home even more difficult.

Builders and developers hoping to create more homes say the move would almost certainly cause damage to the market.

Richard Jones, of the Residential Landlords Association, told the Daily Express: '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.'

The EU is proposing to scrap the zero VAT rate which applies to all new build homes, only allowing the most energy-efficient ones to escape the 20 per cent rise, the Daily Express reported.

The VAT rise could push first time buyers out of the market as house prices would soar

A spokesman for the European Commission told the newspaper the consultation was not pre-empting a move and considering VAT 'in general'.

The UK government would need to pass such a law and a spokesman for the Treasury told the newspaper that the government would not change the zero-rating VAT status of new-build homes.

A spokesman told the MailOnline: 'The UK government has no intention of agreeing to such a proposal, and there is no consultation to change the zero tax rate.

'The EU would not be able to force the government to adopt such a proposal.'



The proposal comes as house prices have posted annual falls for eight months in a row and are likely to remain in choppy conditions until people start to see a continued pick-up in their finances, Nationwide said today in its monthly price index.



Property values have dropped 0.9 per cent year-on-year, leaving the average price at £164,153 in October.



On a monthly basis, prices did manage to rise by 0.6 per cent in October – but that comes after a 0.4 per cent decline in the previous month.

However, monthly prices are volatile and have failed to show any strong trend over the past half year, with three months of price increases and three months of falls since May.

Measures have been undertaken to improve the mortgage situation, but confidence remains fragile.

An £80billion Government scheme to kickstart lending was launched at the start of August.



This has created an increase in mortgage availability, although lenders have toughened their borrowing criteria, making it harder for people to take a deal out.