Buyers Beware: Stamp Duty soars

17-03-2016

Chancellor George Osborne has further clarified in his Budget the new stamp duty land tax (SDLT) measures that are destined to be keenly felt with those who purchase buy to let properties and second homes (above £40,000) in England and Wales.

From 1 April 2016, those who buy additional residential properties will have to pay an additional 3% surcharge on each stamp duty band:

SDLT RATES
From April 2016
Value of Property Standard rate Additional Property
Up to £125,000 0% 3%
£125,00 – £250,000 2% 5%
£250,000 – £925,000 5% 8%
£925,000 – £1.5m 10% 13%
Over £1.5m 12% 15%
Source: HMRC

 

 

 

 

 

 

 

 

 

The proposals were first made in the Autumn Statement and quickly prompted accusations of favouritism, prejudicing groups such as parents wishing to help their children on the property ladder, but in favour of providing exemptions to corporate investors who have an existing residential property portfolio of at least 15 properties.

In the end the Budget has opted for a blanket approach to apply to all types of purchaser. It states that the rate will ‘apply equally to purchases by individuals and corporate investors’ and retreats from the view that rewarded large-scale investment on the basis that it supported the government’s housing agenda.

The clarity in this regard does by no mean reflect the general uncertainty in terms of what impact this change in SDLT has on the wider property market as a whole.

Since the Autumn Statement, it appears that there has been a flurry of activity in light of the upcoming changes. According to the latest figures released by the Council of Mortgage Lenders (CML), the market for buy-to-let mortgages increased exponentially at the beginning of this year, in no small part due to the impending additional tax. The total fiscal amount of borrowing rose by 40% in January 2016 as around 9.500 loans were taken out by buy-to-let borrowers compared with 7,800 the year before.

The longer-term consequences are significantly less clear. The National Landlords Association (NLA) have predicted this increase in SDLT will deter investors and spark a sell-off, with around 500,000 properties being sold in the next year, leading to a significantly diminished private rental market. There is a fear that this will directly hurt the pockets of tenants who may have to foot the bill in the form of higher rental costs.

The SDLT increases are designed to ‘level the playing field’, improving the amount of housing stock available by diluting the dominance of buy-to-let investors. Establishing whether these changes bring about a tangible rise in first-time buyers and increasingly affordable housing will therefore be its true gauge of success.

As a result, an increase in rental rates would be somewhat counter-productive, yet broader factors such as real wage growth, falling unemployment and competitive mortgage deals have all contributed towards record borrowing to the tune of £17.9bn at the beginning of 2016, the highest amount for eight years. Whether these changes, affecting approximately 10% of residential property transactions makes housing more accessible is likely to depend on a whole host of other factors that underpin this ever-revolving market.

 


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