BTL investors undeterred by stamp duty changes claims new analysis

BTL investors undeterred by stamp duty changes claims new analysis

New analysis from national estate agent Jackson-Stops & Staff has found that the proposed reform to stamp duty for second homes, amounting to a 3% surcharge, will fail to have the intended effect of deterring prospective buy-to-let investors due to house price inflation.

Although industry bodies have reported a rush of buy-to-let registrations in the run up to April, which they anticipate will be followed by a post-Budget slump, once you do the maths, the majority of investors will see that property price inflation, within a year or less, will more than compensate them for their entire stamp duty bill – even with the 3% surcharge.

Jackson-Stops & Staff predicts that the biggest losers of the stamp duty reform will actually be tenants as landlords pass on their additional costs to rental prices.

For example if property prices continue to grow at their current rate in the South East region, the capital gain on an average priced property will be £28,412 annually. Total stamp duty on the purchase of an averagely priced home will be £11,328 under the new proposed stamp duty regime for second homeowners, a figure which is eclipsed by the annual increase in equity. See Table 1 below for further detail on all UK regions.

According to data from the Association of Residential Letting Agents (ARLA) the vast majority of landlords keep their investment property for more than one year. The ARLA research shows that most landlords (33%) keep their buy-to-let property for 11-20 years and for an average of 20.3 years. This means most landlords benefit from the positive impact of house price growth in the longer term – usually reaping the benefits for more than a year.


Nick Leeming, Chairman at Jackson-Stops & Staff, commented: “The government, through its new stamp duty surcharge, is trying to make the playing field more even between property investors and first-time buyers by eating into landlords’ profits. Our message to landlords is that when you do the sums, and look at the direction of house prices, placing money in bricks and mortar is still by far the best investment vehicle. If property prices continue on their current trajectory, within a year or less of buying their investment property the vast majority of landlords would have earned back all the money given through stamp duty, even with the new 3% surcharge, by doing nothing at all – just sitting back and watching the price of their home increase. Therefore the idea that the stamp duty tax will act as a deterrent is a fiction, as for most landlords it won’t amount to a significant figure.

In fact, the only losers will be tenants as landlords are likely to pass on any additional costs they might not want to shoulder to their tenants by increasing rents. This could mean that those currently in rented accommodation who are saving for a deposit to buy a home, take even longer to pull this money together.

Property price increases and lack of affordability are due to an endemic shortage of building new homes, it is not down to landlords. Data[6] from the Department for Communities and Local Government shows that, while the number of new homes being started and finished is creeping up, housing starts are still 22% below 2007’s peak before the financial crash.

The government is also focusing too exclusively on ownership; rather, it should analyse demand for all tenures and seek to create a housing market that reflects this. The private rented sector is very important to the UK. It provides a housing solution which is less permanent than ownership, allowing a level of flexibility which ownership does not. Not only do we need an increase in stock suitable for first-time buyers in the UK, but homes which are purpose built for rental. Deterring private landlords from providing suitable rental properties is not the answer.”

For eight out of 10 regions, buy-to-let purchasers will find capital gain within a year of purchase will negate all stamp duty costs. The only regions where predicted capital gains on an average priced home do not eclipse stamp duty costs, are the North East and North West of the UK.

Nick Leeming said: “The North East and North West regions of the UK, where house price growth is more restrained at present, are the only regions where landlords will find capital growth in the first year does not eclipse the new stamp duty they would have to pay. These two regions are also the only two where home owners currently pay no stamp duty on the average home as the average property price still remains under £125,000, the price level where stamp duty first bites. Tenants here are more likely to see landlords in future pass on this additional cost via rent and we also anticipate investors to be more assertive when they negotiate on buying a home, which will be reflected in lower offers”.

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Latest Comments

AbbieP.
AbbieP. 22 Jul 2016

"While house prices in the most expensive eleven boroughs have declined values in the cheapest eleven boroughs continue to rise" - not a nice way to even out the price range. London is overrated as it

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AbbieP.
AbbieP. 21 Jul 2016

And try to profit from your decisions, I may add

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CommercialTrust
CommercialTrust 19 Jul 2016

Retirement investment has always been one of the biggest draws of buy to let. And the buy-to-let demographic is, on balance, older. (Over a third of our applicants are over 50 at the time of application.) It...

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Forrest Wheatey
Forrest Wheatey 11 Jul 2016

I find the time perfect for ever home-owner wannabe. Prices should slowly, but steadily drop, at least for the inner buyer. Making it harder for outsiders to buy properties (the whole Brexit thing means...

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property guru
property guru 11 Jul 2016

Why should Ajay even have to be looking for it. It should be public knowledge. Why is not just publish each years and to were it is and be AUDITED. Accountability.

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property guru
property guru 11 Jul 2016

Surprise suprise

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CommercialTrust
CommercialTrust 30 Jun 2016

This is great news for buyers and investors in a period of significant uncertainty. The 10-year buy-to-let fix at 3.99% in particular is excellent, a clear 100 bps ahead of the nearest competition. Though...

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Lee
Lee 30 Jun 2016

Let's see what happens to north-east property prices when Nissan announce they're leaving.

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DmitriKara
DmitriKara 29 Jun 2016

I just read another article about eviction rising and this was exactly what was on my mind, Housing has become "cat and mouse"...

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DmitriKara
DmitriKara 29 Jun 2016

I am really not surprised. I've seen one too many impudent tenants and in my humble opinion renters have one too many privileges and options to abuse heir landlord in so many ways...

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DmitriKara
DmitriKara 29 Jun 2016

There is still so much uncertainty and I will surely step back and see what's happening before I could make any decisions on my end.

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ChristinaReedUK
ChristinaReedUK 20 Jun 2016

I don't understand why it's always a war between the two sides. Either, way the landlord is probably keeping a detailed inventory and will see the changes you've made. I just don't understand why there...

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