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”.

Join our mailing list:

Leave a comment



Latest Comments

luxus
luxus 27 Sep 2016

It can be stressful. More clarity is needed on the process, from a customer perspective and consideration should be given to using the Scandinavian model where the sales process is much quicker.

view article
Melissa_Green
Melissa_Green 26 Sep 2016

Green belts are normally designated around capitals and other major cities and conurbations and their aim is to prevent urban sprawl by keeping land permanently open. The essential characteristics of green...

view article
Jimmy_McCoy
Jimmy_McCoy 16 Sep 2016

I think that the main reason to buy garden purchases in last minute is because people always search for the best deal. In summer months there are abundance of seasonal goods and it means more low cost

view article
Jimmy_McCoy
Jimmy_McCoy 16 Sep 2016

Buying a home often is more expensive than you expect. There are lots of hidden costs such as: stamp duty, surveys and valuations, mortgages etc. that can add more than 10% to the total bill

view article
Homebuyerconveyancing
Homebuyerconveyancing 15 Sep 2016

We are seeing a massive influx of Homebuyers using online Estate Agents. The winners are the online portals that still aim to manage the customer journey to homeownership. They provide a valuation service,...

view article
oliviaG
oliviaG 12 Sep 2016

Without a doubt renovating can truly be very beneficial to many homeowners but it depends to a great extent on the condition of your home and the parts of it you want to refresh. Before you start you should...

view article
oliviaG
oliviaG 29 Aug 2016

So true about cats!

view article
Jason Roberts
Jason Roberts 25 Aug 2016

Any predictions what average rent will be at the same time next year, anymore drops coming?

view article
dylanvan
dylanvan 19 Aug 2016

very good, thanks for sharing

view article
SecomTech
SecomTech 19 Aug 2016

Firstly, I either lodge with DPS or do not take a deposit...secondly, If a tenant has not received a confirmation their deposit is secured with either a scheme or in an insured account with an agent/landlord,...

view article
jasonevans
jasonevans 19 Aug 2016

Belvoir has over 15 years of experience in property lettings, buying and renting and is one of the best agencies I know about. I have heard that they revived an award for the hard work. Really amazing...

view article
jasonevans
jasonevans 19 Aug 2016

Usually these areas are least affected when it comes to unexpected economical collapse.

view article

Related stories

More articles from Landlords