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

daniel black
daniel black 25 Oct 2016

I've been keeping a close eye on what the effect of Brexit has been on the rental market and it's a very mixed bag. Whilst the majority of the news focuses on London's market. I think this time next year...

view article
Northerner 20 Oct 2016

Any views from outside the M25? No wonder politicians can't get the housing big picture when everyone seems to think that London is the yard stick, when it absolutely is not.

view article
Sean Lees
Sean Lees 13 Oct 2016

I think that the pest control really depends on the situation. If the tenant moved in and found an infestation that needs pest treatment service, I think it's more reasonable that the landlord should pay...

view article
Kevin 13 Oct 2016

Please Sian Berry Dan Wilson Craw LANDLORDS DO NOT WANT TO RAISE RENTS They are being forced to because of Section 24! An unfair, punitive tax hike that will be a disaster Green Party, Generstion...

view article
Fletcher88 11 Oct 2016

Absolutely agree! Moreover property prices edged up with 0.7% this month as the market recovered from the initial Brexit hit

view article
Gary Das
Gary Das 06 Oct 2016

A lot of lenders (especially the high-street banks and lenders people approach first) could do more to accommodate for the self-employed. It can really be a struggle, as I found out myself last year when...

view article
richardrawlings 04 Oct 2016

Not sure I understand this! If Basildon and Hemel rose 68% and 52% respectively, why do they not appear in the top ten list, which appears only to feature those in the minus 20's!! Is it me?

view article
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 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 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 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 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

Related stories

More articles from Landlords

Buy-to-Let Roadshow 2016

21st-24th November

4 days
7 specialists
4 locations
Free to attend

Click here to register now