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

MBM Homelets
MBM Homelets 23 Mar 2017

Although this is a very positive step, there is little or no guarantee of the standard of workmanship employed by the tenants. We have had experience of a professionally decorated property being ' painted'...

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ajay
ajay 21 Mar 2017

How is the "robust evidence" looking now?

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NathanG
NathanG 20 Mar 2017

I've been watching the series so far and am completely baffled by the cases that were presented. Though, I don't think that we can protect ourselves from every scam possible - it will just make the scammers...

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Landlady14
Landlady14 01 Mar 2017

You would think so Niraj Shah! My experience only proves that there are varying qualitiers of professional in all aspects of property letting. None of the ones I have dealt with, from letting agents to...

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Mark
Mark 01 Mar 2017

Thanks for this article. Hopefully one day everybody's lifestyle will be eco-sustainable.

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Ben Taylor
Ben Taylor 28 Feb 2017

I was convinced that London was the most expensive!

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Alan Read
Alan Read 28 Feb 2017

Australia are leading the way in this I think. The trouble with Britain is we don't get enough sun to make use of solar power.

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James Powell
James Powell 27 Feb 2017

This is a very good news.

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DanHumphreys
DanHumphreys 27 Feb 2017

It sounds like a good idea. Anything to help the younger generation get a foothold.

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Matt
Matt 20 Feb 2017

Is this fake news?

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Matthew Hollywood
Matthew Hollywood 07 Feb 2017

Matthew Hollywood - Director Mishon Mackay Land & New Homes - Brighton The shortage of New Homes is in part effected by the lack of land sales. Land sales are held back because there is a disparity between...

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CommercialTrust
CommercialTrust 30 Jan 2017

Hi Graham, Would be interesting to see the above figure calculated against an investment via a Lt Company /SPV structure and if the investor found themselves pushed in to the higher tax bracket. Mortgage...

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