The announcement of the additional levy on second homes and buy-to-let purchases came as a surprise announcement in the Chancellor's Autumn Statement, and initially caused some confusion across the industry as pundits disagreed on how the additional 3% would be applied.
Chestertons has now calculated that the extra duty will hit the lower end of the market more heavily in terms of a percentage increase than it will the higher end. A buy-to-let property acquired for £150,000 attracts Stamp Duty of £500, but under the new regime the Stamp Duty rises to £5,000 – a ten-fold increase. By comparison, an investor buying a property for £1m currently pays £43,750 in Stamp Duty, compared to a new rate of £73,750 from next April – less than double the original duty – though of course a larger amount in cash terms.
Nick Barnes, Head of Research at Chestertons, says: “The Chancellor claimed that this change to Stamp Duty would prevent wealthy investors and overseas buyers from pricing first-time buyers out of the market, but as usual the devil's in the detail. What we can now see is that this change is likely to completely deter many 'first-time' landlords from getting into the private rental market in the first place, including pensioners looking to wisely reinvest their precious pension pot.
The obvious effect of this will be that there may well be a significant number of smaller landlords deterred from entering the sector altogether. Those who remain will have their margins slashed and, on top of the increasing regulatory burden and the planned reduction in mortgage interest relief, they may have to raise the rent in order to make the numbers stack up. Either way, the already highly competitive private rental market is about to get a whole lot more so.”
Robert Bartlett, CEO of Chestertons, adds: “We had asked the Chancellor to review the Stamp Duty changes he introduced last year, as they are having such a negative impact right across the house sales market, but particularly on transactions above £1m, a majority of which are here in London. We'd hoped he might consider capping rates, or reducing them by 3%, so you can imagine the dismay when this extra surcharge was announced. The buy-to-let sector has become an essential part of the UK housing landscape and we urge the Chancellor to think clearly around the rules for when this is being introduced. Does, for example, an investor who has contracted to buy a new home today have to pay the extra 3% SDLT if the building actually completes post 1st April.
While we welcome anything to discourage property owners from sitting on empty property, given our chronic housing shortage, we are concerned that as well as landlords and tenants suffering from this new policy, sellers will also be hit, as investors seeking to mitigate this additional cost on top of their property purchase will doubtless try to negotiate a reduction in the asking price as we are already seeing post the massive hick in SDLT rates last year.”
