The industry is trying to assimilate the changes announced in yesterday’s Budget Statement whereby buy-to-let investors and those purchasing second homes are to be hit with a 3% increase in Stamp Duty Land Tax.
The changes were yesterday described by ARLA as a catastrophe for the private rented sector while accountancy firm Smith & Williamson said they would be the “nail in the coffin” for the buy-to-let market.
Shares yesterday slid in listed agents Countrywide and Foxtons.
Franchise chain Martin & Co last night said the changes were “absolutely not catastrophic”, but admitted they were an unwelcome surprise.
For an average buy-to-let purchase of £184,000, it will mean an extra Stamp Duty Land Tax bill of £5,520 from next April.
For the buyer of a rental property or a second home priced at £300,000, it means an extra £9,000 – bringing the total SDLT bill to £14,000.
One immediate implication is that first-time buyers could have an advantage over investors.
A second is that buy-to-let properties changing hands between investors may reduce in price.
A third possibility is that landlords who pay extra Stamp Duty on their properties will simply pass the increase along to tenants.
A fourth possibility, spelled out by Doug Crawford of conveyancing firm My Home Move, is that the housing market will be “turbo-charged” in the short term as landlords and second home owners embark on a buying spree.
However, others think it more likely that buy-to-let landlords will start selling up now, in order to get out of an increasingly hostile market, including other Budget Statement announcements about speeded-up times to settle their tax bills.
The Chancellor’s changes mean that each SDLT band will go up by 3% for buy-to-let properties as follows from next April 1:
- Property purchase of £40,000 to £125,000 – Stamp Duty will be levied at 3% (currently 0%)
- Up to £250,000 – 5% (currently 2%)
- Up to £925,000 – 8% (currently 5%)
- Up to £1.5m – 13% (currently 10%)
- Over £1.5m – 15% (currently 12%).
In other changes announced by George Osborne, buy-to-let and second home purchasers will have less time to settle their Stamp Duty bill, reduced from 30 days to just 14 as from 2019.
At the same time, anyone selling a buy-to-let or second property will have to settle their Capital Gains Tax bill within 30 days, rather than anything up to 21 months after disposal, depending on when the sale occurs.
Mike Chapman at Knill James Chartered Accountants said there could be “major consequences for the residential property market”.
He said: “Clearly landlords who have maximised their borrowings with a view to enjoying capital growth may now seek to restrict their financial exposure by disposing of parts of their property portfolios.
“Where such properties are standing at a gain, disposal before the CGT acceleration is due will clearly be advisable.”
The increase in Stamp Duty is expected to raise £30m in 2015/16; £625m in 2016/17; £700m in 2017/18; £760m in 2018/19; and £880m in 2020/21.
The money raised will be reinvested into building new homes in areas such as London, the Lake District and Cornwall, where local people have been priced out.
Andy Frankish, of the Mortgage Advice Bureau, said: “Imposing higher Stamp Duty on buy-to-let properties will act as a further disincentive to landlords following the changes to mortgage tax relief announced in the previous Budget, and will be a bitter pill to swallow.
“However, for residential buyers that are currently competing with investors for desirable properties – particularly new-builds – this will act as a leveller to ensure they aren’t missing out on becoming home owners because of buy-to-let.
“By imposing this change, the Government have made their stance in support of home ownership very clear.”
Peter Williams, of the Intermediary Mortgage Lenders Association, said: “The Government must be very careful not to go too far and overly constrain the private rental sector, which performs an essential role in the housing market.
“For all their new initiatives, successive Governments have a poor track record of delivering the required number of new homes, and a healthy private rental sector is vital for those either needing to rent or choosing to do so.”
Notably, while going after private landlords, Osborne has so far protected corporate bodies or funds investing in the private rented sector. Larger firms owning 15 or more rental properties will not have to pay the higher rates, although this is subject to consultation.