Rogers & Norton News

Bye Bye Buy to Let?

Friday, December 4, 2015

The announcement in the Chancellor’s Autumn Budget indicating the Government’s plans to increase the Stamp Duty Land Tax levy against additional homes has sent shockwaves through the buy to let market. 

The proposals made are set to increase the rate of Stamp Duty to 3% on any property bought as a buy to let or a second home and have been referred to by lettings experts as ‘catastrophic for the private rented sector’. 

The unveiling of these plans comes as an additional blow to the property investor market after George Osborne’s announcement of a crackdown on mortgage interest tax relief in the Summer Budget.  

What do the changes mean? 

Currently, Stamp Duty Land Tax is charged at a rate of 2% for properties valued at between £125,000 and £250,000, the average price band that investment properties fall into.  A second property falling into this bracket will now attract an additional 3% tax. For a landlord purchasing a property at £175,000 under the new rules Stamp Duty Land Tax will sky rocket from £1,000 to £6,250.  Not a negligible sum at even the lower end of the market.  When you look a properties falling within the next price bracket (£250,001-£500,000) the stamp duty on a £300,000 would over quadruple, going from £3,000 to £14,000. 

When you consider that in addition to this hike the maximum tax relief will drop from 45% and 40% to just 20%, a landlord with a £150,000 buy-to-let mortgage on a property worth £200,000 will see net annual profits drop from £2,160 a year to just £960. 

But why now?

For a number of years now there has been growing concern about the shortage of affordable housing stock available for families and first time buyers, so much so that the Bank of England has been closely monitoring the buy to let increase.  In 2000, buy to let accounted for 4% of mortgage lending, by the second quarter of 2015 this had risen to 16%.  The Council of Mortgage Lenders reported the number of buy to let mortgages has increased by 36% over the last 12 months.  Unfortunately for the ‘average’ buyer, this all points towards a lack of affordable properties.

According to the Chancellor ‘Fifteen years ago around 60% of people under 35 owned their own home, next year it’s set to be just half of that’. 

So it would seem that the clear motivation behind this move is to effectively ‘put off’ property investors and make buy to let an unattractive form of investment. 

So what does this mean for the housing market?

In the short term it is likely that we will see a sharp increase in the number of investment properties being snapped up as investors scramble to increase their property portfolios prior to the new legislation coming into force in April 2016.  This will inevitably make house prices more sensitive and could even cause the collapse of transaction chains as we near the deadline date should completion prior to 1st April appear to look unlikely.

Certainly in this short term this will not assist Mr Osborne’s plan of preventing investors from ‘squeezing out families who can’t afford a home to buy’.

In the longer term, the move could prove good news for first time buyers and families.  The hurdles of the increase in stamp duty, reduction in mortgage interest tax relief and also the reduction in annual wear and tear allowance will no doubt mean some landlords decide that buy to let is no longer a viable business model.    First time buyers are rejoicing at the news.  Duncan Scott of PricedOut, a campaigner for affordable housing has stated ‘we welcome the continued tax clampdown…it is good to see action against investors who price out aspiring first time buyers’.

However it may not all be good news for buyers.  The changes may result in landlords buying up lower priced properties for renovation, thus decreasing their initial tax outlay but increasing their rental yield.  This could have the affect of not only a remaining shortage of affordable but properties but also limiting the amount of new housing stock brought to market as the properties are retained for rental, as well as causing a rise in rents making it harder for first time buyers to even be able to save the money for a deposit.

Don’t forget that these changes won’t affect just buy to let landlords.  The second home and holiday letting market, which is particularly buoyant here in Norfolk, will inevitably be hit.  It is likely that at least initially this market will be inhibited by the changes as people decide against a largely discretionary investment.

So whilst on the face of it Mr Osborne’s plans appear to be the light at the end of the tunnel for those hoping to hop onto the housing ladder, only time will tell whether or not these radical stamp duty changes will indeed stamp out the UK’s housing shortage. 

Contact the Rogers & Norton conveyancing team on 01603 666001 or email for more info.