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Buy To Let - Stamp Duty to Increase 3%

The chancellor who had recently changed the mortgage relief has introduced an increase on stamp duty for landlords of 3%. We explore the likley impact of the change....

The chancellor who had recently changed mortgage relief for higher rate tax paying landlords has introduced an increase on stamp duty for landlords of 3%.  

Well to be specific rather than landlords it is for people who purchase second homes.  So a first time buyer who lets out their property and stays living with parents might not be affected.   The devil will be in the detail!  

I have had a good look at available data at the moment including reading the Spending Review Blue Book sections on SDLT  

SDLT 3% Increase on second homes

The 3% rise in the rate of tax for buy to let is set to take affect from April 2016.  I have worked through a couple of examples to see the effect in cash terms.  Details yet are not fully confirmed, but I have assumed the 3% is across all rates including the zero rate that is currently paid under £125,000.

A studio flat costing £150,000 would have attracted stamp duty of £500, after the changes that increases to £5,000. So the property would have cost £150,500 compared to it then costing £155,000 including SDLT.

Buying a two bed in the area which might now cost £280,000 would see on these figures SDLT moving from £4,000 to £12,400.

To cut to the chase this means a flat increase in the property purchase price paid by investors of 3%.  The treasury bags that extra 3%.

What will the consequences be?

Expect an increase in buy to let purchase activity for the next five months, especially from landlords with a long term view on buy to let!  

Expect landlords who are long term investors to be less perturbed as the consequence of investing in the short term will put off property speculators looking for a short term profit.  

Will this affect house prices in some areas?  

Yes. In others I don't think that it will have any change at all.  

  • If prices are rising and further increases anticipated then it makes sense to invest, so I see the increase having less effect (but it will definitely impact).  In Hillingdon Borough at the moment prices were rising by around 14%pa.  In notional terms it's not going to take long to get that 3% back.  But 14% increases per annum are not a certainty by any means.  In an area with confidence in the market there will be less effect (London currently).  
  • If the housing market is slow, weak and still in recovery then this will impact on the recovery of house prices.

What is a little unfair is that developers and institutions are unlikely to be affected by this change as their duty is arranged differently.  It's the smaller investors who will smart at this change, aimed at cooling the growth of buy to let.  Builders will be encouraged to continue to build, although Buy To Let is a strong element of demand in some areas (such as ours in Uxbridge).

Will tenants rents go up?  

That will depend on demand from tenants.  Landlords can't pass on costs which tenants can't afford.  Increase the rent and watch the voids add up if the property is too expensive. But if the supply is reduced of rental property and demand remains the same then rents will increase.  Time will tell!  

This article may well change as more details emerge!

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