There would be 2.2 million more rental homes without the second home stamp duty surcharge, Hamptons research implies.
If the private rented sector grew at pre-2016 rates – before the second home stamp duty surcharge was introduced – there would be 2.2 million more privately rented households.
The surcharge was initially set at an extra 3% on top of existing stamp duty rates in England, before being increased to 5% in October 2024. There is a similar 5% surcharge in Wales, while in Scotland the equivalent rate is now 8%.
The surcharge dramatically increased the cost of purchasing an investment property. Today, a £350,000 buy-to-let in England attracts a £25,000 stamp duty bill for an investor, compared with £7,500 for a mover and £2,500 for a first-time buyer.
Aneisha Beveridge, head of research at Hamptons, said: “Higher rates of stamp duty for anyone buying a second home have broadly delivered what the government of the day set out to achieve.
“Almost overnight, the market tilted away from investors, meaning far fewer homes have been added to the rented sector and more have found their way into owner-occupation over the last decade.
“However, large stamp duty bills have also brought side effects, particularly as the wider tax and regulatory environment for landlords has tightened.
“Tenants who can’t afford to buy, or don’t want to, have seen rents rise faster than inflation, while those on the margins of the market have found it increasingly difficult to find somewhere to rent in the first place.
“Domestic and international landlords were once some of the biggest buyers of city centre flats. Prior to 2016, housebuilders often had waiting lists of investors, sometimes years before they even put a spade in the ground.
“Their partial withdrawal has reduced viability and slowed the pace of housebuilding, particularly in the new-build apartment sector, where sales are now taking longer and often completing at lower prices.”
Rubbing salt in the wound, since 2021 foreign investors also have to pay an additional 2% stamp duty surcharge.
The surcharge is likely to have pushed up rents.
Rents have risen by an average of 4.0% a year since the surcharge was introduced, up from 3.0% during the five preceding years.
This suggests the surcharge has added around 1% to annual rental growth over the last decade – equivalent to an additional £70 per month.
In May the many aspects of the Renters Rights Act will come into force, banning Section 21 evictions and introducing periodic tenancies.
Beveridge added: “With D-Day for the Renters’ Rights Act now less than 50 days away, rental growth has started to creep up.
“But awareness of the many upcoming changes remains relatively low among landlords, and so far there have been few signs that landlords are looking to push up rents specifically ahead of 1 May.
“Whether the Renters’ Rights Act proves to be inflationary for rents will ultimately depend on how well it works in practise for landlords.”
