The extra tax, which affects anyone buying an additional home, is seen as a huge burden for the UK’s private rental sector as a time when there is increased demand for rented homes.
‘We’re about to see supply nose dive, demand rocket and rent prices go through the roof. The introduction of the new stamp duty charges is set to push the private rental sector into a state of despair,’ said David Cox, managing director of the Association of Residential Letting Agents (ARLA).
‘Back in November, when the Chancellor announced an increase in stamp duty tax on buy to let properties we called this a huge kick in the teeth for the private rented sector. The news that larger investors will also have to pay the tax comes is an even bigger blow,’ he pointed out.
The Chancellor had originally said that professional landlords who normally own more than 15 properties, would be exempt, but announced in his Budget a few weeks ago that they would not.
‘We are very likely to see the new tax discouraging landlords from investing in buy to let properties, which will of course mean supply falls. In order for landlords to be able to afford to own a buy to let property, tenants will begin to see the additional costs passed onto them, which means they could see less money spent on maintaining their property, and also an increase in rent costs,’ Cox pointed out.
He also explained that a recent announcement over tougher rules for buy to let mortgages will not help the sector. ‘Whilst we recognise the need to look at the important issue of affordability, the proposed measures are far too tough and are yet another assault on the rental market,’ added Cox.
‘Something urgently needs to be done to make the prospect of being a buy to let landlord appealing again, or the vicious cycle of supply and demand is only going to get worse and worse,’ he concluded.
Online property marketplace LendInvest has carried out research on the impact of the stamp duty change for those buying additional properties which shows that landlords in London and the South East will need longest to repay the higher tax while Darlington, Halifax and Doncaster are among the worst affected.
Landlords in Inner London and Harrow will need the equivalent of 20 months’ rent or more to repay higher stamp duty and landlords in 13% of the country will pay it for the first time as there is no zero rating for additional homes as there is for first homes at £125,000.
Towns like Sunderland, Blackburn, Wigan and Oldham could be particularly badly impacted as rental yields are comparatively good but average house prices are below £125,000 meaning stamp duty will be charged for the first time.
‘The stamp duty hike spells bad news for landlords and their tenants. When taxes rise, someone has to pay and out latest buy to let index shows that the likely payer is ultimately going to be the tenant, with higher rents,’ said Christian Faes, chief executive officer of LendInvest.
‘The stamp duty hike will cause rental yields to fall for landlords, putting pressure on them to raise the rents they charge. It’s not just in Inner London where landlords’ taxes will soar, that we can expect to see landlords and tenants squeezed financially across England and Wales,’ he pointed out.
‘The Treasury’s decision to inflict this tax hike is part of their longer term plan to professionalise the buy to let market and make Britain a country of home owners. While the move has its merits, there are no quick fixes to the nationwide housing crisis. Until there are more houses on the streets that people can buy at reasonable prices, landlords have their place and their tenants must be protected,’ he added.
According to Sean Randall, head of Stamp Taxes at KPMG UK, the new charge is already causing stress and will continue to do so. ‘Chain breaks are frustrating and stressful at the best of times, but the changes to the stamp duty rules mean there could now be even more stress ahead for those whose buyers drop out,’ he said.
‘If a buyer is funding the purchase of a new home with the sale of their existing home and their buyer pulls out but they still want to go ahead, perhaps by using a bridging loan, they will now be liable for the stamp duty surcharge because they will technically own two residential properties at completion,’ he explained.
‘This unwanted side effect of the new rules could potentially punish those second, third or fourth steppers looking to move up the property ladder who, through no fault of their own, are temporarily reluctant owners of two homes. And although the cost of the stamp duty surcharge may be partially met by the buyer keeping the deposit paid under the failed sale contract, there will often be a significant shortfall for them to fund if they still want to go through with the purchase of their new home. The extra tax will be repaid, but only if the old home is sold within 36 months,’ he pointed out.
There are also issues for couples. The issue comes in when one spouse or partner already owns a property. This is because under the new rules, married couples and civil partners are treated as one buyer. ‘In essence, ownership of an existing home by one partner will infect the purchase of the couple’s first home together,’ said Randall.
‘Of course, the relevant partner could just sell their old home to avoid paying the extra stamp duty on the couple’s new home. But this might be easier said than done. For example, they may suffer a high redemption penalty by selling,’ he explained.
‘For couples in this boat, it could well be a case of living in an unsuitable home for the first few ye
