Will the stamp duty holiday bring landlords back to the buy-to-let market?

Paul Howells (pictured), chief executive of Accumulate Capital

Buy-to-let landlords have been feeling the pressure in recent years. Since 2016, new reforms and regulations have made the process of buying, selling and managing rental properties increasingly difficult and complex.

The onset of COVID-19 has only made things more complicated, and some are no doubt questioning whether now the time is to leave the buy-to-let market entirely.

Regulation is, without a doubt, a necessity in protecting the interests of all those involved in the property market, especially tenants. Most of these changes are well-intended and have the simple aim of increasing housing stock and protecting tenants.

Demand and supply in the UK are currently imbalanced, making it difficult for some to get on the property ladder. Understandably, the government is trying to redress this issue with reform.

However, the changes that have been implemented seem to disproportionately target landlords. Indeed, general dissatisfaction with the rules governing the buy-to-let market is not a recent phenomenon, but something that has been building up over the past four years.

In January 2020, Accumulate Capital surveyed over 750 landlords to find out how their attitudes towards bricks and mortar investment have changed.

The results were startling.

According to the research, 37% of UK landlords said they were planning on selling one or more of their residential properties in 2020. 61% of those planning on selling said their decision was in response to the regulation and higher taxes they now face as buy-to-let investors. Perhaps most striking was the fact that 53% of landlords said they would not have purchased their properties in the first place had they known how regulated the private rental sector was to become.

While the survey does not take into account the impact of COVID-19, it nevertheless highlights the underlining frustration of landlords who feel they have been unfairly targeted by ongoing changes to the buy-to-let market.

Since the survey was commissioned, the UK has faced the coronavirus pandemic. Is this the final nail in the coffin? Should we anticipate a mass landlord exodus over the coming 12 months?

At the moment, it is difficult to tell. However, by understanding recent changes to the regulatory framework governing property investment, we can assess whether landlords have been granted enough breathing room to remain vested in buy-to-let, at least for the immediate future.

Does a stamp duty holiday change anything?

The COVID-19 pandemic affected all sectors of the property market. Interestingly, while the market did slow for buy-to-let purchases, in many cases the financing of property development experienced an increase in interest.

Now, as lockdown measures are relaxed, the government has introduced a stamp duty holiday, providing a financial incentive for buyers to return to the property market. Importantly, landlords and property investors are also able to benefit from the holiday.

The question is whether this temporary tax exemption will entice landlords to reconsider their financial strategies and expand their real estate portfolio before the holiday ends on 31st March 2021.

While the stamp duty holiday does offer financial relief, landlords will still need to pay the additional 3% surcharge applicable to additional residential property purchases. They will also not be exempt from paying other taxes linked to their property portfolios. Of these, there are concerns the government could bring about changes to Capital Gains Tax (CGT), such as increasing the CGT rate applicable on the sale of investment properties in the 2020 Autumn Budget.

Long-term support is needed

As revealed from the aforementioned Accumulate Capital survey, landlords feel regulations governing the buy-to-let and private rental sector are unfairly weighted against them. For this reason, while the stamp duty holiday does offer some much-needed financial relief, it does not address the fundamental challenges that are pushing landlords away from the market.

In all of this, we must remember that landlords play a vital role in offering private rental accommodation for tenants. With demand rising, private landlords play an important role in the housing market by providing the supply of much needed accommodation. This basic, yet fundamental aspect of the private rental sector cannot be overlooked.

Let us hope that over the coming months the government considers additional long-term reliefs that are in the interests of landlords. It’s not about supporting the interests of landlords over that of tenants, but rather ensuring appropriate regulations are in place so that all parties are in a position to benefit.

This is particular pressing given the added pressure placed on the property market as a result of COVID-19.

Accumulate Capital is an investment and property development firm. Accumulate Capital connects registered investors with developers in the property development finance sector to enable selected, high-yielding projects in the UK and overseas.