In the 2024 Autumn Budget, the UK government increased the Stamp Duty Land Tax (SDLT) for second homes from 3% to 5%. This applies to buy-to-let properties and second homes bought in England and Northern Ireland.
Buyers will now pay an extra 5% on top of standard rates when purchasing an additional property, which raises the initial cost of investing in property. The government implemented this increase to generate revenue and to support housing availability for primary residence buyers by discouraging additional home purchases.
Impact on Landlords
The higher stamp duty rate could discourage landlords from purchasing new properties. Many landlords already face rising interest rates, higher mortgage payments, and increased maintenance costs, which reduces their profit margins.
With this additional stamp duty cost, landlords may find property investments less appealing. For some, the extra financial burden may make buying second homes unfeasible, slowing down the expansion of rental properties.
To offset this extra cost, landlords who do decide to purchase could increase rent prices to cover their initial investment. Higher rent would pass this tax burden to tenants, potentially affecting affordability in the rental market, especially in areas where rental demand is high. This may contribute to a tighter housing market with fewer affordable rental options available for people who cannot buy homes themselves.
Effect on Bridging Loans
The bridging loan sector could also feel the effects of this increase. Bridging loans are used by investors to secure funds quickly when purchasing properties, are usually short-term and come with high interest rates. With the increased stamp duty, investors will need larger loans to cover the higher initial outlay. This may mean longer repayment terms or higher monthly payments, making bridging loans more costly.
For some investors, the additional cost might make bridging loans a less attractive option, leading to decreased demand. However, investors who still need quick financing might turn to these loans, driving up their overall loan costs, and potentially affecting their long-term financial planning if they have multiple properties.
Broader Implications
Overall, the higher SDLT rate on second homes could reshape parts of the property market. Fewer investors may be able to afford new rental properties, which may limit housing supply and place pressure on rent prices.
At the same time, reduced investment could also mean less competition for first-time homebuyers. While the change might raise revenue for public spending, it could also create challenges for landlords, tenants, and sectors like bridging loans that depend on property market growth.
