Stamp Duty Hike “Not So Bad” but Act Fast!

The Chancellor of the Exchequer George Osborne announced a 3% hike in Stamp Duty Land Tax (SDLT) on buy-to-let properties and second homes in his recent Autumn Statement. This was met with “outrage” from various quarters, such as the Association of Residential Letting Agents (ARLA) and others who describe it as “the nail in the coffin of the buy-to-let and holiday home market. Shares in some major estate and letting agency firms fell on the news.

Certainly if you are in a fortunate enough position to be able to buy an investment property or second home, then yes, an average £250,000 purchase will cost you an extra £7,500. This additional expense might ultimately have to be covered by the vendor, who may have to accept a lower offer than expected, as the investment buyer will have less in their pocket.

A further frustration for investors is that the extra money may have to be found in cash if the additional amount pushes the buyer over their Loan-to-Value ratio as purchase “costs” may not be included in any mortgage borrowing.

The upside is that first time buyers – who often have to compete with the spending power of buy-to-let investors, will find themselves in a much stronger relative buying position, which is generally regarded as good for the economy as well as socially. A recent study discovered that people in their 30’s who cannot get a foot on the property ladder are more likely to delay starting a family.

One temporary aspect of the SDLT increase is that it could prompt a flood of investor purchases in the short term, as the tax will not be applied until April 2016, which could in itself exert immediate pressure on an already heated market.

Investors have been hard hit this year as the increase in SDLT follows on the heals of the announcement in the last budget about the staged reduction in mortgage tax relief on investment properties. The old adage of “not letting the tax tail wag the investment dog” is probably worth recalling as property nevertheless remains one of the most reliable investments available.