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Stamp duty hikes could offer a good opportunity for first time buyers

 

 

A stamp duty hike for people purchasing second properties such as buy-to-let investments and holiday homes comes into force from Friday.

The move will mean that people buying a second home will pay three percentage points above current stamp duty rates. While it could put off some investors and lead to some pushing up rents to offset their costs, it could also provide some aspiring first-time buyers with a window of opportunity.

The new rates of stamp duty land tax (SDLT) will apply to purchases of additional residential properties in England, Wales and Northern Ireland.

In the recent Budget, the Government confirmed that big investors will not escape the stamp duty hike, despite their contribution to the housing supply.

A consultation had considered whether it may be appropriate to have an exemption for investors buying at least 15 residential properties, but it was decided that there will be no exemption for significant property investors.

However, people who temporarily end up with two properties due to difficult circumstances, such as retirees downsizing into a smaller property but struggling to sell their original home, will be given some extra breathing space from the new stamp duty rate.

The Government decided that purchasers will have 36 months rather than the originally proposed 18 months to claim a stamp duty refund, in the event that there is a period of overlap or a gap in ownership of a main residence.

Landlords are also facing a financial squeeze due to restrictions on their tax breaks, while a ”wear and tear allowance”, which allows landlords to reduce the tax they pay, regardless of whether they replace furnishings in their property, will also be replaced by a new system that only allows them to get tax relief when they replace furnishings.

The Association of Residential Letting Agents (Arla) found that nearly two thirds (63%) of letting agents predict the supply of buy-to-let properties will fall after the April 1 stamp duty deadline as landlords are pushed out of the market.

Nearly six in ten (57%) Arla members believe rents will be pushed up once the stamp duty reforms have come in to effect, as increased costs for landlords are passed through to tenants. This is particularly high in London, where three quarters (73%) of letting agents expect to see this happening.

David Cox, managing director of Arla, said: “It’s likely that we’ll see the buy-to-let market drop like a stone come April and probably not pick up again until next year.”

In Scotland, SDLT has been replaced by the land and buildings transaction tax (LBTT).

A hike in this tax is also coming into force in Scotland on the purchase of additional homes such as second homes or buy-to-let properties from April 1, with the aim of avoiding any potential distortions to the housing market in Scotland that could have come from the stamp duty hike for investors in the rest of the UK.

Concerns were raised that investors could have piled into the housing market in Scotland to avoid the stamp duty hike on investment properties, making life harder for aspiring first-time buyers trying to find a home there.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics) said there has been some evidence of landlords looking to bring forward purchases that might otherwise have taken place later this year, to beat the April 1 stamp duty increase.

He told the Press Association: “Our members have given us a fairly consistent impression across most parts of the country that people who were thinking of buying a buy-to-let or a holiday home were looking to accelerate the process.

“The first outcome of the implementation (of the stamp duty increase) is likely to reflect the fact that transactions that might have taken place later this year have already taken place.”

Mr Rubinsohn said many landlords may well see the rental market as attractive and will not necessarily exit the market.

But he said the additional financial burdens for landlords and the continued high demand for housing “could quite conceivably lead to higher rents if the market will bear it”.

With some landlords having already brought their purchases for this year forward, the stamp duty hike could give aspiring first-time buyers a window of opportunity in the coming months.

Mr Rubinsohn said: It may be we see prices ease off a bit. First-time buyers may think it’s a good opportunity.

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