Buy-to-let landlords and second-home buyers to be hit by the increase in stamp duty after yesterday’s spending review

George Osborne announced yesterday in his spending review that buy-to-let landlords and homeowners buying a second home will have an extra 3% of stamp duty to pay over and above the current stamp duty bands. This table shows what the new stamp duty bands will look like:

Property price |  Standard stamp duty | Buy-to-let /second home stamp duty (April 2016)

£0 – £125,000 | 0% | 3%

£125,000 – £250,000 | 2% | 5%

£250,000 – £925,000 | 5% | 8%

£925,000 – £1,500,000 | 10% | 13%

£1,500,000+ | 12% | 15%

For would-be investors or second-home buyers, this could be a significant hit – but it will only come into force on deals completing after April 2016; so now’s the time to start buying if you want to avoid the additional charge!

But what does it mean for the rest of the market, post April 2016?

The thought behind the increased stamp duty is that buy-to-let landlords and second home owners are preventing first-time buyers from making their first step on the property ladder, as they are snapping up all the affordable properties to let out for rental income.

We understand this issue, and wholeheartedly welcome anything that makes more properties available for first-time buyers. However, investors are not the enemy here; the market still needs buy-to-let properties that are rented out at affordable prices. Will this tax mean rental prices are forced up, as there are fewer rental properties on the market? In which case, tenants who are saving for a deposit could take even longer to save enough money to contemplate becoming a first-time buyer!

Unfortunately, this new tax is likely to mainly hit the private landlords with just a small portfolio of properties, where yields are already tight; those who are planning for their future and purchasing one or two properties to give them security of an income instead of a pension. This type of property investor may well now be ejected from the market, as it simply becomes an unaffordable strategy. Are the major investors, on the other hand, who are used to purchasing multiple properties with plenty of financial backing, really likely to be deterred by 3%? If not, then the original problem will still exist…

Who knows which way it will turn? It will be interesting to see the impact of this new tax in practice. But in the meantime, if you want to find a buy-to-let or second home quickly before April, why not give us a call and we’ll get searching for you!