The problem with changing government policy is that no-one is ever quite sure how people will react. This has certainly been the case with the new higher stamp duty charge for those who complete on a property that is not their primary residence – especially impacting buy-to-let investors.
The reaction to the 3% rise in stamp duty, which applied from 1st April 2016, was that investors went a little crazy in the months leading up to it!
A recent release from the Council of Mortgage Lenders showed lending in value terms:
- Was 43% higher in March 2016 than the previous February
- Year on year, was 59% higher
- Lending was at its highest month since 2007 – just before the crash.
CML economist Mohammad Jamei concluded: “The distortion caused by this stamp duty change appears to be larger than with any previous stamp duty change we’ve seen.”
And we had very buoyant feedback on property prices, with Nationwide’s Chief Economist, Robert Gardner, revealing that, for March, “The annual rate of house price growth rose to 5.7%, the strongest pace since February 2015, up from 4.8% the previous month”.
With such huge increases in purchases up and down the country for buy to let, current evidence suggests that, rather than try to avoid a bubble by dampening demand, the Government’s new policy has initially resulted in a mini ‘buy to let boom’!
Usually, when purchases go up versus their norm, it’s because there was a previously poor month or a terrible month follows to compensate, and it’s this reaction I am getting differing views on.
On the one hand, some agents are saying they are seeing an increase in requests from landlords – especially in places outside London, such as Nottingham, where prices are a lot lower. In general, talking to agents and gauging their reactions, there are three main responses*:
- Yes, there has been a slight slowdown
- No, there hasn’t been a slowdown
- Landlords are still in the market, but are using the increased stamp duty as a tactic to reduce offer prices.
So far, it seems the new policy has increased short-term activity and, apart from a few months’ impact of sales brought forward, landlords don’t seem to be deterred at all. They have either brought forward their purchase or, in some cases, simply moved away from expensive areas, to cheaper areas in the Midlands and North.
What will happen in the future?
On the one hand, the extra stamp duty can be used to help fund first-time buyers getting on the ladder (this was promised by the Treasury) , but it doesn’t actually seem to have dampened demand, which was the key aim: to stop buy-to-let investors causing a ‘bigger bubble’ than necessary.
Regardless of whether the government wants to reduce demand from buy to let investors, the reality remains that landlords’ returns depend on tenants, not just taxation. And with Savills predicting the need for a million new homes in the rental sector over the next five years, it’s unlikely that current and future landlords will be deterred, meaning the only real beneficiary of this policy is those who need help to get onto the ladder in the first place.
The higher rates will be 3 percentage points above the current SDLT rates, and will take effect from 1 April 2016. The government will use some of the additional tax collected to provide £60 million for communities in England where the impact of second homes is particularly acute.
The tax receipts will help towards doubling the affordable housing budget. This will help first time buyers and is part of the government’s commitment to supporting home ownership.
*Source: this is from my discussions with agents and also from a recent survey we did for Belvoir agents
http://pdf.euro.savills.co.uk/uk/residential---other/spotlight-rental-britain-february-2016.pdf (page 1, first paragraph)
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