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New Buy-to-let Stamp Duty Laws from April

Wednesday, 10th February 2016

Categories: Lettings Market Analysis Property Prices Sales

Author: Tony Ryan

As buy-to-let landlords come to terms with the new Right to Rent legislation, they’ll also need to get their financial heads around the April changes to stamp duty laws. Chancellor George Osborne has introduced new stamp duty rates for purchases of second homes and buy-to-let properties. The new rates mean that each property value band will incur a rate increase of 3%, no small amount especially when margins for buy-to-let investments can rest on a percentage point or two.

From April, anyone purchasing a property as a second home or investment up to the value of £125,000, will receive a stamp duty bill of 3% of the property’s sale price. This will be a particularly bitter pill to swallow, as properties in this price bracket don’t incur any stamp duty normally. The stamp duty for the next band (£125,000 to £250,000) will rise from 2% to 5% of the sale price, while buy-to-let buyers in the highest band (over £1.5 million) will have to come up with 15% of the purchase price.

So, what will this mean for the buy-to-let market? While investors seeking long-term growth in the property market to build their portfolio will probably still believe the investment to be worthwhile, those looking for a steady monthly income from tenanted properties might decide the figures simply don’t add up. And, when you factor in the tax changes that will see maximum tax relief cut from 45% to 20%, there is bound to be a dip in the buy-to-let and second homes markets over the coming years.

The worry for tenants is that rentals will universally increase, as landlords try to recoup their losses and ensure margins remain workable. On the flipside, the changes should help to ease pressure on first-time buyers, especially in buy-to-let hotspots, or areas where properties are snapped up as second homes. At the very least, investors and first-time buyers won’t necessarily be competing for the same properties on the same terms. Buy-to-let purchasers will no longer have the purchasing power to make offers over asking price: any increase in purchase price must be added to the additional stamp duty, which will make many properties an unattractive prospect.

It certainly seems that landlords have borne the brunt of many of George Osborne’s recent money-saving or generating schemes but as the old saying goes, “One man’s loss is another’s gain” and in this case anyway, first-time buyers seem set to reap the benefits.