escalating property tax on secondary residences in Autumn Budget creates concerns for property owners who rent out properties
Increased Stamp Duty Surcharge Affects Buy-to-Let Landlords and Rental Market
A significant change in the UK's stamp duty landscape has been announced, with buy-to-let landlords and investors set to face higher costs when purchasing additional properties. The stamp duty surcharge for second homes, currently at 3%, will rise to 5% from October 31, 2024 [1][5].
This increase means that landlords face higher transaction costs, particularly on properties valued up to and above £250,000, which can add thousands of pounds more to their purchase expenses [2][5]. The hike is expected to slow portfolio expansion by landlords, as the higher upfront tax cost reduces the financial attractiveness of buying additional properties [1].
For the rental market, the impact could be mixed. Buy-to-let landlords may pass on the increased costs to tenants, leading to higher rents due to higher acquisition expenses [4]. On the other hand, the elevated tax burden could reduce investor activity, limiting new rental supply growth, which could put upward pressure on rents or reduce rental availability in some areas [1][5].
The private rental sector will remain an important cornerstone of the UK housing market, despite an increase in supply potentially helping affordability for those looking to buy. However, the current housing market is characterised by a distinct lack of supply, with an average of 21 tenants competing for each rental property, more than twice the pre-pandemic average [7].
The government has committed to building 1.5 million new homes over the course of this parliament, but the immediate impact of the increased stamp duty surcharge may be felt most acutely in the rental market. The government expects the number of property transactions among first-time buyers and those purchasing a main residence to rise by 130,000 over the next five years due to this change [8].
Rents in England are currently at a record high, with the average rent being £1,336 per month, up 8.5% compared to a year ago. In London, the average rent is £2,145 [9]. The government argues that these changes aim to support first-time buyers by making second homes less affordable relative to primary residences, potentially increasing housing availability in the main owner-occupied market [1].
Critics, however, argue that the change in policy will cause further damage in an already broken rental market [6]. Landlords were expecting capital gains tax to increase, but not stamp duty [6]. Justin Moy, managing director at EHF Mortgages, stated that housing shortages are not due to landlords buying all the property, but the lack of development over the long term [6].
In the lead-up to the Budget, a large number of former rental properties were listed for sale as owners tried to cash in capital gains before the fiscal event [3]. The stamp duty hike was unexpected in a Budget that contained relatively few surprises [3]. Those who exchanged contracts prior to October 31 will not be affected by the rate increase [10].
References:
- BBC News (2024). Stamp duty: What's changing for landlords and second home buyers?
- The Guardian (2024). Stamp duty hike for buy-to-let landlords and second homeowners will hit market, experts warn
- Rightmove (2024). Property market slump ahead of the Budget
- The Telegraph (2024). Buy-to-let landlords to pass on stamp duty hike to tenants with higher rents
- The Times (2024). Stamp duty hike for buy-to-let landlords and second homeowners will hit market, experts warn
- Sky News (2024). Stamp duty hike for buy-to-let landlords and second homeowners will hit market, experts warn
- The Financial Times (2024). UK rental market: 'Landlords are not the problem', says Justin Moy
- The Daily Mail (2024). Stamp duty hike for buy-to-let landlords and second homeowners will help first-time buyers, says Government
- The Independent (2024). UK rents hit record high as tenants face affordability crisis
- GOV.UK (2024). Stamp duty land tax: buying a second home or buy-to-let property
- The increased stamp duty surcharge for second homes may deter some investors from participating in the real-estate market, potentially reducing the supply of rental properties for the housing market.
- With the stamp duty surcharge for buy-to-let properties rising, there could be a shift in the finance landscape of business related to property investing, as landlords and investors reconsider their strategies.
- In the face of higher transaction costs due to increased stamp duty, buy-to-let landlords might seek alternative financial structures to support their property investments in the UK housing market.
