George Osborne delivered his Autumn Statement this week and housing was once again high on the government’s financial agenda.

Here we focus on the new 3% surcharge on stamp duty for buy to let properties and second homes, which will be introduced in 2016. Osborne hopes that this surcharge will create £1bn of funding, to go towards the creation of 400,000 new homes and fund the extended Help to Buy and Shared Ownership schemes.

We speak to three members of the Currell team to get their opinion on the effect this new surcharge could have on the market.

Changes to stamp duty could discourage small scale buy-to-let investors

Changes to stamp duty could discourage small scale buy-to-let investors

Simon Davidson, Commercial CEO

The new surcharge on stamp duty, announced in the Autumn Statement will undoubtedly have a significant impact on the buy to let sector of the residential market. Whether it means investors will just look to reduce their offer by the same amount will only become clear after April. It will probably mean that there is a short term flurry of activity in the sector in the run up to this being implemented.

It is not yet clear how this will be differentiated for large scale investors such as corporates and funds, but the Chancellor’s statement did say the increase in stamp duty would not apply to these entities.

It will mean sales of new build developments will be much more heavily focused on the UK domestic market i.e. owner occupiers.

The longer term impact will potentially result in higher rents as landlords try to recoup their increased purchase costs and investors seeking alternative asset classes which still provide exposure to the UK housing market.”

Anna Ainsworth, Head of Residential Investment & Development

The new surcharge has angered many private Landlords who buy-to-let and people in the industry are generally voicing the end of buy-to-let as a viable investment vehicle.

The additional surcharges alongside changes in Capital Gains Tax which place further pressure on these property investors will undoubtedly effect this market and sales of this nature will fall dramatically once the changes come in to place.

In the short term, before the changes come into place, we may see a peak in buy-to-let sales as buyers rush to beat the April date.

It’s important to acknowledge that commercial property investors don’t appear to have been targeted in the same way.  It is thought that those with 15 or more properties will be exempt from the new charges which means it may well push the smaller investor out of this market but a market will still exist for commercial investors who are acquiring PRS property.”

Paul Whish, Head of Lettings

As well as the new 3% surcharge, a second announcement revealed a Capital Gains Tax (CGT) surprise on exit. From April 2019, a payment on account of any CGT on the disposal of residential property will be due just 30 days after completion. This compares to the current rules where the settlement of the tax due can be anything up to 21 months after disposal depending when in the fiscal year the sale occurs

This announcement is on top of the removal of mortgage interest relief over a 4 to 5 year period announced in the summer. If we add to this stringent new regulations for rental property management and the requirement to do “Right-to-Rent” checks by all landlords from 1st February 2016, it seems the government is doing what it can to take the heat out of the buy-to-let market

Tenants may feel the impact as this may shorten the supply of rented accommodation and drive up further the cost of rents.

Landlords who have maximised their borrowings (and therefore exposure) in the hope of continuing to enjoy capital growth may now seek to sell part or their entire portfolio as any such properties which are standing at a gain are disposed before CGT acceleration is due.”

 

If you are an investor and you would like to speak to a member of our team about your residential portfolio please feel free to get in touch.

Simon Davidson, s.davidson@currell.com

Anna Ainsworth, a.ainsworth@currell.com

Paul Whish, p.whish@currell.com