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UK’s new property tax rules will boost the buy to let market
, it is claimed.
The new rates will give the biggest savings to buyers at the lower and middle end of the market and according to Stephen Ludlow, chairman of lettings age Ludlow Thompson, as buy to let landlords usually invest in properties below £937,500 the changes will give almost all investors in this market a boost.
‘The changes in stamp duty will see the biggest increase in net returns for more modestly investments such as smaller properties in Zone three of London, city centre apartments, flats above shops, ex-local authority property and property in secondary locations,’ he said.
‘The reforms could encourage those who may have been delaying their purchase until after the election to reconsider. The new rates should also provide a boost to the sales market and result in an increased number of purchases in this usually quiet time for residential property deals,’ he added.
Graham Davidson, managing director of Sequre Property Investment, also believes the change is a positive one for the buy to let market. For example, a buyer of a high end two bedroom Manchester city centre apartment at a price of £150,000 will now pay just £500 stamp duty, a saving of £1,000.
‘However the impacts on the £925,000 plus market will certainly be felt throughout the industry, in particular by the higher end London property market. We would expect to see this contribute to a further slowing of the market there,’ he added.
Alison Platt, group chief executive of Countrywide, said the change is likely to attract more home buyers to the market. ‘So for those who are thinking of selling their property, there has never been a better time. Equally for buyers, a stable interest rate environment and the availability of a range of attractive mortgage products, means that now is an ideal time to purchase a home,’ she explained.
But Jamie Lester, head of Haus Properties, thinks it send shockwaves through the London market, particularly in the £1.5 million to £2 million price range. ‘This market has been especially active with buyers sticking below the 7% stamp duty and proposed mansion tax thresholds. These buyers will now have to pay a significantly higher amount,’ he said.
‘For example, someone purchasing a £1.9 million property would have paid £95,000 under the old stamp duty rules, whereas under the reforms they will be paying almost £50,000 more at £141,750. However, those buying just above £2 million won't be quite so heavily hit, for example, someone purchasing at £2.1 million will now be paying £165,750, an increase of £18,750,’ he explained.
Camilla Dell, managing partner of independent property buying agency, Black Brick, said there is no question that the old stamp duty bands were in desperate need of reform and overhaul.
‘For 98% of the UK population these changes are therefore clearly good news. But there is equally no doubt that these measures will hit property values in London and the South East and significantly slow the market. Deals that have yet to complete but have been agreed will now need to be renegotiated to reflect the change and it is inevitable that a number of these will now fail to complete,’ she pointed out.
She believes this is likely to be particularly acute at the very top end of the prime market above £10 million as for every £1 million above the old £2 million top rate threshold, buyers will now be paying an additional £50,000 in stamp duty compared to before. For the buyer of a £20 million London home, this equates to an additional £1 million in duties.
‘While we accept that stamp duty is a one off purchase tax that the majority of high end property buyers can comfortably afford to pay, these latest changes are likely to have a pronounced impact on market conditions in the coming months,’ said Dell.
‘The trend of investors focusing on lower priced property will continue. We predict that the sub £1 million market will rally as a result of the new changes and we will see over demand and under supply. There will be an immediate impact on deals already agreed but which have not yet exchanged. In particular, chains may well fall to pieces if the increased tax means that purchasers can no longer afford the property they are buying,’ she explained.
‘Given the time of year, many buyers may now wait until the New Year for the market to settle. We also predict that there will be a complete shift in the pricing structure of the market especially at £2 million. We will now see estate agents marketing properties at £2,050,000 for example, whereas previously there was a pricing void between £2 million and £2.2 million due to the increase from 5% to 7% at £2 million,’ she added.
She pointed out that one of the reasons why London attracts so much investment is due to the stability of the market. ‘This constant political intervention must have the effect of breeding some uncertainty. However we have been here before, and the market has not suffered. Only time will tell, but our view is that the new changes will simply be priced into the what buyers are now prepared to pay for a property and renegotiations will now be rife,’ she added.
Stephanie McMahon, head of research at Strutt & Parker, believes there is now no need for the much talked about mansion tax. ‘It was almost universally recognised that our Stamp Duty system was out of date and in desperate need of modernisation. The old thresholds were acting like invisible barriers and making the market very sticky in places,’ she said.
‘In the short term, current ongoing transactions will also be impacted. When any new tax is enforced this inevitably causes disruption. However, keeping the status quo was an unlikely outcome. Making this change immediate was sensible as it leaves no room for speculation and will not cause any further uncertainty which has been so damaging to our housing market around taxation changes in recent years. In the long term this new system shouldn't cause significant market disruption over an extended period of time,’ she added.