The UK government will raise the stamp duty by three percentage points for second-home purchases and buy-to-let investments in a bid to ease first-time buyers, Chancellor of the Exchequer George Osborne revealed in his highly anticipated Autumn Statement.
The extra surcharge is aimed at stemming the booming growth of residential property investment which has expanded at an alarming rate, raising “boom-bust” concerns, and has pushed first-time would-be buyers out of the market.
The Chancellor said that the “bold plan to back families who aspire to buy their own home” will also include bigger interest-free loans for first-time buyers in London, the construction of 135,000 affordable shared ownership homes, and releasing public-sector land with capacity for 160,000 homes.
The changes will address “a growing crisis of home ownership in our country,” Osborne said. “15 years ago, around 60 percent of people under 35 owned their own home, next year it’s set to be just half of that.”
However, the extra stamp duty surcharge, which will not apply to commercial property investors with more than 15 properties, was met with distrust and outright anger by many investors. They accused the Chancellor of wanting to “choke off” future investment in the buy-to-let market, which is dominated by small-scale private landlords, estimated to number some 1.4 million.
“The exemption for corporate investment makes this effectively an attack on the small private landlords who responded to the housing crisis by putting their own money into providing homes by the party that they put their faith in at the election,” said Richard Lambert, the CEO of the National Landlords Association.
“If it’s the chancellor’s intention to completely eradicate buy-to-let in the UK then it’s a mystery to us why he doesn’t just come out and say so?”
Osborne argued that the change is designed to address the home ownership crisis and noted that “many of [the buy-to-let homes] aren’t affected by the restrictions I introduced in the budget on mortgage interest relief; and many of them are bought by those who aren’t residents in this country” .
In July, the government laid out plans to lower tax relief for landlords based on mortgage rates, while a further “wear and tear” tax break is also set to be scrapped, as part of Whitehall’s bid to make property investment less attractive.
The stamp duty surcharge, however, will have a reverse effect on the market, at least until the changes come into effect in April, experts cautioned.
“The stamp duty changes will turbo-charge the housing market over the next four months as buy-to-let landlords and holiday home buyers race to beat the deadline before the changes bite in April,” said Doug Crawford, head of conveyancing firm My Home Move. “This will inevitably push up property prices in the short term, especially in locations popular with buy-to-let investors, such as London.”
Over the longer term, buy-to-let investors were “likely to display greater caution faced with higher transaction costs,” Lucian Cook from Savills noted.
“These buyers have historically been particularly attracted to new-build housing. That means once the changes are introduced housebuilders will be less able to rely on this type of buyer and will have to focus more on demand for the shared ownership, starter homes and help-to-buy product that is supported by other government policy.”