It’s been a full month since Labour’s first Budget and the announcement that the stamp duty surcharge (SDLT) on second home purchases was to increase from 3% to 5%. However, our analysis of sales agreed in November suggests that it’s had a limited headline impact on landlord behaviour. 10.7% of sales agreed across Great Britain in November went to a landlord, above the 2024 average to date of 10.2%
While the number of buy-to-let purchases by landlords remains muted by historic levels, their numbers have not collapsed. However, purchases are confined to the Midlands and Northern England which are becoming buy-to-let heartlands where the surcharge bites slightly less hard.
Landlord purchases remain well below the 2015 peak of 15.7%, but the figure remains broadly in line with more recent years when buy-to-let purchases have become rarer. Landlords accounted for 10.8% of buyers in 2019 and 10.9% in 2020, years when movers made up a much larger share of the market.
Our analysis shows that most investors who agreed deals in advance of higher stamp duty rates being announced in the Budget have remained committed to their purchase. Twenty-eight percent of sales agreed by investors in the three months running up to the stamp duty surcharge increase were either renegotiated or remarketed, around half the level recorded during the aftermath of the 2022 mini-budget when mortgage rates rose quickly.
While no landlord will welcome a tax rise, falling interest rates next year will push buy-to-let returns to near the top of investment league tables. With savings rates heading closer to 3%, gross yields in Northern England of above 8% will increasingly attract money that would previously have gone elsewhere. While political headwinds haven’t gone away, these risks and added costs are increasingly being priced into buy-to-let returns in the form of higher yields.
The increase in stamp duty rates means that on a typical £300,000 purchase an investor pays £17,500 (5.8%), a mover £2,500 (0.8%), and a first-time buyer nothing. The introduction of the 3% SDLT surcharge has increasingly pushed investors towards the North of England where stamp duty bills tend to be lower because of lower property prices. Increasing the surcharge from 3% to 5% is likely to exacerbate this.
Since the introduction of the surcharge, the largest falls in investor purchases have been in the South of England (particularly outside London) where stamp duty bills can make buy-to-let unviable. On a £500,000 purchase, the stamp duty bill for an investor now stands at £37,500 (7.5%), rising to £40,000 (8.0%) from 1 April 2025.
In contrast, landlord purchases have held up more strongly in Northern England, with investors in the North East purchasing a larger proportion of homes than before the introduction of the surcharge in 2016. Last month, 18.4% of homes sold in the North East were bought by a landlord, 0.2% above November 2015 levels before the stamp duty surcharge was introduced. Here, the average investor paid £115,000 for their buy-to-let, meaning their stamp duty bill would have risen from £3,450 to £5,750.
A growing share of buy-to-let purchases in the North of England are by investors who live in the South of England and have been attracted by lower stamp duty bills alongside higher yields and faster house price growth over the last few years. The average gross yield achieved on a buy-to-let purchase in the North East this year was 9.7%, while investors in the North West and Yorkshire & Humber achieved an average of 8.3%.
When the 3% SDLT surcharge was introduced in 2016, the government estimated it would raise between £700m-£900m per year. In hindsight, it raised between two and three times this amount. The government estimates that increasing the surcharge from 3% to 5% will raise a further £400m per year, reflecting only a modest decline in investor purchases. The relative strength of buy-to-let purchases in November supports these figures.
In Scotland, where the stamp duty surcharge paid by investors rose from 6% to 8% on 5 December 2024, revenue from investors accounted for an overage of 31% of total stamp duty revenue during 2024 (January-October 2024). This suggests a limited number of landlord purchases. Our figures show that investors purchased 5.8% of homes in Scotland so far this year, down from 10.3% when the initial stamp duty surcharge was introduced. Meanwhile, in England, the share of revenue from investors stands at 47% (January-September 2024)
Rental Growth
Rental growth dropped to the slowest rate for four years in November. Average rents on newly let properties in Great Britain rose by just 2.6% over the last 12 months, the lowest annual increase since the 2.4% recorded in November 2020. However, between November 2020 and November 2024, rents rose by a total of 31.6%.The fastest growth continues to be in Scotland and Northern England, where rents are up 7.2% and 5.7% respectively over the last 12 months. London rents nudged up just 0.4% over the last 12 months, the slowest growth in the country. The rest of Southern England saw rents rise by between 1.8% and 2.9% over the course of the last year.
The number of homes available to rent across Great Britain this year has consistently remained above last year's levels, putting downward pressure on rental growth. There are currently 13% more homes to rent across Great Britain than in November 2023, when stock levels were near rock bottom. More notably, there were just 10% fewer rental homes on the market last month than in November 2019 when rental stock levels were last materially higher. In 2023 stock levels ran at an average of 41% below equivalent 2019 levels.
