Market Insight - December 2015
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Chancellor Pulls (Not a Very Nice) Rabbit out of his Hat
The three per cent hike in stamp duty is the second hit to landlords in less than six months.

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As if removing the tax relief for buy-to-let landlords in July’s budget wasn’t enough, the chancellor had another nasty surprise for them in the Autumn Statement – a 3 per cent hike in stamp duty. It applies to people buying a buy-to-let or second home from April 2016 and sales will have to be completed before that date to avoid the extra charge. An exchange of contracts won’t be enough except for new build homes where contracts exchanged before the autumn statement will not be charged the extra rate. The arrangements are harsh in that it seems that landlords and second home buyers will have to pay 3 per cent extra on the whole price of the property unless it is valued at less than £40,000.*

That means that for the average flat costing £179,800 a landlord will now pay £6,491 in stamp duty, £5,400 more than the current £1,096 – a significant hike which will make prospective buy-to-let purchasers do their sums more carefully.

The higher tax means an effective increase in the property price for landlords which reduces the yield and alters how property performs against other assets. The silver lining is that this should be good for first-time buyers as they face less competition from landlords and hopefully more new supply available from the starter home scheme. As with previous increases to stamp duty, and indeed stamp duty holidays, there is likely to be a spike in activity in the early part of the year as buyers bring forward purchases to beat the rise, but that will mean a lull from April.

On the price side, typically a higher tax would lead to a reduction in price over time to reflect the higher costs, but because this is only a tax on buy-to-let properties and second homes, demand from first-time buyers should remain, making the price effect more limited. The charge will affect markets across the country differently. While the cash increase is highest in London, the biggest proportional difference is in the lowest price bands. The effects on prices and activity are likely to be as pronounced in the Midlands and North as London and the South.

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