Stamp duty holiday fails to ignite a buy-to-let boom

OCTOBER 2021

Despite investors stamp duty bills falling by a third, there is little sign that the stamp duty holiday led to large numbers of new landlords purchasing buy-to-lets.  The holiday resulted in a small uplift in the number of new buy-to-let investors, which peaked at 15% of purchases across Great Britain in February, but they were not outbidding owner-occupiers on any significant scale.

Over the entire course of the 15-month tax break investors purchased 12% of homes sold in Great Britain.  This is marginally up from an average of 11% during the 12 months before the holiday, but far from the 17% recorded in Q4 2015 – the run-up to the introduction of the 3% stamp duty surcharge on 1 April 2016.

In the 15-month run-up to the introduction of the 3% surcharge in April 2016 investors purchased 242,400 buy-to-lets.  Over the last 15 months, this figure stood at 215,000.

The holiday meant that the average investor paid less in stamp duty than at any time since April 2016, when the 3% surcharge was introduced.  Over the course of the 15-month stamp duty holiday, the average buy-to-let investor’s tax bill fell by 35% - from £8,500 in the month before the holiday, to an average of £5,500 between July 2020 and September 2021.  For the average investor, this equates to almost three months’ rent.

The average bill came to £5,300 during the first 12 months of the holiday when investors paid the 3% stamp duty surcharge on the first £500,000 of any purchase.  It then rose 17% to £6,200 when the threshold fell to £250,000 between July and September 2021.  Average bills are set to return to around £8,400 from 1 October 2021, just below what investors were paying on the eve of the stamp duty holiday.                                

However, there is little indication that investors used their savings from the holiday to buy bigger properties in more expensive areas.  Instead, 83% of investor purchases were under £250,000, meaning their savings from the holiday were significantly smaller than those enjoyed by home movers.  It also means that investors have been less sensitive to the change in the nil-rate stamp duty threshold since they tend to buy cheaper properties.

During the holiday the average price paid by a landlord rose by just 1% to £181,000, despite house price growth of 10% over the same period.  This suggests landlords were happy to pocket the tax saving rather than use it to buy a property that would generate more rent.

Stamp duty holidays have traditionally been an expensive giveaway for the chancellor.  They have often been deployed to jump-start the toughest markets in the months and years following big economic downturns.  However, despite fewer people paying stamp duty than ever before, this holiday will go down as one of the cheapest giveaways for the treasury in history as buyers paying the 3% surcharge have kept revenues up above 2019 times.

It is likely, that over the course of the stamp duty holiday, those paying the 3% surcharge will have contributed close to half of all residential stamp duty receipts. But our calculations show that only around half of people paying the 3% surcharge are buy-to-let investors, with the other half made up of second home purchasers or those buying a primary residence without selling their old one.