How will stamp duty increases for second homeowners affect the rental market?

Small landlords investing in buy-to-let property face a huge hike in stamp duty from April 2016. The new, higher stamp duty rates will apply to buy-to-let properties as well as holiday lets. However corporate entities or funds with 15 residential properties or more will be exempt from the higher rates.

Those who buy property after 1st April will have to pay three more percentage points in stamp duty than they do now. So if you buy a house at, say, £300,000, the duty will rise from the current £5,000 to £14,000 – a whopping rise of 180%. The Treasury estimates the move will result in an extra £625m in the next financial year.

This is obviously going to have a negative effect on cash flow for landlords and make buy-to-let less desirable for small investors. It’s also likely to make renting homes less desirable for tenants – the Royal Institution of Chartered Surveyors expects rents across the UK to increase over the next five years as a result.

The impending stamp duty increase has already had a short-term effect on the housing market. The UK’s largest chartered surveyor, e.surv, has reported that growth in buy-to-let mortgage approvals has pushed lending on homes to its highest level in nine years, with average selling prices rising 17%.

The National Landlords Association is also forecasting that half a million buy-to-let flats and houses will be put on the market in the next year as landlords dispose of their properties. The Government’s hopes are that if house prices drop, more young people will be able to get onto the housing market. However, economists at Standard & Poor are warning of a decline in home ownership over the next few years, with people increasingly being forced to rent and therefore unable to save enough to buy their own property.

Existing landlords won’t be affected by the changes unless purchasing additional properties, but if you are thinking of investing in buy-to-let, it’s now more important than ever to do your sums and ensure you’re getting a good return on your investment. If this is something you’d like us to help you with, please feel free to get in touch.

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