Mortgage Market News

Stamp duty increase hits buy to let market

This month the topic everyone is talking about is Buy to Let.

In November it was announced that higher rates of SDLT will be charged on purchases of additional residential properties (above £40,000). The 3% increase will affect purchases such as Buy to Let properties and second homes, from 1 April 2016.^

Corporates and funds which make significant investments in residential properties will be exempt from the incoming stamp duty increase as they are playing a supporting role in achieving the government’s housing ambition.

However, policy detail such as whether 15 residential properties is an acceptable threshold is yet to be consulted on. The £60million the government hopes to raise from this tax increase has been earmarked for the communities in England most impacted by second homes.^ The table below shows the new stamp duty rates as of April 2016.

New stamp duty rates¤

Band Normal Rate Additional Property *
less than £125k 0% 3% **
£125k to £250k 2% 5%
£250k to £925k 5% 8%
£925k to £1.5m 10% 13%
rest over £1.5m 12% 15%
* Higher stamp duty rates for additional property from April 2016.
** For additional property the first £40k will attract 0% tax. From £40k to £125K the rate will be 3% on full purchase price.

So what does this mean in monetary value?

Stamp duty charge+

Purchase price First home Second home
£100,000 £ – £3,000.00 *
£125,000 £ – £3,750.00 *
£150,000 £500.00 £5,000.00
£175,000 £1,000.00 £6,250.00
£200,000 £1,500.00 £7,500.00
£250,000 £2,500.00 £10,000.00
£300,000 £5,000.00 £14,000.00
£400,000 £10,000.00 £22,000.00
£500,000 £15,000.00 £30,000.00
£750,000 £27,500.00 £50,000.00
£1million £43,750.00 £73,750.00
* Higher stamp duty rates for additional property from April 2016.

There has been much speculation as to how these new charges will affect the housing market. It has been suggested that the 3% increase will discourage property developers, causing a slow in house building.

Although the changes may bring about a decrease in house prices, the opportunity to buy will still be out of reach for many. As a result, the supply of rented property will decrease, while demand will not, giving landlords the opportunity to hike up rents. In the long term it seems likely that the number of owner occupied properties will increase.»

From the lenders perspective, these changes could make the prospect of lending to those wishing to enter the Buy to Let space less attractive as banks tighten their lending criteria.~

^ https://www.gov.uk/government/publications/main-tax-announcements-for-autumn-statement-2015/main-tax-announcements-for-autumn-statement-2015
¤ https://www.stampdutycalculator.org.uk/stamp-duty-rates.htm
+ http://www.theguardian.com/money/2015/nov/28/stamp-duty-buy-to-let-autumn-statement
» http://www.thisismoney.co.uk/money/buytolet/article-3336159/Buy-let-stamp-duty-hike-push-rents-higher-says-IFS.html
~ http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/12027732/Buy-to-let-investors-will-need-50pc-deposit-or-no-mortgage.html

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