‘Thousands of purchases could be abandoned’ after chancellor’s surprise stamp duty hike

Published on 31st October 2024, 8:57am

Estates agents are being urged to brace themselves for a potential surge in property fall throughs in the coming days, as well as renegotiations on already agreed deals, following the hike in the stamp duty rates this morning for those buying a second home after chancellor Rachel Reeves announced major changes in her Budget yesterday.

Second home buyers in England and Northern Ireland have seen the rate they pay in stamp duty increase from the old rate of 3% to 5% from today, following the change and that is now likely to deter many people from completing on already agreed property deals, according to some market commentators.

Peter Stimson, head of product at MPowered Mortgages, commented: “Buy-to-let landlords and second home owners were expecting another tax squeeze from the Chancellor. But what they got was a whack with a hammer.

“Not an increase in general taxation or the capital gains tax they pay when selling a rental property, but a whopping 2% uplift in the stamp duty payable when buying a home to rent out.

“A sector rendered fragile by successive tax raises and interest rate rises is now likely to be clinging on by its fingernails after the announcement.

“Fewer than one in 10 mortgage applications made this year were for a buy-to-let loan, less than half of what it was just a few years ago.

“That share is now likely to plunge further as would-be landlords run the numbers and decide they just don’t stack up.

“The changes come into force from today, so there’s a real danger that thousands of purchases that were already in the pipeline will now be abandoned.

“But while hammering buy-to-let landlords is almost a national pastime for chancellors of all political stripes, the severity of Rachel Reeves’ decision took many people by surprise.

“The irony is that it’s not just landlords who will feel the pain. A third of Britons don’t own their own home, and for many of them, renting privately is the only option.

“With rents already rising and the supply of rental properties about to be further disrupted, rents could now climb even higher. Far from solving the housing crisis, this, at least in the short term, could well exacerbate it.”

Nick Lyons, chief executive of inventory experts NoLetting Go, agrees that renters will ultimately pay the price of yet another draconian tax announcement targeting private landlords.

He said: “I can’t see any measures [in yesterday’s budget announcement] that will grow the PRS – so it looks like supply will continue to be restricted which means rents continue to rise.”

Paul Johnson, the director of the Institute for Fiscal Studies, the independent economic research think tank, also expects the hike in the stamp duty rate on second homes to ultimately impact renters, who have to foot the bill.

He said: “I have long said stamp duty is among our worst taxes. So what do we have? An increase for those buying second properties. You might think fine: a tax on rich people and landlords. But those looking to rent will pay part of the cost as fewer properties made available. I despair.”

Steve Griffiths, chief commercial officer at The Mortgage Lender, believes that landlords should no longer face increased taxation.

He said: “With strong demand for rental properties the need for a healthy private rental sector, and the professional landlords that facilitate this, is clear. We cannot keep asking landlords to bear the brunt of increased taxation, particularly at a time when there is a shortage of affordable homes available to buy and significant affordability challenges for first time buyers.

“It is likely that we’ll see some landlords re-evaluate any additions to their portfolios in light of the 2% increase to 5% on higher rates stamp duty for additional properties, effective immediately, with some smaller landlords weighing up whether it makes commercial sense to continue to operate. 

“Not everyone is ready to, or wants to buy a home. The private rental sector provides flexibility and security to millions across the country. If we want to encourage professional landlords that provide quality, energy efficient rental properties, we cannot afford to be punitive.”

Lisa Simon, head of residential at Carter Jonas, added: “The announcement to raise the higher rate of Stamp Duty Land Tax on second homes from 3% to 5% is expected to deal another blow to landlords and investors, further impacting the buy-to-let market and doing little to support the need for long-term rental properties.

“When the initial 3% surcharge was introduced in 2016, it caught the market off guard, leading to a rush of purchases before the tax took effect. However, this latest increase, which is being implemented almost immediately, is unlikely to produce a similar surge in activity. Furthermore, over the past eight years, the private rented sector has faced numerous tax increases, regulatory changes, and additional burdens.

“This new cost is likely to discourage further investment. As more landlords exit the market and the supply of rental properties stagnates or declines, the higher tax rate will worsen the situation, potentially reducing housing options for tenants and driving up rents.”

< Return to News archive