Landlords of buy-to-let properties must pay much higher stamp duty land tax following the chancellor’s Autumn Statement.
The rapid rise in sales of buy-to-let properties in the past two years could end as the George Osborne announced an additional 3% stamp duty land tax for second homes in the Autumn Statement.
For a £200,000 residential property a homeowner would only pay 2% or £1,500 on the value above £125,000 but for a buy-to-let landlord pays this and 3% extra on the whole value increasing the cost to £7,500.
The government intend to use the £3.8 billion raised in tax to help first time buyers on the property ladder with the launch of new Help to Buy, Shared Ownership and Starter Home schemes.
Move could increase rents
In the short term the move could result in higher rents to tenants as landlords recover the extra cost of a buy-to-let property.
Critics also claim the buy-to-let market is a response to demand and the tax will remove a key source of funding for new build developments and supply of property, further increasing rents.
The table below shows the new stamp duty land tax (SDLT) effective from April 2016.
| Property value | Standard rate | Buy-to-let rate |
|---|---|---|
| Up to £125,000 | 0% | 3% |
| £125 – £250,000 | 2% | 5% |
| £250 – £925,000 | 5% | 8% |
| £925 – £1.5m | 10% | 13% |
| over £1.5m | 12% | 15% |
These changes are only for England and Wales and for residential property up to £125,000 the tax is is zero, however, for a landlord this increases to 3% or £3,750.
For a £150,000 property a landlord would pay ten times more in tax than a residential homeowner. With a more expensive property of a £300,000 property residential stamp duty is £5,000 and for a landlord it will be £14,000.
Existing homeowners could consider let-to-buy where the remortgage buyer rents their existing property while buying a new home as their main residence resulting in a stamp duty tax charge.
The changes could result in a rush of demand for buy-to-let properties and a rise in house prices as landlords move to beat the April 2016 deadline.
However, further changes to tax may discourage landlords. Investors in the 40% tax bracket with a buy-to-let mortgage will no longer be able to deduct mortgage interest from rental income, significantly increasing their tax bill.
Older equity release buyers can stay in their home rather than downsize avoiding the expense of stamp duty by accessing the wealth in their property with a lifetime mortgage.
More funding for housing
The government intend to change the current rise in buy-to-let rental property and encourage people to buy their first home instead.
Competition and lack of suitable properties on the market at an affordable price for home movers means they will remain in their current home and saving for a bigger deposit.
In total an extra £6.9 billion is being invested in housing and this includes £2.3 billion of loans for the Starter Home scheme offering first time buyers 20% offer the market price of a home.
The scheme applies to new build homes for those under the age of 40 with discounted prices under £250,000 outside London and £450,000 in London.
There will be another £4 billion for housing associations and local authorities to build more Shared Ownership homes.
In addition there is another £200 million to build homes for rent allowing people to save for a deposit and the government’s Right to Buy scheme.
A new London Help to Buy scheme increasing the equity loan to applicants in the capital to 40%. The scheme is for first time buyers and home movers for new build properties in the capital with only a 5% deposit and a five year interest free loan.
The balance of 55% must be secured with a mortgage for a new build home in London with a purchase price up to £600,000.
What are your next steps?
Call our LCM mortgage brokers if you are a buy-to-let landlord with a property, remortgaging and want the best mortgage deal, buying your first home or you are planning to move home.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the mortgage monthly cost calculators, property value tracker chart and equity release calculator.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your home to spend on anything or even gift to a family member or friend.
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