New stamp duty tax from April has seen a surge of buy-to-let landlords with the increase demand increasing the price of homes.
The Royal Institution for Chartered Surveyors (Rics) survey shows an increase in new instructions in January as buy-to-let landlords attempt to beat the April deadline when a new 3% stamp duty land tax (SDLT) is introduced.
Housing market activity is on the increase in January with 74% of Rics respondents expecting an increase in buy-to-let purchases.
There has been an increase in the supply of properties which has been significant in London as demand and sales increase, although activity was much flatter outside the capital.
Demand remains strong
Rics has reported an increase in the number of new buyer enquiries for the tenth consecutive month up to January with the pace increasing for the last two reports.
The survey suggests that the surge in demand is from buy-to-let investors rather than first time buyers or home movers.
Activity in the housing market has gathered pace ahead of the 3% tax changes in April with agreed sales rising at the fastest rate since April 2014.
Although the picture is mixed with London clearly ahead of locations, most areas in the UK have experienced an increase in sales since the start of the year which is likely to continue.
The changes to tax in England and Wales for buy-to-let landlords are shown in the following table:
| Property Values | Standard Rates | Buy-to-Let Rates |
|---|---|---|
| Up to £125,000 | 0% | 3% |
| £125,000 – £250,000 | 2% | 5% |
| £250,000 – £925,000 | 5% | 8% |
| £925,000 – £1.5m | 10% | 13% |
| over £1.5m | 12% | 15% |
For residential properties up to £125,000 the SDLT is zero but for landlords this will be 3% or £3,750 from April 2016.
The tax increases with the price of the property and with a £300,000 purchase price residential stamp duty is £5,000 compared to a landlord paying £14,000.
Housing stock is increasing
The supply of homes on the market has increased in the past two months with Rics reporting 46.0 properties per branch compared to 44.5.
Housing stock remains 21% lower than a year ago and much of the increase can be seen in London where 58% more respondents noted an increase while sales instructions were flatter across the rest of the UK.
The lack of supply of homes could mean remortgage buyers staying in their current property and increasing their mortgage to releasing capital which they can use to improve their home.
Surveyors have reported prices increasing due to buy-to-let investor demand with 49% reporting prices rising in January.
This indicator is typically six months ahead of the ONS house price inflation figures and 72% of respondents expect house prices to rise in the next twelve months.
Higher prices makes it harder for first time buyers and home movers as they require a larger deposit to buy whereas for remortgage buyers this give them an opportunity to release capital to improve their home.
The rise in house prices makes it harder for first time buyers as they require a larger deposit or higher income to buy their home. In contrast, higher prices for remortgage buyers give them an opportunity to release capital to improve their home.
There are concerns that buy-to-let landlords will scale back their portfolios or exit the market with more the penal tax regime which may increase rents.
Despite higher property prices, help with the larger deposit for a new home can come as a gift from family members as the equity release buyer can access money using a lifetime mortgage.
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.
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 help your children start or expand a business.
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.
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