What the stamp duty changes really mean for Landlords

What the stamp duty changes really mean for Landlords

Simranjeet Gill, Intermediary National Key Account Manager

This article was featured on PMS Mortgage Club.

Landlords have had a tough few years. Mortgage interest tax relief began tapering off in 2017, reducing how much landlords could offset against income tax. Capital gains tax now has to be paid within 30 days of selling a property, rather than during the next annual tax return.

With this trend of a tightening tax regime firmly established, when the Chancellor, Rishi Sunak announced a series of measures to help the UK’s post-lockdown economy in early July, few expected any help for landlords.

Yet changes to how stamp duty will be paid between now and March 2021 offered a surprise boost for anyone in the market for a second property.

While the 3% surcharge on second homes up to £500,000 remains in place, this will be the only payment needed to the Treasury on those properties purchased until next March.

It raises questions about why the Government has provided a carrot to landlords, when the trend in recent years has been to only offer the stick.

The good news is that it indicates this Government may be more supportive of landlords, and that it recognises they have a big role to play in the property market, particularly at a time of economic difficulties. It puts distance between this administration and the era of David Cameron and George Osborne, who implemented many of the tougher Buy-to-Let tax changes, suggesting there may have been a change of direction at the heart of government.

What motivated Sunak and Johnson is likely, in part, to be the fact that demand from landlords helps to support valuations and any slide in house prices would have a detrimental impact on consumer confidence and spending. This would hurt Britain’s economic recovery.

The sums involved are colossal. The property market in England alone is worth £6.06trillion and, during lockdown, commentators suggested property prices could fall by 5% at best, and 23% at worst. Although the early signs when the market re-opened in May were encouraging, there was no guarantee that consumer confidence could be maintained.

They needed to inject confidence, and a stamp duty change that is universally accessible achieves this. It could also dramatically stem the tide of landlords who have been leaving the sector in the past few years. Around 222,570 of them have left the market since 2017, making the 2.66 million still operating the lowest number in seven years.

Of those who remain, 30% are estimated to own more than one Buy-to-Let property, the highest proportion on record. It underlines that it is the accidental landlords, often with one rental property, who have been hit hardest by recent tax changes and most likely to have left the market altogether.

Yet sustaining the Buy-to-Let market is going to be even more vital now. Firstly, the rental sector is evolving, and there is a sizable and growing proportion of people who prefer to rent owing to its flexibility.

There are now also more older renters, with an 81% increase in 34-44 year olds in rented accommodation between 2008/09 and 2018/19, and a 43% rise in 55-64 year olds over the same period. Nearly one in five homes is privately rented, and this is predicted to grow to one in four by 20255.

However, we may additionally see more people needing to live in the private rented sector over the next few years owing to the economic consequences of the coronavirus.

If the UK has fewer landlords, and potentially fewer properties on offer, that will drive up prices in the rental market, narrowing choice and possibly driving people further away from workplaces and their families.

The stamp duty cut may not entice accidental landlords who have left the market to return. However, it offers great scope for an expansion of the rental market between now and next March.

It is also well timed, with providers including Gatehouse recently allowing their criteria to revert back to where it was pre-lockdown, not just for single units but Multi-Unit Freehold Blocks too.

Many professional landlords may see the aligning of these two stars as a strong short-term opportunity which, after some challenging years, is just the invitation they need.