Changes to stamp duty treatment of second homes, as announced in yesterday’s budget, could lead to more landlords exiting the space some industry experts fear.
In the first Labour party budget in 14 years chancellor Rachel Reeves announced the stamp duty land tax (SDLT) on second homes will increase from 3% to 5%.
In supporting this announcement, the government wants to ensure that those looking to buy a home have “a comparative advantage” over second home buyers, businesses and landlords.
However, some now fear this will lead to landlords re-evaluating the worth of staying in the market.
"The impact of increased capital gains taxes on investment properties will incentivise landlords to leave the rental business, which will reduce the rental stock and exacerbate the increase in rents for renters,” said Ingrid McCleave, partner and tax specialist at law firm DMH Stallard.
"Individual landlords are already under financial pressure because of the reduced interest deductions on mortgages. This could be the last straw and reduce housing stocks even further."
While Amy Reynolds, head of sales at estate agency Antony Roberts, said the budget wasn’t as dramatic as feared from a property perspective she still expects this to lead to a “modest cooling” in the BTL sector.
“Keeping CGT at 18% for basic rate taxpayers and 24% for higher-rate taxpayers on BTL and second properties may continue to incentivise landlords to sell – something we are already seeing as landlords become cost-conscious through increased mortgage costs,” said Amy.
“This will benefit first-time buyers if there is an increase in stock, making the housing market more competitive and price-sensitive.”
With many landlords already complaining about the renters’ rights bill, and plans to mandate EPC improvements over private rental stock, some had hoped for more support to be shown in the budget.
Isobel Thomson, CEO at safeagent, a not-for-profit accreditation scheme for lettings and management agents, said the lack of reference from Reeves as to the importance of landlords was “disappointing”.
She added: “With no specific incentives for them to continue to remain in the market at a time when the lack of detail surrounding regulatory reforms is already causing uncertainty, this is disappointing and shortsighted.”
From a wider perspective, some BTL experts have questioned the merits of this tax change and how it will impact UK housing stock.
Mark Harris, CEO at mortgage broker SPF Private Clients, argued that many investors no longer try and quickly flip houses.
“Most people are in it for the long term and continue to want to hold property for the long term – an additional entry cost is irritating and might put off new entrants to the market,” said Mark who did concede that keeping CGT the same for property sales is welcome and “will hopefully stave off any panic selling.”
Overall, Charlie Wells, managing director at Prime Purchase questioned why the government was adopting such an approach with landlords.
Arguing that most property transactions in the UK are needs-based, Charlie said the tax change will more likely impact those who are not wealthy: “It does seem odd – and the Conservatives are also guilty of this – to keep having a go at the property market bearing in mind it is a genuine cornerstone of the economy.
“Investing in bricks and mortar and owning the roof over your head is widely regarded as the most secure way of living your life. Whether it’s a two-bed semi-detached former council house, a small family farm or something much larger – it is a measure of people’s success but seems to be an easy target.”
