Buy to Let

Stamp Duty increase affects more than just landlords

From older-generation homeowners unable to downsize, to buy-to-let landlords confronted with an extra 3% surcharge, the rise in Stamp Duty is something that detrimentally affects society.

I believe that the Stamp Duty increase not only negatively impacts landlords but also tenants, businesses, and the rental market as a whole, and should be greatly reduced for the greater good of the majority.

Believing that landlords are squeezing first-time buyers out of the housing market, the government cited a reduction in the relentless surge in house prices as one of the main reasons for the stamp duty increase. However, while the tax hike may slow down the rate of new buy-to-let mortgage applications, all it’s likely to do is shift the focus on growing housing prices to a rising value of rental accommodation.

Swapping focus from one to the other does not solve the problem, it simply means the financial pressures on aspiring homeowners are coming from a different direction.


Taxing motivations

The motivations for the tax hike have also been called into question. The government expected an extra £1bn in tax revenue from the 3% uplift in Stamp Duty, but the latest figures from HMRC reveal that the increase has been close to twice that.

There’s no suggestion that the extra tax revenue won’t be put to good use, but if restrained activity in the buy-to-let market ends up creating a domino-effect across the economy, while there’s been no perceivable benefit to aspiring homeowners, you have to question the merits of the tax.

To counter the pressure of the extra 3% landlord Stamp Duty, costs are likely to be passed on to tenants. As a result, rather than rectifying the situation, the issue of rising prices will only continue to spread across to the rental sector and impact tenants as well as buy-to-let owners.


Fatal blow

One-off landlords, in particular, are also less likely to buy additional properties, resulting in a sluggish buy-to-let market with a limited supply of rental accommodation.

Yes, it’s a useful deterrent that encourages professional landlords to proceed with caution, but for one-off landlords it’s a fatal blow that could result in them bowing out of the buy-to-let market altogether. In a nation that is being steadily consumed by a growing rental population, the effect of this is manifold.

As fewer buy-to-let properties are bought, so rental supply stagnates or even decreases, causing the demand for rental accommodation to fall out of balance with rental availability.

Consequently, for many young people already burdened with the rise in house values, increased levels of rental competition mean that rental prices will also increase, severely cutting off the opportunities for this large group of people.


Business boost

As well as limiting options, the rise in Stamp Duty dismisses the benefit of buy-to-let landlords to the wider economy.

There is a common misconception that buy-to-let landlords, principally with multiple properties, are simply consolidating their own income, outside of any advantage to the rest of the economy. However, there are many aspects to letting a property that make the buy to let sector a net contributor to the UK economy.

Unlike residential home-owners, landlords purchase furniture, insurance and other major essentials on a more regular basis, to refresh stock and compensate for what is generally speaking a far higher level of wear and tear.

This frequent business with the companies that rely on landlords for patronage, is good for the economy.

With the increase in stamp duty, the UK economy is likely to experience a domino-effect, as a lacklustre buy-to-let market inspires a drop in outgoing business of this kind, highlighting the negative impact across the board.

Gurpreet Bharya at Landbay

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