Property investors braced for stamp duty hike

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A stamp duty hike for buy-to-let investors comes into force on Friday amid plans to clamp down on the sector.

People buying second homes, including buy-to-let investors, will pay three percentage points above previous rates, in a move which could now provide a window of opportunity for aspiring first-time buyers in the coming months.

In the longer term, it has been predicted that rents could be pushed up further as landlords pass their extra costs on to tenants.

Investors have rushed to snap up properties before the deadline. The National Association of Estate Agents reported demand for homes surged to a 12-year high in February, with more than eight in 10 (85%) estate agents reporting an increase in the number of investors flooding into the market.

As investors piled in, the proportion of homes being sold to first-time buyers fell. One in four (24%) sales made in February were made to first-time buyers - a decrease of five percentage points from January.

Experts have suggested that with some sales of investment properties having been brought forward to beat the deadline, the housing market could now become more favourable to first-time buyers, who have often found themselves in competition with investors for the same properties.

The new rates of stamp duty land tax (SDLT) will apply to purchases of additional residential properties in England, Wales and Northern Ireland.

In the recent Budget, the Government confirmed that big investors will not escape the stamp duty hike.

A consultation had considered whether it may be appropriate to have an exemption for investors buying at least 15 residential properties, but it was decided that there will be no exemption for significant property investors.

However, people who temporarily end up with two properties due to difficult circumstances, such as retirees downsizing into a smaller property but struggling to sell their original home, will be given some extra breathing space from the new stamp duty rate.

The Government decided purchasers will have 36 months rather than the originally proposed 18 months to claim a stamp duty refund, in the event that there is a period of overlap or a gap in ownership of a main residence.

In Scotland, SDLT has been replaced by the land and buildings transaction tax.

A hike in this tax is also coming into force in Scotland on the purchase of additional homes such as second homes or buy-to-let properties from Friday, with the aim of avoiding any potential distortions to the housing market in Scotland that could have come from the stamp duty hike for investors in the rest of the UK.

Landlords are also facing a financial squeeze due to restrictions on their tax breaks, while a ''wear and tear allowance'', which allows them to reduce the tax they pay, regardless of whether they replace furnishings in their property, will also be replaced by a new system that only allows them to get tax relief when they replace furnishings.

Earlier this week, the Bank of England unveiled proposals to crack down on buy-to-let lending. The Bank wants lenders to consider landlords' wider finances and not just their rental income. The proposals are being consulted on and if adopted, they could cut new approvals for buy-to-let mortgages by about 10% to 20% by the third quarter of 2018.

The Government has also indicated it will hand the Bank greater powers to intervene in the buy-to-let mortgage market by the end of the year amid concerns of a "bubble" emerging in this market.

The Association of Residential Letting Agents (Arla) found that nearly two-thirds (63%) of letting agents predict the supply of buy-to-let properties will fall after the stamp duty deadline as landlords are pushed out of the market.

Nearly six in 10 (57%) Arla members believe rents will be pushed up once the stamp duty reforms have come into effect, as increased costs for landlords are passed through to tenants. This is particularly high in London, where three-quarters (73%) of letting agents expect to see this happening.