Stamp duty and Property Investors

A lot has happened over the last couple of weeks that directly impacts the UK housing market, so how can property investors make sense of it all?

Last week, Chancellor Kwasi Kwarteng's "mini-budget" brought with it a major overhaul to stamp duty rates, while at the same time sparking another fall in the pound's value against the dollar. Both of these events will of course have an effect on the way the country's housing market performs going forward, and property investors are likely to be keeping a close eye on how events unfold.

As covered in our article earlier this month, one of the impacts of a weak pound on the country’s property investment landscape is that it becomes more appealing to foreign investors, who essentially receive a discount due to the cheap currency.

For local investors who already own property in the UK, most will have benefited from some hefty capital appreciation in recent years, as the country’s house prices have continued to defy the odds. Meanwhile, the ongoing shortage of housing supply means buy-to-let properties are in especially high demand at the moment.

Despite past and current predictions of soaring property prices coming to an end, the latest announcement of permanent stamp duty cuts will have allayed many investors’ fears of a stagnating market.

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How cutting stamp duty can boost the housing market

Stamp duty is a tax that everyone must pay on residential property purchases in the UK, unless the cost of the property falls below the minimum threshold. For many years, property industry experts have called for the government to either overhaul or scrap the tax to incentivise buyers and home movers.

While stamp duty is unlikely to be written off completely, at least in the near-term, the latest changes are widely acknowledged as a major step towards increasing mobility in the housing market.

As of 23rd September, the minimum threshold for paying stamp duty is £250,000; double the previous £125,000 allowance, which is much more reflective of today’s average house prices. For first-time buyers, the threshold is now £425,000, so properties priced below this amount have no stamp duty to pay.

As before, the stamp duty charge goes up in increments depending on the cost of the property. You can check the official rates here.

The fact that this stamp duty change is “permanent”, according to Kwarteng, is significant. During the Covid pandemic, temporary stamp duty cuts were brought in as a way of keeping the housing market moving. The result was a flurry of activity, thriving house price rises and a race to complete before the changes came to an end. This time around, the new rates are intended to keep the market afloat and house prices strong, without the urgency of a deadline.

In the face of the market difficulties presented by a weak currency, rising interest rates and inflation, and a surging cost of living, the move is hoped to provide impetus for people to keep buying, and maximising budgets now that the tax cost is lower.

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Property investors navigating the market

For property investors, the controversial 3% stamp duty surcharge still applies. This is a relatively new addition to the tax, having been introduced in April 2016. It means that anyone buying a second home or property investment - such as a buy-to-let - pays an extra 3% rate on the purchase.

Many in the industry, including the National Residential Landlords Association (NRLA), have urged the government to rethink this “punitive” tax rate as a way of encouraging investors to the UK housing market and boosting the country’s much-needed rental stock.

If the government wants to increase housing supply, boosting buy-to-let activity is a way of doing this, argues the association’s chief executive, Ben Beadle. Removing the 3% surcharge on property investments could bring almost 900,000 rental homes to the market over the next decade, according to research from Capital Economics.

“The chancellor needs to wake up to a crisis of the government’s own making, scrap the tax on new homes to rent and review other measures which add to a landlord’s costs,” said Beadle.

Still, even with the 3% additional tax, the new stamp duty rates will be welcome news to property investors entering the sector or building their portfolios. In spite of ongoing economic pressures, the housing market in the UK remains one of the most attractive places to invest.

If you’d like to discuss the impacts of the latest events on the UK property investment landscape further, or you are a property investor looking for your next purchase, get in touch with our team today on 01625 725 779, or email us at contact@theprestburyadvisory.com