Stamp Duty Land Tax is usually a significant or heavy cost in the property purchasing process.
On Wednesday 8th July Chancellor Rishi Sunak announced that effective immediately residential homebuyers will not have to pay any stamp duty tax for a purchase price of up to £500,000 until 31st March 2021.
He further stated that it would mean 9 out of 10 home buyers in the UK will be paying no stamp duty at all on purchases during this period, saving on average £4,500 in stamp duty for them. This is a significant saving for both home movers and first time buyers, particularly for those situated further down the UK where property prices are generally much higher.
Remember, Stamp Duty is currently charged on a tiered basis which means you pay the tax rates on the slice above any threshold.
The following table summarises the new temporary reduced rates for Stamp Duty.
The updated stamp duty calculator from HMRC is available here.
What if you’re purchasing a second home or a buy-to-let property?
Tax savings also apply to second homes and buy-to-let property. Property investors who purchase through Limited Companies will also be exempt up to £500,000. However, a 3% surcharge still applies.
The aspiring or existing landlord will still save on stamp duty compared to the previous policy for purchases up until 31st March 2021.
Please visit the government website for the full details surrounding the new stamp duty tax rates.
Reflecting on Landlord sentiment
Mark Long, Director at BVA BDRC, one of the UK’s leading market research agencies, shared in a webinar at the The Buy-to-Let Online Forum on 8th July that landlord’s confidence had crashed as a result of the pandemic, with over half having experienced rent problems or unanticipated void issues during the pandemic. Although there has also been evidence of landlords trying to help tenants where possible.
He also shared the specifics and key areas of how the drop in landlord confidence was measured during the first quarter of 2020 (end of March). These areas were shown to be a loss of confidence in their rental yields, their own letting business, the UK financial markets, the UK private rental sector and the capital gains of their properties.
However, in the 3 months proceeding that (with the most recent data collected at the end of June), Mark found the return of confidence being restored and bouncing back across all those key indicators. This reveals the short-term optimism landlords believe in the UK economy recovering again.
Further, with Rishi Sunak’s Stamp Duty cut, it would be reasonable to suggest this would further encourage landlords to be more hopeful in the property and rental market again, as a boost in the housing market also correlates with a boost in the economy. The housing market is closely linked to consumer expenditure and confidence.
Mark Arnold, chief executive of Kensington Mortgages who this as a potentially big boost – “If the housing market is working properly, that [stamp duty cut] has a massive impact on the rest of the economy.”
The Stamp Duty cut is also bound to push those hesitant buyers that were probably on the fence before, towards proceeding with completing their purchases more willingly.
Perhaps buy-to-let lenders can now be more encouraged to ease their lending criteria and expand their product range further. Data from Moneyfacts.co.uk showed that in May only, 1,455 buy-to-let products were available, compared to 2,897 buy-to-let products available before the Covid-19 crisis. The latest data as of 1st July shows 1,738 buy-to-let products on the market, which shows that lenders are slowly opening up to lending again, albeit slowly.
Phil Richards, Head of BM Solutions stated in the Buy-to-Let Online forum on Wednesday 8th July that as a result of the pandemic, expect lenders to treat scenarios differently and tweak criteria to adapt to the challenge of current trading conditions. He expanded to suggest that it is important for lenders to be cautious, and to lend prudently, but reassured that lenders still want to lend. Richards also reminded that every lender has different policies and views on things which may cause inconsistency across lenders.
What do other experts say?
The stamp duty cut is likely to give a short term boost in the housing market however Jeremy Duncombe, director of intermediary distribution at Accord Mortgages said that the cut will not fix the market. Instead he believed that a more effective strategy was an extension to the current Help to Buy scheme for residential first time buyers and home movers. He suggests that this would provide a longer term difference to those wanting to secure their own home.
A review of the current stress testing measures that determine affordability for first time buyers was also suggested. Duncombe states that supporting more first time buyers through relaxing the stress test will make the transition from renting to owning a property more accessible, particularly to those who have a proven track record of meeting monthly rental payments.
From another perspective, Kevin Roberts, director at Legal & General Mortgage Club believed that “higher loan-to-value mortgages on which many of these buyers rely on” needed to be encouraged and that lenders needed to “step up.” This includes the 90% to 95% LTV products of which still remain to be very limited in the current climate.
As brokers we have seen lenders such as Virgin Money, Accord, Saffron Building Society, Clydesdale withdraw from their high loan-to-value residential products in the month of June, which sheds light on to why critics believe lenders should be doing more.
Stuart Law, CEO and founder of Assetz Capital (a Fintech company that claims to have funded around 1 in every 100 new homes last year) provided another view to state that although the stamp duty cuts will have a positive impact, “the change alone isn’t going to fully balance the negative impact of the virus on the Housing Market.” Instead he proposes a removal of the 3% stamp duty surcharge for buy-to-let purchases and removal of the buy-to-let taxation for the next 5 years. Doing so would mean buy-to-let investors “could potentially step in where first time buyers can’t and support the bottom of many housing chains and prevent them failing.” Stressing the importance of buy-to-let investors in the housing market, Law believes that the knock on impact of this would “help keep rents down for the time being too.”
This is why, at Mortgage Advance Limited, we believe it is an extremely important time for landlords, both existing and first time landlords to seek advice from mortgage brokers that are kept up to date with the very latest of the buy-to-let mortgage industry. Being able to navigate your mortgage needs, handle your property portfolio and concerns during this challenging time will be a much more reassuring and less stressful process with a specialist buy-to-let mortgage advisor that has the expertise to guide you through it.
The Buy to Let Online Forum 8th July 2020 for intermediaries