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Chancellor’s stamp duty holiday provides investment opportunity for landlords

Em Morley - July 20, 2020

With landlords in a position to benefit from the tax savings announced in the Chancellor’s summer statement, Mortgages for Business says that property investors should not squander Rishi Sunak’s surprise boost.

Steve Olejnik, managing director of Mortgages for Business said: “Clearly, landlords need to take advantage of the stamp duty holiday before the window closes in March next year.  

“Property investors are in a better position to qualify for a mortgage now that reduced stamp tax allows them to wield a larger deposit.  

“Furthermore, if the measures Rishi Sunak has put in place underpin property values, the cut will help those looking to remortgage as well.  

“Less obviously, landlords may not appreciate they need to act while they are well-placed to move in a way that owner-occupiers are not. We know property investors have been remortgaging with a view to picking up some bargains. Owner-occupiers have not been doing the same.  

“Landlords have been preparing since the start of the lockdown, remortgaging to enlarge potential war chests with an eye on bagging bargains in the future. First Time Buyers don’t have that flexibility and owner-occupiers haven’t been remortgaging in the same way.

“That means landlords are currently very well-placed to seize the day. But that advantage won’t last forever. That’s why smart investors will start expanding their portfolios immediately, rather than waiting and then scrambling to try to do deals at the last minute.”

Mortgages for Business has carried out an analysis based on data from April and May this year regarding the reasons why investors were taking out buy-to-let mortgages.

The broker found that 30% of property investors did so with a view to expand their portfolio and grow their cash reserves. Comparing this to the information gathered at the same time last year, priorities were more focused on guarding against risk.

The research also indicated that 46% of landlords had been increasing the size of their loans – significantly higher than the long-term average of 38%.

The buy-to-let specialist says that, while sellers are more likely to come to the market before March 2021 – given buyers now have more money to spend – improving the stock of housing available to buy, this will not continue to favour those expanding portfolios forever.

Steve Olejnik also said: “This is all about expectations. At the moment, sellers are grateful for a sale and there are plenty of potential sellers who would put their property on the market if they thought they could get a deal done.

“Currently, sellers aren’t trying to grab the money that buyers had tucked away to pay for stamp duty – cash that was earmarked for the taxman. But the closer we get to March 2021, the more sellers are going to start making bids to grab the money that buyers had originally allocated to the government. 

“They will see the spare cash sloshing around the housing market and become less inclined to negotiate. By the start of next year, the stamp duty holiday will have made sellers much more determined to get a good price – where they might have been more inclined to offer discounts.  Landlords should be aware of that.”

The broker has also highlighted that their monthly mortgage volumes doubled in the run-up to the previous regulatory and fiscal changes, as landlords fought to beat the deadline.

Steve Olejnik continued: “This is all about expectations. At the moment, sellers are grateful for a sale and there are plenty of potential sellers who would put their property on the market if they thought they could get a deal done. 

“Currently, sellers aren’t trying to grab the money that buyers had tucked away to pay for stamp duty – cash that was earmarked for the taxman.  But the closer we get to March 2021, the more sellers are going to start making bids to grab the money that buyers had originally allocated to the government.  

“They will see the spare cash sloshing around the housing market and become less inclined to negotiate.  By the start of next year, the stamp duty holiday will have made sellers much more determined to get a good price – where they might have been more inclined to offer discounts.  Landlords should be aware of that.”

The new threshold for stamp duty has been increased from £125,000 to £500,000 in England and Northern Ireland. This will be in place until the end of March 2021.