Scrapping the Stamp Duty levy on the purchase of homes to rent out could lead to a £10 billion boost for the Government, according to a new analysis.
The analysis by economic consultancy Capital Economics finds that removing the 3% levy would see almost 900,000 new private rented homes made available across the UK over the next ten years.
Due to increases in income and corporation tax receipts, the modelling suggests this would lead to a £10 billion boost to Treasury revenue over the same period. Capital Economics also notes that these revenue streams would continue over the decades that follow if the landlords do not later sell the properties.
The National Residential Landlords Association (NRLA), which commissioned the research, calls on the Chancellor to adopt this proposal amidst a chronic shortage of homes to rent.
Capital Economics warns if owner occupation and social housing continue at their ten-year average rate of growth, this would require a significant increase in the supply of private rented homes. Almost 230,000 new homes would be needed in the sector each year if government ambitions for housing over the next decade are to be met.
It argues that even if other housing tenures double their rate of growth, over 100,000 new private rental homes a year will still be needed over the same period.
Capital Economics says given that renting privately is the first housing tenure most young people enter when they leave home or university, demand will only increase as the 15-24 cohort in the population is forecast to grow between now and 2030 by 866,000 (11%).
It suggests that without changes in tax or other policies, the private rented sector stock will decrease further by over half a million properties over the next ten years.
Ben Beadle, Chief Executive of the NRLA, comments: “The Government needs to wake up to a crisis of its own making. Taxing landlords out of the market serves only to cut supply, increase rents and make home ownership more difficult to afford.
“The evidence clearly shows that the supply of rented housing is declining as demand increases and will continue to do so. The Government is taking a blinkered approach to the issue, which is not helped by its reluctance to admit mistakes it has made in the past. “It makes no sense to tax the supply of new homes supplied by landlords investing in new build or bringing empty homes back into use. As this study indicates, removing the tax will actually generate more revenue, not less.”
Tax changes affecting the rental market are having a negative impact on the investment plans of private landlords, according to the results of a recent survey.
A new study has been undertaken by the London School of Economics (LSE) for the National Residential Landlords Association (NRLA). Over 1,400 private landlords across England took part in this study.
52% of respondents say tax changes have deterred them from making further investments and acquiring more properties.
Recent changes have included restricting mortgage interest relief to the basic rate of income tax, a 3% Stamp Duty levy on the purchase of additional homes, and a decision to cut Capital Gains Tax to 18% for everything other than on gains from the sale of residential property.
Overall, a third of respondents said the reform to mortgage interest relief was the tax change having the greatest effect on the operation of their rental business. Of this group, 39% said the change meant that they were not proceeding with planned future purchases whilst 31% said they had put plans on hold. 28% said they were taking steps to leave the sector altogether.
27% of landlords said that the Stamp Duty levy was significant; followed by changes in the tax treatment of furniture and fittings (26%), and in the capital expenditure allowance (24%).
Ben Beadle, Chief Executive of the NRLA, comments: “The NRLA will be studying this report carefully as it prepares detailed plans to support investment in the sector.
“That said, it is clear that recent tax increases have deterred investment in the sector. With the demand for homes to rent outstripping supply this will only hurt tenants as they face less choice, higher rents and find it more difficult to save for a home of their own as a result.”
Christine Whitehead, Emeritus Professor of Housing Economics at the London School of Economics and a co-author of the report, comments: “Our work on taxation of landlords across Europe (also in the report) suggests that as a result of the changes in taxation since 2015 individual landlords in Britain are being increasingly disadvantaged when compared to corporate landlords and other investment types.”
The statistics for June 2021 reported in the Government’s UK House Price Index reveal an annual price change of 13.2%.
The monthly price change for a property in June was 4.5% and the overall average price of a UK property was £265,668.
Industry reaction to the Government’s latest house price data
Marc von Grundherr, Director of Benham and Reeves, comments: “Another behemoth level of house price growth both on a monthly and annual basis, no doubt influenced by the first of the staggered extensions to the Stamp Duty holiday as homebuyers purchasing above the £250,000 threshold continued to scramble to secure a saving before the clock expired.
“The London market has seen a lesser degree of property market manipulation as a result of the Stamp Duty holiday. As a result, the capital continues to trail where property price appreciation is concerned but we’re seeing a far more stable market start to emerge and one that is showing greater long-term momentum as both domestic and foreign interest start to return.
“Sales are increasing, sellers are achieving a greater level of asking price than they were just a few months ago, and all of these indicators suggest a property market resurgence is stirring.”
James Forrester, Managing Director of Barrows and Forrester, comments: “The UK property market continues to flourish driven, in part, by the Stamp Duty holiday but also the ongoing trend for larger homes, with detached properties seeing a huge 15.6% annual increase.
“We now know that the initial Stamp Duty deadline at the end of June has failed to dampen this appetite and the market cliff edge that many predicted is now starting to look very unlikely. With buyer demand remaining extremely robust and stock shortages plaguing much of the market, it’s safe to say house prices will continue to climb throughout the remainder of the year.”
Colby Short, Founder and CEO of GetAgent.co.uk, comments: “We’ve seen an uplift in transaction levels in the last year alone and properties are now selling far quicker and for a much higher price.
“However, it’s important to remember that when looking to buy in current market conditions you’re really facing a two-speed market posing very contrasting challenges.
“The initial challenge is securing a property as they go under offer within weeks, sometimes days, of being listed for sale. The cost of doing so is also going to be considerably higher and that’s something to factor in when looking to buy.
“But beyond this point, there remain sizable delays and so the likelihood is that you won’t see your sale actually complete until some months later.”
Iain McKenzie, CEO of The Guild of Property Professionals, says: “These figures paint an arresting picture of the frenzy we saw towards the end of the full Stamp Duty holiday as house prices boomed with buyers rushing to get their key in the lock.
“Areas outside of London still continue to lead the way on house price growth, as people scour the country for more living space.
“Despite the winding down of the Stamp Duty holiday and more people feeling the pressure to return to the office, all the elements are still in place for house prices to remain higher than usual for the foreseeable future.
“With demand for properties still ever-present and estate agents across the country facing a smaller pool of homes to sell, many prospective buyers will also be sitting on their deposit until the perfect home comes along. This factor will keep prices higher in the long term.”
Lucy Pendleton, property expert at independent estate agents James Pendleton, comments: “Prices went berserk as the Stamp Duty taper closed in. The pace of growth set in the North West is frankly astonishing. This is the last time this year, or even in our lifetimes, that you’ll see growth spurts like this in response to government support.
“Scenes like this are only possible in those areas starting from a lower base, and there’s a big question mark over how many of these buyers really made a saving. Amid fierce competition, there’s a good chance that many of them became so committed to a particular move that the financials were thrown out with the bath water.
“Needless to say, as soon as July arrived, we entered a very different market, and some of this exuberance will have to unwind. London is probably most protected from that eventuality. Prices are still approximately double the national average in London but the capital hasn’t had its running shoes on like the rest of the country.
“London remains the dark horse of the property market. It’s much harder to predict where it will go over the remainder of the year, though demand is certainly broadening out. The rental market is once again on fire, demand is spreading to a greater range of property types as the race for space fades and even the supercars are back in Knightsbridge.
“These new trends have been forming ever since the country had unlocking in its sights. The capital could well turn the tables on the rest of the country over the next 12 months.”
Nicky Stevenson, Managing Director at national estate agent group Fine & Country, says: “The last gasps of the Stamp Duty holiday injected a sense of urgency into buying patterns with house hunters desperate to land the home of their dreams before the tax giveaway largely vanished.
“This data also shows the race for space is still in full swing with the relentless escalation of house prices continuing across the country, and areas not typically at the forefront suddenly finding their moment in the sun.
“Ultra-low interest rates and shrinking housing stock continue to fuel a red-hot market amid a stampede which some are now likening to the gold rush. The fever gripping the North West in particular is something to behold.
“And in London where growth has been more modest, agents are now bracing themselves for a return to full-throttle as investors from the Gulf return to the market with the UAE now on our amber list.
“A tremendous buzz is building in the capital and viewings from overseas investors are already beginning to soar with many wondering if we will witness the same double-digit growth in London that has already been recorded in other areas of the country.
“While we expect things to steady later in the year, there is nothing in this data to suggest the brakes will be applied heavily to what has become a run-away market.”
Over half a million homebuyers in England are set to benefit from the Stamp Duty holiday, according to the latest research by estate agent comparison site GetAgent.co.uk.
GetAgent analysed transaction data from the Land Registry to see how the market has already performed between the launch of the Stamp Duty holiday and the original deadline of 31st March 2021. GetAgent then estimated what the continued impact will look like by the time the clock does finally expire on the initiative.
Its research also shows that prior to the launch of the Stamp Duty holiday, 258,978 transactions took place across England between 1st January 2020 and 7th July 2020.
In total, GetAgent estimates that of the 539,972 transactions forecasted to complete between 8th July 2020 and the initial deadline extension of 30th June this year, 84% will pay no Stamp Duty at all, with the total market saving expected to hit nearly £3.2bn.
In addition, it expects a further 138,764 homes to be sold between the additional deadline extension of 1st July and 30th September this year. Despite the Stamp Duty free threshold being reduced from £500,000 to £250,000, GetAgent estimates that 45% of all transactions will still remain Stamp Duty exempt with a further saving of £250,006,781 seen across the market as a whole.
In total, the Stamp Duty holiday in its entirety looks set to see an estimated 76% of all homebuyers pay no Stamp Duty, with the total saving hitting over £3.4bn, the comparison site says.
Colby Short, Founder and CEO of GetAgent.co.uk, comments: “The current Stamp Duty holiday may have its critics and there’s no doubt that it’s been a factor in creating the current market bottleneck that has seen many subject to long delays during the transaction process.
“However, there’s also no doubt that a great deal of homebuyers have benefitted and many more will continue to do so right up until the end of September. Even with the reduction of the Stamp Duty free threshold from July onwards, nearly half of all transactions will continue to pay no Stamp Duty at all, so we can expect the market madness to continue until this secondary deadline, at the very least.”
Chancellor Rishi Sunak has announced an extension to the Stamp Duty holiday in yesterday’s Budget announcement. It will now be available until the end of June.
Andy Sommerville, Director of Search Acumen, comments on the drawbacks of this extension: “(Yesterday’s) Stamp Duty extension is not just welcome news for thousands of homebuyers-in-waiting. Extending the Stamp Duty holiday is also a tonic for thousands of conveyancers who have been under pressure to complete due diligence on an industrial scale against a pressing deadline, and risking burnout at a time when businesses are still under Government instructions to work from home.
“However, the Chancellor’s much-anticipated move simply defers rather than dodges the cliff-edge by putting it off until June. The Stamp Duty holiday has once again shown the flaws in traditional working practices and flagged the need to future-proof the property market with a data-driven approach to drive transactions through to completion.
“Given the technology at our fingertips, no homebuyer in 2021 should have to wait for weeks at the back of a queue for due diligence to be completed. Neither should any conveyancer have to apologise to their clients for delays caused by a system clearly past its sell-by date. Innovations like our Data Snapshot tool are crucial to shifting the transaction process up a gear by providing instant access to risk data accompanied by insurance, to help buyers avoid being caught in the Stamp Duty crush in three months’ time.”
Dale Anderson, MD of Fabrik Invest, comments: “The Stamp Duty holiday extension is excellent news in terms of the keeping the market moving. However, we need to move forward with a note of caution, as false inflation keeping the market moving is far from ideal.
“Overall, I expect a short-term dip in prices in certain parts of the country – specifically the prime London and Manchester city centre markets. We’re likely to see home owners and investors looking for better value outside of these areas instead.
Bryan Mansell, Co-Founder at Gazeal, comments: “The Chancellor’s Budget inevitably focused on extending much-needed support in response to the COVID-19 pandemic. However, as we move through 2021, the Treasury’s focus is likely to turn to closing the spending gap caused by the health crisis.”
“The announcement of a three-month extension to the Stamp Duty holiday – and a higher tax threshold until September – will generate plenty of headlines as, according to Rightmove, it will facilitate an additional 300,000 transactions and £1.75 billion of savings.”
“Although it’s positive to see the Government listen to the views of agents and conveyancers on the coalface, as well as the property-buying public, more consideration should have been paid to calls for a more specific tapered end to the tax cut.”
“A three-month extension – and additional help until September – will be more effective than an additional six weeks, which was previously rumoured to be in the Chancellor’s plans. However, it still creates a cliff-edge so even though more buyers will benefit from Stamp Duty savings than previously thought, there will still be some who miss out.”
“A Stamp Duty-related boost, combined with the vaccine rollout as we move into spring and towards summer, means the market should be in good health over the coming months with agents able to complete existing transactions and build their future pipelines.”
“Once the Stamp Duty holiday comes to an end, it will be time for the market to move on. As we come out the other side of the pandemic, it would be pleasing to see the Government return to its pledge of improving the home buying and selling process through increased efficiency and transparency.”
“As accentuated by the Stamp Duty holiday rush, the current homemoving process is broken and struggles to cope with a high number of transactions.”
“Improving security for consumers, reducing the chance of fall-throughs and making the moving process more efficient would not only help buyers, sellers and agents, but more transactions going through would provide the Treasury with an increase in much-needed Stamp Duty revenue.”
“Meanwhile, news that the Government is launching a guarantee scheme to bring back 95% mortgages provides prospective buyers with a further boost.”
“Understandably, low-deposit lending has been affected badly by the pandemic. With the Government taking on some of the risk, more lenders should feel confident in providing finance to purchasers of property worth up to £600,000.”
“A new scheme designed to help people onto the housing ladder could see demand for homes increase. However, whether the required number of homes to meet rising demand will be available is doubtful as there remains a serious housing shortage in the UK.”
“With this in mind, it’s disappointing that we are yet to hear more about how £20 billion pledged to support new housing last year, which includes a £7.1 billion National Home Building Fund, is being used to address this shortage.”
Craig Vile, Director of The ValPal Network, comments: “The Stamp Duty holiday extension is positive news for estate agents and consumers. A three-month extension – and additional support until September – is longer than most property professionals would have anticipated.”
“Additional completions as a result of the Stamp Duty holiday extension, which otherwise could have fallen through, provide agents with an opportunity to increase their commission levels over the next three months.”
“The general buzz around the property market can now continue as we move towards the traditionally busy spring/summer market. Moreover, the end of the Stamp Duty holiday should also now coincide with fewer COVID-19 restrictions and hopefully a return to something closer to normality.”
“There are, however, some concerns over the extension of the Stamp Duty holiday. Firstly, if there is no tapered end, thousands of buyers could miss out on tax savings and there could be a drop-off in market activity.”
“Secondly, there are concerns that the Stamp Duty holiday has artificially inflated property prices. Agents must therefore consider the impact another six months of Stamp Duty savings could have on average prices for the rest of the year.”
“In other housing news, it’s pleasing to see that Boris Johnson’s plans to help ‘Generation Rent’ become ‘Generation Buy’ are taking shape with the launch of the 95% mortgage guarantee scheme.”
“This scheme should help to provide another demand boost for agents. However, whether there will be enough supply to meet rising demand is another matter entirely.”
“As we hopefully move away from the COVID pandemic over the coming months, the Government needs to return its focus to addressing the UK’s housing supply shortage.”
Robert Nichols, CEO of Portico, comments: “The property purchase tax suspension for the first £500,000 of all property sales throughout England and Northern Ireland has been extended until the end of June, with the nil rate band of £250,000 – double its standard level – continuing until October 2021.
“The extension of the Stamp Duty holiday is welcome news, especially for the hopeful homebuyers who have been racing to complete this month. This news will make theirs and other new market entrants’ first purchases much more financially attractive, with big savings to be had. It may also incentivise older homeowners to downsize, which could free up some of the capital’s existing housing stock, as according to sources, nearly nine million bedrooms in the homes of older people are lying empty.
“The success of Stamp Duty holiday thus far does magnify just how much the current form of property taxation inhibits buyers. Suspending this taxation is giving the sector some much needed momentum and makes entering the market a far more realistic dream for many hopeful homeowners.
“The important thing for buyers and sellers to do now is act fast. Three months may seem like a substantial amount of time, but with increased mortgage applications dragging through the system, loan delays could still increase the risk of transactions not completing in time.
“So, don’t delay. Get moving on your plans quickly to prevent a stressful wait with a looming deadline and ensure that you maximise your potential savings without undue panic.”
Mortgages for Business has provided tips for landlords looking to avoid the chaos caused by residential buyers trying to beat the Stamp Duty holiday deadline.
The specialist buy-to-let broker is offering landlords four key pieces of advice: Be prepared to rethink location, choose a broker offering a portal, carefully consider the type of property you are investing in, and Pick the right lender.
Mortgages for Business says if landlords consider all four of these factors, they could get their transactions completed in spite of the chaos affecting the market.
1. Look at your location in a new light
Mortgages for Business says even lenders still capable of doing deals in sensible timeframes are struggling to get mortgages approved where local authorities are dragging their feet. The slowest local authorities are now taking more than 100 days to undertake property searches, a key element of the conveyancing process, as the surge in transactions coincides with pandemic-related staff shortages. It highlighted Hackney Borough Council (180 working days), Bedfordshire Council (65 working days), Caerphilly County Borough Council (60), Cambridge City Council (50), and North Warwickshire (50) as the worst performers.
Jeni Browne, director of Mortgages for Business said, “Landlords who just want to get a purchase done are sick of the Stamp Duty rush. If you have the option, you should consider the effect that the local authority you are dealing with could have on your purchase. One search we ordered recently took 145 days to complete. If you are considering purchasing a property in Hackney before the turn of the next century, you may want to rethink”.
2. The importance of portals
Data from Mortgages for Business’s landlord portal shows that it takes less time to process applications if they are done via portals, with average deadlines shortening by 20 days, from 73 working days to 53 – cutting down the time it takes to process a transaction by 27%.
Jeni Browne said, “Portals offer clients a space with clear to-do lists, including which documents are required to move the application forward, and the ability to upload all documents quickly and securely, there and then. While this research is based on our data, I’m sure we’re not the only broker with a good portal. My advice to landlords looking to take control of their own destiny is to use a specialist buy-to-let broker with portal technology. It is a very simple way to shave a couple of weeks off a buy-to-let property transaction.”
3. Choose the right property
Mortgages for Business says not all property purchases are created equal and that transactions can take 11% longer if the property in question is a flat, rather than a semi-detached house.
Jeni Browne commented: “Even if you’re not trying to hit the Stamp Duty deadline, you may well find that your deal gets caught in the crossfire. Picking a semi-detached house, rather than a flat will help smooth the way.”
4. Choose the right lender
The specialist buy-to-let broker also took the opportunity to warn landlords that more than half the buy-to-let lenders who are actively lending at the moment are capable of doing a deal within the usual industry average. Those purchasing vanilla properties can expect an estimated normal eight-week completion time.
Jeni Browne concludes: “Most lenders are still quoting application-to-offer times of about three weeks which doesn’t sound too long. But the reality is that these timeframes are not being met. To get deals down relatively quickly, you need to avoid lenders that are dragging their feet. While we’re not lenders in our own right, we can ensure landlords are using the right lender. Go to the wrong one and you could find yourself dealing with a lender that is taking weeks to respond to enquiries.