The measures are a significant setback to buy-to-let investors, especially since they follow hard on the heels of recent changes to mortgage interest tax relief and the annual wear and tear allowance. It seems the Chancellor’s message to anyone who is considering becoming a property investor is to turn their attentions elsewhere.
The West One Loans Bridging Index has shown that, historically, demand from buy-to-let investors has been one of the driving forces behind the rapid expansion of the short-term finance industry in recent years. More investors have been turning to bridging as a means to finance their projects because it can provide huge flexibility for borrowers, and if utilised appropriately, generate very impressive returns.
The higher Stamp Duty charges create uncertainty over the appetite to purchase rental properties with casual investors likely to start re-evaluating the attractiveness of the residential market. However, while the 3% increase is certainly unsupportive to investors considering a buy-to let-purchase, it may not be a complete game changer in the decision. Portfolio landlords will most likely be undeterred and willing to foot the higher Stamp Duty bill when considering the wider returns on offer.
Furthermore, landlords may attempt to balance the changes made in the Autumn Statement by passing on the cost to tenants in the form of charging higher rents. This presumably unintended consequence would of course be bad news for tenants, who could also see less spent on maintaining their properties.
What is more, the Stamp Duty will not be applied to companies or funds making “significant” investments in residential property. As a result landlords may start to move towards owning homes within a more formal company structure, which is not liable for a Stamp Duty surcharge but instead is subject to corporation tax and dividends.
One thing is for sure, the new measures will distort the market as buy-to-let landlords and holiday home buyers rush to beat the deadline before the changes take root in April. This could result in a spike in demand for short-term finance as investors look to quickly snap up properties. House prices are also inevitably going to increase in the short-term, especially in buy-to-let hotspots such as London.
The uncertainty surrounding the sector is likely to endure for the foreseeable future and there may well be further intervention from the Bank of England at its upcoming Financial Policy Committee meetings.
