Landlord stamp duty hiked in Budget: What will they pay now?

The Government has targeted landlords and second home owners in the Budget, implementing an unexpected hike in the stamp duty they pay when buying property. 

These buyers already faced a 3 per cent surcharge above and beyond what those purchasing a property to live in pay. 

However, from tomorrow the Autumn Budget revealed that will go up to 5 per cent, in a move that could lead to fewer landlords buying new investments, as it adds thousands of pounds to the cost of buy-to-let purchases.

How much stamp duty will landlords and second home buyers now pay? 

Under current rules, a £300,000 property with the surcharge included would cost £11,500 in tax.

That will now rise to £17,500 with the surcharge rising to 5 per cent.

On the same property, a person buying the home to live in would pay just £2,500 - and if they were a first-time buyer, nothing at all.  

A second home purchase costing £500,000 previously cost £27,500. From tomorrow it will set someone back £37,500.

The changes will impact current property transactions. However, those who have already exchanged contacts will reportedly not be impacted by the hike - even if they are yet to complete. 

Will it hit the property market? 

Richard Donnell, head of research and insight at property website Zoopla said a higher proportion of second home owners and landlords were already looking to sell properties, before this additional surcharge was announced. 

He added that this was now set to increase further. 

'Second home buyers are already responding to last year's Budget which allowed councils to charge double council tax for second homes. This is resulting in a higher level of selling by second home owners,' Donnell said. 

'In areas with above average second homes we have seen four times more homes come to the market.'

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Mortgage broker Chris Sykes of Private Finance said that he already has customers on the phone, panicking about changes to sales that were already in the pipeline. 

This includes some who are not landlords, but simply have a short overlap between buying their new home and selling their old one.  

'We've had clients already calling up trying to see if their transactions still work,' said Sykes.

'For example, one situation where a client is buying a new home before they sell the previous one and may lack the cashflow now following the stamp duty change.

'This is a bold decision by the Government. It does present some potential issues. For example, anyone selling to an investor may see their deal fall apart.' 

What were landlords expecting? 

Landlords and second home owners had expected an increase in capital gains tax in the Budget, which is charged on the profit they make when they sell a home that has gone up in value. 

A stamp duty increase could be considered more harsh, as it is charged on buying a property and before they have made any return on their investment. 

Peter Stimson, head of product at MPowered Mortgages, added: 'Buy-to-let landlords and second-home owners were expecting another tax squeeze from the Chancellor, but what they got was a whack with a hammer. 

'Not an increase in general taxation or the capital gains tax they pay when selling a rental property, but a whopping 2 per cent uplift in the stamp duty payable when buying a home to rent out.'

Will it lead to higher rents for tenants?  

The concern among some property experts is that the stamp duty increase may mean there are fewer homes available to rent in future. 

A demand-supply imbalance in the rental market has resulted in surging rents over recent years, rising 40 per cent since June 2020, according to HomeLet.

Last month, Rightmove reported that the proportion of former rental properties being listed for sale is at its highest on record. 

It said 18 per cent of homes now for sale were previously available for rent, compared with 8 per cent in 2010.

Meanwhile in the first half of this year, the proportion of homes being bought by landlords fell to a 14-year low, according to new data, and mortgages granted to them have more than halved. 

Only one in ten homes sold during the first half of this year went to a buy-to-let investor, according to the estate agent Hamptons.  This was the lowest share since its records began in 2010. 

Stimson of MPowered Mortgages said: 'The changes come into force from tomorrow, so there's now a real danger that thousands of purchases that were already in the pipeline will now be abandoned.'

Stimson, said while landlords may be put off buying, renters may be the worst hit from these changes with rents potentially now rising further and faster.

This is because if there are fewer homes available to rent, there could be more competition among tenants and landlords may be able to charge more. 

'The irony is that it's not just landlords who will feel the pain. A third of Britons don't own their own home, and for many of them, renting privately is the only option,' he adds.

'With rents already rising and the supply of rental properties about to be further disrupted, rents could now climb even higher.'

Stamp duty calculator

How much tax would you have to pay on a home or buy-to-let?

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• First-time buyer zero rate up to £425,000 only applies if buying a home costing £625,000 or less
• *Transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates

• Stamp duty charge

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Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible.

What if I need to remortgage? 

Borrowers should compare rates, speak to a mortgage broker and be prepared to act.

Homeowners can lock in to a new deal six to nine months in advance, often with no obligation to take it.

Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees.

Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone. 

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Buyers should avoid overstretching and be aware that house prices may fall, as higher mortgage rates limit people's borrowing ability and buying power.

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