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Chancellor should have axed stamp duty surcharge to help boost rental supply – Rowntree

by: Richard Rowntree, managing director of mortgages at Paragon Bank
  • 09/07/2020
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Chancellor should have axed stamp duty surcharge to help boost rental supply – Rowntree
The chancellor’s decision to temporarily cut stamp duty for transactions below £500,000 is a welcome one, but not going further and including the three per cent surcharge for buy-to-let purchases could be a missed opportunity.


I appreciate there is little political capital to be gained by supporting buy-to-let investors and, of course, the government does not want landlords competing head-on with first-time buyers for the same property.

However, including this group fully in the holiday would have achieved two important goals: oiling the cogs of the housing market by attracting more participants; and boosting the supply of rental property in areas where it is much needed.

Our analysis has shown that the stamp duty surcharge for buy-to-let introduced in 2016 disproportionately impacted new purchases by landlords in areas with above average property prices, predominantly in southern regions and more acutely in London and the South East.

Removing stamp duty for properties below £500,000 will not necessarily help those who live in these regions and aspire to move onto the property ladder.

The average property price in these regions takes home ownership out of the reach of many people and first-time buyers were already exempt up to £300,000.


Increased demand for renting

Southern regions have the widest average earnings to house price ratios, meaning more people rely on rented property.

Even with government support packages, the average property price in London remains 12 times average earnings and it is 10 times in the South East. The picture is not much better in the South West or East of England.

With the availability of higher loan-to-value mortgage deals reducing for first time buyers – making it harder to buy a home – we expect increased demand for rented property.

People are also likely to delay house purchase decisions until they have a clearer understanding of the state of the economy and job security.

We have started to see rent price inflation creep up in certain regions as the undersupply of new rental homes bites – Zoopla reported at the turn of the year that new supply of property for let in London was at a two-year low.


Attractive proposition

The stamp duty surcharge introduced in 2016 had a material impact on landlords’ appetite and ability to purchase new property, but more so in the South where it is more expensive to buy property.

A landlord buying a property in the North West at the Office for National Statistics December 2019 average property price of £164,893 would pay £5,744 in stamp duty before this reduction.

In contrast, a landlord in London buying a property at the average price of £478,576 would pay £28,286.

Today, the North West landlord would see their cost reduce to £4,946, whereas the London landlord’s tax bill would halve to £14,357.

This clearly makes new acquisition a more attractive proposition but removing the stamp duty surcharge altogether for a temporary period would have provided a stimulus for buy-to-let landlords to invest further in these regions and provide the good quality homes the private rented sector needs.

Constraining private rented supply at a time when it is more difficult for people to get on the housing ladder risks certain groups being priced out of both home ownership and rented property.



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