From today (1 April), anyone buying a property that is not their main residence faces an additional 3% Stamp Duty charge on top of the previous tiered tax rate, incurring an extra tax charge of £6,000 on a £200,000 property.
In the latest in a series of measures aimed to stave off a bubble in the buy-to-let market, the fine detail on the surcharge was only announced two weeks ago adding to market confusion.
This week, a Bank of England consultation paper, Underwriting standards for buy-to-let mortgage contracts, laid out the regulator’s intention to tighten buy-to-let mortgage underwriting standards and affordability checks after a 31-lender review showed all planned to lend 20% more in the next two years.
The PRA identified portfolio landlords with four or more properties as a particular risk proposing a layer of specialist underwriting for the first time. The response deadline to the consultation is 29 June.
A further consultation closed to responses on 11 March on the use of macro prudential tools by the Bank of England’s Financial Policy Committee to tighten controls on this fast-growing market with a statement expected later this year. If powers are granted to the FPC it will be allowed to dictate loan-to-value levels and rental coverage ratios should it see fit.
Jeremy Duncombe, director, Legal & General Mortgage Club, said it’s still too early to guess at how these measures will affect the sector.
“It is crucial that the Chancellor’s amends are allowed to bed-in before any further action is even considered, whether that be by the government or regulatory bodies, to allow us to identify which measures are having the desired effect on the market.
“That said, this week saw the Prudential Regulation Authority (PRA) release its consultation paper on revised underwriting standards for buy-to-let properties following concerns that the sector is overheating. Whilst on their own these changes can be seen as good housekeeping by the PRA, and many lenders will already have in place similar controls, too many layers of intervention like this could actually inhibit the market.”
With purchases making up just 30% of buy-to-let lending and remortgaging at about 60%, he added these restrictions can only affect a small proportion of the market.
“Ultimately, more needs to be done to improve affordability across the market, with lenders being granted more freedom to relax lending criteria, and the industry and the government working together to increase the supply of homes across the country to ensure long term house price inflation remains stable.”