Rise in buy-to-let stamp duty 'could restrict supply of new homes'

The chancellor’s plan to increase stamp duty for buy-to-let investors could lead to new housing developments stalling and rents increasing for tenants of private rented accommodation, property analysts have warned.

George Osborne announced in the autumn statement on Wednesday that buy-to-let investors and second home buyers will pay an extra three percentage points of stamp duty from next April. This means on a £250,000 property they will pay £10,000 of stamp duty, rather than £2,500.

The move is designed to raise £3.8bn in tax and help potential first-time buyers afford a home by squeezing demand from buy-to-let investors.

However, critics claim it could have the opposite effect by increasing rents and removing a key source of funding for new housing developments.

Rents could rise due to a fall in the supply of rented accommodation and landlords looking to offset their stamp duty bill by raising their charges, while the supply of homes to buy could fall as investors who fund new developments are put off by the tax hike.

These factors could make it more difficult for potential homebuyers to save the funds to buy a home and mean that house prices continue to rise due to a lack of supply.

Adam Challis, head of residential research at property agent JLL, said: “Newbuild properties are heavily reliant on off-plan investors to trigger development finance. A reduction in demand from this group will dramatically reduce the viability of many newbuild schemes, reducing supply.

“It is extraordinary that the chancellor has not ringfenced newbuild property from this change, as it will act in direct contradiction to the raft of government policy designed to expand the rate of housing construction.

“The raft of policy changes are incredibly disruptive to market activity and create uncertainty that results in dis-investment. The government does not seem interested in the market distortions it causes through its actions.”

Frank Nash, at accountancy firm Blick Rothenberg, added: “The chancellor has openly admitted that more affordable housing, including the private sector, needs to come forward to allow people to become owner-occupiers and achieve their aspirations.

“However it will take at least five years and, until those homes are built, young families have no choice but to rent.

“Landlords need to protect their investment and are expected to pass the cost on in the form of higher rent. This reduces a tenant’s ability to save a deposit for a home of their own, and in turn their ability to make best use of the range of the help-to-buy initiatives.”

Property agents said there is likely to be a rush of buy-to-let investors pushing through deals before the tax increase comes into force on April 1 next year.

Osborne has said he will consider tweaking the details of the tax before it is implemented, including making an exemption for corporations and funds owning more than 15 residential properties. This could help encourage institutions to invest in housing developments.

Lucian Cook, director of residential research at Savills, said there was the risk of “unintended consequences”.

He added: “This could restrict the stock in the private rental sector, which is already an undersupplied market, and put pressure on rents.

“Personally I was surprised that he did it. I thought the move would have been from the Bank of England for greater regulation of the buy-to-let market.”

Meanwhile, big businesses continued to express their disappointment at the apprenticeship levy, which has been dubbed the “payroll tax”.

Businesses will have to pay a 0.5% levy of their payroll, which will raise almost £3bn a year, although those who pay less than £3m a year on wages will not pay any tax.

John van Reenen, director of the Centre for Economic Performance thinktank, said: “Osborne has quietly introduced a large number of ‘stealth taxes’. The biggest is the apprenticeship levy, a whopping £3bn a year, followed by stamp duty on buy-to-let homes – about £1bn a year - a social care levy that could bring in another £2bn and an end to the freeze on fuel duty levy: £2.3bn.”

Paul Johnson, head of the Institute for Fiscal Studies thinktank, added: “A £3bn tax on the payrolls of companies with pay bills over £3m is substantial, as is an increase in stamp duty land tax of nearly £1m on second homes and buy-to-let properties.

“The latter especially is also ill-designed, not least because it reintroduces, albeit on a small scale, a cliff-edge into the stamp duty schedule a mere year after the chancellor made much of abolishing cliff-edges in the stamp duty schedule.”