Stamp duty surcharge update: early 2016 lending and investment activity
The market is continuing to rumble and ripple with talk of the effects of the stamp duty surcharge that is coming into force on 1 April 2016. We recently reported on how landlords with a smaller portfolio are likely to be more hard done by as a result of the surcharge than those with larger investments, but that the move towards the UK becoming a rental nation is unlikely to drive them out of the market. We also predicted a rise in people buying property ahead of April to avoid being slapped with a hefty additional 3% in stamp duty and advised people that if they were considering buying to let in the future to buy in the first quarter.
Now, mortgage figures from The Council of Mortgage Lenders show that gross mortgage lending reached £17.9 billion in January this year, a colossal 21% more than the amount lent in January 2015. This number could certainly suggest that the uncertainty facing the buy to let market has had an effect on landlords intending to increase their portfolio.
CML economist, Mohammed Jamei, commented: “Lending started the year on a positive note. UK market fundamentals are helping to underpin this recovery, with real wage growth, an improving labour market, competitive mortgage deals, and government schemes all supporting household demand. We still only see limited upside potential going forwards, as the number of properties for sale on the market remains low and affordability pressures weigh on activity.”
It will be interesting to see if lending spikes significantly ahead of April – we anticipate that it will. However, what these figures don’t demonstrate is that 9% of potential investors in the buy to let market have cancelled their plans to add to their portfolio because of the upcoming tax changes, according to rplan co.uk. Instead, they will put their property savings and investments in cash accounts, ISAs, stock, or directly into their pension pot.
Speaking of pension pots, retirees investing their tax-free lump sums in property has remained constant. Figures from Fidelity International show that 7% of their retirement customers used their lump sum to invest in buy to let property this January – a percentage consistent with the last six months. Currently, renting property is considered one of the best ways to maintain an income once people have stopped working, but the stamp duty surcharge may force retirees to consider other options for their lump sum, or may see them having to buy properties of a lower value.
Landlords should note that to avoid the surcharge they must have completed on their purchase by midnight on 31 March 2016, unless contracts were exchanged on or before 25 November 2015. Miss the deadline by even a day and your stamp duty bill could sky-rocket. From 1 April, the average house England and Wales house price of £188,270 will attract an additional stamp duty bill of £5,468, which is quite some penalty.
Are you considering buying a rental property ahead of the tax changes on 1 April? We want to hear your thoughts on the stamp duty surcharge. Tweet us @Legal4Landlords and let us know.
