As estate agents we get asked plenty of questions on a daily basis from local homeowners. What’s happening in the property market? Are house prices going up? Most recently we’ve been asked, “what’s this new stamp duty surcharge?” and “how will it affect us?” So I thought today’s blog should be dedicated to the new stamp duty changes taking place in April 2016 and my view of how it will affect the Bishop’s Stortford property market.
What are the new stamp duty changes?
As of 1st April 2016 there will be a surcharge of 3% on the stamp duty you pay for additional residences such as buy to let investments. Currently, stamp duty is worked out a bit like income tax and this was recently changed as the old “slab” type pricing structure wasn’t working well with big jumps in stamp duty at certain price points. You can view the new stamp duty calculator herehttp://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm . Let’s take a £200,000 property in Bishop’s Stortford as an example (I like round numbers!).
Currently on a £200,000 buy to let, residential property you would pay £1,500 stamp duty. This is the same figure whether it’s your first, second, third or even fiftieth property. With the new changes from April, there’ll now be a 3% surcharge (i.e. an ADDITIONAL 3%) to pay on second homes and buy to let properties. Let’s take the standard investor in Bishop’s Stortford looking to buy a flat at £200,000. From April 2016 they’ll have to pay £7,500 instead of £1,500 in stamp duty fees when purchasing the property. That’s quite a difference!
Why has the government brought in the new stamp duty surcharge?
The government wants to free up housing for first time buyers and believes that by “putting off” investor buyers that means more housing will be available. They believe that investors are “snapping up” affordable housing to add to their portfolio, meaning first time buyers are missing out and struggling to get on the ladder.
How will this affect the Bishop’s Stortford property market?
What they haven’t considered (in my opinion) is that it’s not just the availability of housing or even having a deposit that puts off potential first time buyers from buying, it’s the fact that house prices in some areas are so high that their wages simply aren’t high enough to buy, full stop. Most people can currently borrow around 4.5 times their income and bearing in mind the average wage is somewhere around £25,000, this gives most buyers a mortgage of around £112,500. Add on a 10% deposit and that means a single buyer has around £125,000 to spend. Now go and have a look at properties in Bishop’s Stortford on Rightmove and see what you can find to buy for that price. At the time of writing this blog there wasn’t a single property available for that sort of figure! Even a couple with double that budget are looking at a budget of £250,000 which would just about buy you a half decent flat in Bishop’s Stortford. I don’t believe that having extra housing available is going to make any difference and will simply mean that landlords put rents up to cover their additional costs, further affecting first time buyers that are currently renting a property. Investors play a big part in holding up our housing market and if it does indeed put off investor buyers we could see house prices in Bishop’s Stortford begin to fall.
In the short term, I think we’ll see prices on lower end properties rise as there has been a massive increase in landlords looking to cash in and buy before 1st April. What happens after that will certainly be interesting to see. However, many of the investors I have spoken to aren’t too worried about the changes and have said that it won’t deter them from adding to their property portfolio later this year.
Is there any way round the 3% stamp duty surcharge?
When doing my research I came across a great post on http://www.propertytribes.com/ways-landlords-can-avoid-extra-stamp-duty-surcharge-t-127622715.html about how landlords can avoid paying the new stamp duty surcharge (legally of course) and found 9 ways you can combat the extra stamp duty fees.
- Buy the property in a company name
- Grow your portfolio to over 15 properties
- Buy commercial properties
- Build rather than buy
- Buy houseboats, caravans and mobile homes
- Split your current property and buy in your partner’s name
- Buy for under £40,000
- Consider a rent to rent scheme (more can be found at http://multiletcashflowsystem.com/how-it-works/ )
- Do nothing!
What should you do next?
If you’ve got a property that might appeal to an investor buyer such as a flat or small house, then now could be a great time to cash in and you’ll more than likely achieve a premium price at this moment in time. If you’re a landlord then it goes without saying that you may want to speed up the search for your next new property before the new stamp duty surcharge kicks in in April.
What are you doing on Thursday 10th March 2016? Come along to The Property Advice Evening in Bishop’s Stortford. Arrival is from 6:30pm and we have a great line up of guest speakers who will help you to sell your home for the best possible price, in the shortest possible time frame…and it’s totally free! Find out more here.
What happens if you have an investment property which is let out, but you want to sell your OWN residence and buy another for yourself? Do you still have to pay the increased stamp duty on your purchase?
Hi Katie,
Our understanding and the understanding of our mortgage advisor Joe is that the answer is no, as long as your sale and purchase happen simultaneously. i.e. you couldn’t sell yours, go in to rented, then buy a few months after it would need to happen at the same time. As long as you tie the two in together then you’re fine.
Hope that helps!