Buy-to-let changes have unexpected consequences on property market, say accountants
Leading accountants from across the UK have highlighted a number of unexpected trends following the introduction of chancellor George Osborne’s buy-to-let Stamp Duty Land Tax (SDLT) surcharge.
February and March saw a surge in property transactions but, since the controversial 3% surcharge on second home purchases was implemented in April, activity has slumped and there has been an increased trend of sellers in Britain shedding money off their property prices, or accepting offers up to 10% less than their original asking prices.
The average house price in the UK has fallen to £212,321, down £1,624 on the month, and the annual pace of inflation has dropped from 10.1% to 9.2%.
However, SDLT has also had some unexpected consequences, including a considerable impact on property developers, particularly with regard to small-scale development where existing residential properties are being converted into smaller, more affordable units.
Pauline Hudd, head of stamp taxes at leading London accountants, Wilder Coe, and former assistant controller of stamps at HMRC Stamp Office, said:
“While the Budget measures were aimed primarily at buy-to-let transactions and those buying second homes, one of the perhaps unintended consequences has been to hit property developers involved in the supply of affordable homes and investment in the future of housing stock.
“With no relief available from the three per cent surcharge rates for property developers and the new higher charges almost always applying on purchases of residential properties by companies, this is impacting the financial viability of projects, with many stalling or simply not going ahead.
“Over time, this will reduce the level of affordable housing, especially in the Capital. In the long-term, fewer developments go ahead and fewer homes are built.”
Another unexpected change highlighted by UK property experts in the press of late has seen would-be investors turn their back on buy-to-let in favour of investments in commercial property.
Roger Isaacs, partner at leading South West accountancy firm, Milsted Langdon, said:
“Commercial property is certainly becoming more attractive because, not only is interest on associated loans an allowable tax expense, but commercial properties can also be held in pension funds.”
However, Aaron Mears, managing director at RDP Financial Services, urged Britain’s first-time buyers to be wary that landlords’ elimination from the residential market could be short-lived.
“I sincerely hope that the second home Stamp Duty changes redress the longer term balance between owners and landlords.
“Lenders seem to be showing signs of improving terms for those at the bottom of the property ladder; it is quite encouraging to see prices ‘calm down’ at least for a while.
“I would hope that this is a signal for the future but I fear that it could be a short-term reaction and my gut instinct is that they will start to come back in the third quarter of this year.”
Mark Saunders, another partner at Wilder Coe, shared a similar view, adding:
“So many sales were rushed through in March that there was bound to be simply less activity in the buy-to-let sector in April.
“I think we should wait until we have perhaps twelve months’ data to see whether this will have a permanent effect.”