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Race to buy houses
Race to buy houses

Race to buy houses

Race to buy houses before before stamp duty change comes into effect

The Stamp Duty Land Tax (SDLT) hike on second homes will come into effect on 1 April 2016 and anyone purchasing a house over £125,000 as a second home or on a buy-to-let scheme will have to pay an extra three percent on top of each band’s current rate. 

The idea behind the rise in stamp duty is to put people off buying multiple houses in a bid to free up more properties for first-time buyers and the rental market. The only exemptions from the tax rise are caravans, houseboats, properties under the value of £40,000, social housing landlords and companies that already own over 15 properties.

What does it mean for property buyers and landlords?

Any second homeowners or landlords with two or more houses will have to stump up an extra three percent in stamp duty taxes when they sell or buy another property. When the changes come into force, stamp duty taxes for some buyers could be up to five times more expensive. For example; buyers with two or more homes previously paid zero percent tax on any purchase between £0 to £125,000, but from 1 April, they’ll pay three percent tax instead. 

For those buyers considering buying a second home as a renovation project, stamp duty will have to be paid at three percent. However, if the homeowner sells the property within 18 months, they can simply claim a refund back on any stamp duty taxes through HMRC.

What does it mean for estate agents?

A sudden surge of property buyers and landlords eagerly striving to complete their sales by 1 April has meant a busy few months for those working in the estate agency industry. In November 2015, the number of buy-to-let mortgages granted had increased by 36 percent compared to the previous 12 months, according to figures from the Council of Mortgage Lenders. This could also suggest that the sale of homes will slow down a little once the changes to stamp duty come into effect. 

James Hyman, Head of residential agency at Cluttons commented on the effects of the pending stamp duty rise: "Since the Chancellor announced an additional SDLT on investment and second home properties during the last Autumn Statement, there has been a flurry activity in the London property market. Both long term investors and second home owners have been keen to snap up property before 1 April. These savvy buyers have given a short-term positive effect on the market across all our London branches. The legislative change also comes with additional pressure as it is based on completion rather than the exchange of contracts. Anybody that wanted to take advantage of this needed to be securing a property no later than the end of February to get deals through in time.  

"Looking forward, I do not see this being particularly detrimental to the London property market. There will still be a long term financial opportunity and therefore, investors are unlikely to be put off. Stock levels across Central London still remain low and this will continue to help underpin prices across the capital. Where there might be a slowdown is outside of London, which doesn’t have the same growth potential and is therefore harder to recover the surcharge."

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