Stamp duty increase for Landlords equivalent to 11 months net income

Countrywide Residential Lettings

Monday, December 14, 2015

In the Autumn Statement, the Chancellor announced a new additional 3% stamp duty rate for landlords and second home owners. The new rate will put pressure on yields for landlords, unless they account for increased costs when buying, according to research by Countrywide plc, the UK’s largest integrated property services group.

The research shows that if the higher tax burden is not factored into the purchase price of a property, it would mean a reduction in gross yield of 0.2%. That is equivalent to 11 months income for the average landlord, taking into account borrowing costs (based on the average loan to value of 68%).

Landlords in the South West and North East of England will see the highest cost relative to rental income, as the extra tax burden is equivalent to 14 months and 12 months of income, respectively. Those buying in the North West of England will see the least, with the extra stamp duty equivalent to eight months of income.

The majority of landlord purchases take place in London, the South and East of England - 60% of homes sold to landlords in England this year were in these regions. Landlords in these areas will see the biggest cash increase in stamp duty, £6,000 on average. However, high expectations of future house price growth will likely mitigate some of the impact of the tax increase. If prices grew at the same rate as the last five years, within 12 months the growth in house prices would have offset the cost of the additional stamp duty.

In the Midlands and North of England, 16% and 12% of total sales respectively are to landlords. Countrywide data shows that the average property bought by landlords in these regions would previously not have faced any stamp duty but will now face a £3,200 tax bill next year.

The changes to stamp duty come as the shortage of homes available to rent continues, levels of stock have decreased 5% year-on-year. The growing imbalance between supply and demand will continue to support rent increases in future months as tenants compete for fewer homes.

Commenting, Johnny Morris, Research Director at Countrywide said:

“The stamp duty increase will impact landlords’ purchasing power. Many entering the market will be faced with a choice between making a lower offer when buying or having to cover the additional costs themselves, impacting yields.

“Most landlords view property as a long term investment, on average holding a property for 17 years and larger investors will be exempt from the higher stamp duty rate. This means over the long term the private rented sector will continue to grow, but there’s likely to be a few lumps and bumps along the way as landlords get to grips with and adapt to the changing environment.

“It’s unlikely the change to stamp duty will see an immediate impact on rents, Landlords are rarely able to pass on increasing costs to tenants, as rental prices are set by market forces. But if less landlords choose to invest in the sector in the short term, a fall in homes available to rent could put pressure on prices.”

Graph A - Table A: Regional break down of additional stamp duty costs 

*Calculations use Landlords rental income after paying for an interest only mortgage with the average LTV of 68%, at a 4.5% mortgage rate and 10% management costs. 

Table B: Average rent for newly let properties

Table C: Average rent for occupied units





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