How stamp duty overhaul will save buy-to-let investors £50m each year

 

Britain's increasingly active landlords are likely to benefit from George Osborne's overhaul of stamp duty - with the cut adding to the array of tax reliefs they already enjoy.


The majority of landlords buy cheaper properties where the impact of the new stamp duty regime is especially beneficial. Few buy properties costing more than the £937,000 threshold above which the new duty system becomes more onerous.

Figures from lenders' trade body the Council of Mortgage Lenders (CML) show a relentless increase in the number of loans taken out by landlords using the cash to make new purchases. Since 2010, when 49,000 buy-to-let loans were granted, the number has more than doubled. Currently buy-to-let loans are being taken out at a rate of 9,000 per month - over 100,000 per year.

Using the CML data it is possible to calculate the value of the average buy-to-let mortgage being used to purchase a property - as opposed to remortgaging an existing one - at £124,000. Assuming a typical borrowing equal to 60pc of the property price gives an average purchase price of £200,000.

igures from lenders' trade body the Council of Mortgage Lenders (CML) show a relentless increase in the number of loans taken out by landlords using the cash to make new purchases. Since 2010, when 49,000 buy-to-let loans were granted, the number has more than doubled. Currently buy-to-let loans are being taken out at a rate of 9,000 per month - over 100,000 per year.

Using the CML data it is possible to calculate the value of the average buy-to-let mortgage being used to purchase a property - as opposed to remortgaging an existing one - at £124,000. Assuming a typical borrowing equal to 60pc of the property price gives an average purchase price of £200,000.

At that level, stamp duty savings between the old and new regimes amount to approximately £500 per transaction. This gives a total annual saving on landlord purchases, assuming they continue at the current rate, of around £50m. In the graph below stamp duty has been calculated on the basis of an average £200,000 purchase price. The number of transactions in 2015 is left unchanged at an estimated 100,000, which is the current level based on the CML's figures for the first three quarters of 2014.

Landlord groups have been quick to welcome the news. The biggest body representing the private rented sector, the National Landlords Association, hailed the changes as a "big win". A spokesman said: "This is welcome news and is something the NLA have been lobbying hard on for years. The introduction of a straightforward marginal system of taxation will mean private landlords will now not only face lower costs when acquiring property, but also have funds to implement property improvements and keep rents down."

In recent years landlords have been focusing increasingly on northern towns and regions as price rises in the South have pushed down rental yields. The stamp duty cuts could accelerate this trend.

Ajay Jagota of sales and lettings firm KIS, based in the North East of England, said: "With North East properties typically much closer to the £125,000 threshold than in other parts of the country, our region is likely to be one where buyers benefit the most.

"For the buy-to-let investor this could mean both a bigger and faster return on their investment and extra capital to invest in improving the condition of their property."

Some commentators continue to see value in costlier, southern regions, including London. Stephen Ludlow, of sales and lettings agency Ludlowthompson, which specialises in cheaper inner areas of the capital, said: "The changes in stamp duty will see the biggest increase in net returns for more modestly priced investments - smaller properties in Zone 3 of London, city centre apartments, flats above shops, ex-local authority property and property in secondary locations.

"The reforms could encourage those who may have been delaying their purchase until after the election to reconsider."

Groups supporting those struggling to buy property responded with further calls to limit landlord tax breaks. Angus Hanton of the Intergenerational Foundation, a think tank which seeks to promote a fair distribution of social wealth and benefits across age groups, said: "The measures on stamp duty are welcome but what younger people need is the Government to target lower housing costs through fewer tax concessions for landlords and more home building."

Source: www.telegraph.co.uk