Capital Gains Tax and Stamp Duty increase impact on property investors
They warned that it would be painful, they warned they would have to make difficult decisions, and while it could have been much worse, Rachel Reeves’ Budget has certainly ruffled feathers in the mortgage industry. The consensus is that landlords will take a sizeable hit.
Reeves’ statement to the House of Commons - the first Labour Budget in 14 years and the first by a female Chancellor of the Exchequer - hasn’t immediately spooked the bond market in the way that the Truss-Kwarteng mini-budget did just two years ago. Reeves clearly noted the fallout from that fiasco and stepped rather more lightly, though it can take a few days for these things to cut through.
After months of speculation and the government’s doom-laden utterings in advance of the Budget’s release, there was plenty to excite comment, particularly the toll it could take upon property landlords.
The headline grabbers were an increase in Stamp Duty for second-homes by two percentage points to 5%, and Capital Gains Tax (CGT) rising from 10% to 18%, and the higher rate from 20% to 24%. The rates on residential property will remain at 18% and 24%.
The Chancellor further committed £5 billion to deliver the government’s housing plan, increasing the Affordable Homes Programme to £3.1bn, including investment to renovate sites across the country and deliver 2,000 new homes.
Right to Buy discounts will be reduced, and local authorities will be able to retain the full receipts from any sale of social housing, to be reinvested back into housing stock.
But it’s property investors facing the firing line, it seems.
“Buy-to-let landlords and second home owners were expecting another tax squeeze from the Chancellor,” declared Peter Stimson, head of product at lender MPowered Mortgages. “But what they got was a whack with a hammer.
“Not an increase in general taxation or the Capital Gains Tax they pay when selling a rental property, but a whopping 2% uplift in the Stamp Duty payable when buying a home to rent out. A sector rendered fragile by successive tax raises and interest rate rises is now likely to be clinging on by its fingernails after today's announcement.
“Fewer than one in 10 mortgage applications made this year were for a buy-to-let loan, less than half of what it was just a few years ago. That share is now likely to plunge further as would-be landlords run the numbers and decide they just don’t stack up.”
He added: “There’s a real danger that thousands of purchases that were already in the pipeline will now be abandoned. With rents already rising and the supply of rental properties about to be further disrupted, rents could now climb even higher. Far from solving the housing crisis, this, at least in the short term, could well exacerbate it.”
The Budget’s impact on property investors
Mark Harris (pictured left), chief executive of mortgage broker SPF Private Clients, said that raising the stamp duty surcharge would be an additional entry cost that property investors would have to absorb into their business models.
“An additional entry cost is irritating and might put off new entrants to the market,” Harris commented. “But those already in it with established models will continue to invest as it is a market they understand and know. The decision to keep CGT at the same levels for property sales is welcome and will hopefully stave off any panic selling. Much of this Budget was leaked in advance that there is nothing to spook the markets."
Jon Cooper (pictured second from left), director of mortgages at Aldermore Bank, weighed in: “The choice to increase additional Stamp Duty on second-homes from 3% to 5% will have an impact on our housing ecosystem. By placing increased pressures on landlords, there will also be increasing costs for renters, not least because we anticipate many landlords might withdraw from the market in response.”
Ben Beadle (pictured second from right), chief executive of the National Residential Landlords Association, pointed to analysis by Capital Economics that suggests increasing Stamp Duty on rental properties from 3 to 5% will see a net loss of half a million homes to rent over 10 years.
“Hiking stamp duty on homes to rent when 21 people are chasing every rental property makes no sense,” said Beadle. “This will not help the huge number of tenants for whom homeownership is still a distant dream.
“The Chancellor has failed to heed the warnings of the Institute for Fiscal Studies that higher taxes on the rental market lead only to rents going up. What tenants needed was a Budget to boost the supply of new, high-quality rental housing. What we got is a recipe for less choice and higher rents.”
Richard Campo, head of growth at Heron Financial, noted that the Chancellor’s statement yesterday had impacted the market, even before it was made to the Commons.
“No doubt the result of the uncertainty, and in some cases, extreme anxiety in the lead up to the Budget, money markets have gone up in recent weeks,” Campo said. “That has led many lenders to pull market leading fixed rate products and replace them with higher priced products. If anyone was waiting for rates to drop, that ship has sailed and at least for the moment, we are seeing fixed rate mortgage products creep up still.
“It is still a bit too early to tell if the budget will impact this trend, but I suspect we are broadly where we are on pricing from now until the new year. A note of caution though that due to the contents of the budget, the Bank of England may not cut rates as much as currently predicted in the coming years, if that is the case, pricing is very unlikely to go any lower for the foreseeable future.”
READ MORE: “Exempting downsizers from Stamp Duty would free up properties”
What’s positive about Rachel Reeves’ autumn Budget?
Duncan Kreeger (pictured right), CEO of mortgage lender TAB, acknowledged that while there are certainly some tough challenges which will impact many, he is focused on the positives.
“The significant £50 billion infrastructure investment stands out as an opportunity to stimulate growth across property and regional businesses throughout the UK,” Kreeger said. “The £5bn dedicated to affordable housing is another positive step, addressing housing shortages and supporting first-time buyers, which will benefit the broader property market.”
And John Phillips, CEO of Spicerhaart and Just Mortgages, concluded: “With the Budget now done, we have to hope that some of the waiting and seeing will now clear and we see buyers moving forward with plans, plus, with the consensus being that we will still see another cut to the base rate this year, we will hopefully see some activity from both lenders and potential buyers.
“It’s a shame though that it is left to the industry once again to do the heavy lifting to support buyers and keep the housing market moving.”
