With the prospect of the Bank of England looking at greater regulation of BTL mortgages, the announcement of a 3% stamp duty (SDLT) surcharge on the purchase of “additional homes” completing post 1 April 2016, therefore came as a nasty surprise for the sector. Many will have pinned their hopes on a wide ranging consultation exercise.

Those who had hoped for a consultation regarding the whole raison d’être for the tax will be disappointed; with the now published consultation paper making it very clear that the proposal is an important strand of a five point plan to “refocus houses towards low-cost home ownership for first time buyers”.

Though the final details of the tax are to be confirmed, the consultation paper has provided much greater detail on how and when the tax will apply.

The points upon which consultation is sought are narrow and in most cases look to address technical issues.

^{Source: Savills Research}

The technical detail

The consultation confirms that:

■  Where a purchaser is replacing their main home then the tax will not apply. However, if an individual has not sold one primary residence before buying the next, they will have to pay the additional stamp duty up front, with the ability to reclaim it if they sell their original home within 18 months of the acquisition of their new home.

■  This may leave some space for “accidental landlords” to let out their property when market conditions make a sale difficult. However doing so will carry risks if this narrows the period of marketing for a subsequent sale which then risks failing to meet the 18-month sale deadline.

■  Unless separated, married couples and partners will only be able to have one main residence between them; that main residence being a question of fact (i.e. with no ability for them to elect the main residence).

■  Where parents buy a property for their children to live in, in the parents’ name, they will pay the surcharge (assuming they own another property).

■  Where a property is purchased jointly and any of the purchasers end up with ownership of two or more properties it is proposed the additional duty will be payable on the entire purchase price (although consultation is sought on whether tax should be paid on the whole sum in circumstances where one of the joint purchasers is buying their first property).

■  Where somebody owns a property abroad (or indeed Scotland) this will be taken into account in determining whether they pay the SDLT surcharge on properties they buy in England, Wales or Northern Ireland. This is particularly relevant to overseas buyers of UK property and more specifically the prime central London market.

■  Furnished holiday lets will be within the scope of the additional tax revisions though time share properties will not.

■  So called “mixed use assets” will not be caught by these propositions as they are considered as a non-residential transaction for the purpose of SDLT.

■  For those acquiring multiple units of six or more residential units in a single or series of linked transactions, the purchaser can choose either:

  to treat the transaction as a non-residential purchase (without the SDLT surcharge); or

  to use multiple dwellings relief provisions to pay the tax on the total purchase price at the rate applicable to the average value of the property, plus the additional house surcharge.

■  Charities and Registered Social Landlords who are exempt from SDLT will remain so and therefore will be unaffected by the changes.

■  It appears that large scale corporate investors and funds will be exempt from the additional charges, with consultation sought on whether such an exemption should also apply to individuals who buy investment stock that significantly contributes to the delivery of new housing supply. This might apply to owners of 15 or more properties or bulk purchases of 15 or more properties.

■  The additional tax will generally apply to trusts with an exception for the purchase of a main residence for a beneficiary with a life interest.

Market Implications

Buy to Let and the Rental Market

In the mainstream buy-to-let market where debt plays a greater part in the financing of purchases, this will compound the effects that the restrictions on mortgage interest relief will have on people’s ability to expand their portfolios, further pushing committed investors to lower value higher yielding markets.

A recent YouGov survey of 1,000 landlords undertaken by the Council of Mortgage Lenders suggested that the restriction of mortgage interest relief would cause only 13% of all landlords to consider selling the whole or part of their portfolio. In comparison 14% indicated that it would either stop them adding to their portfolio or slow the rate at which they do so. It is this group who will be further affected by the additional stamp duty charges.

This is likely to limit the supply of new rental stock from private landlords, against the context of increased demand (notwithstanding government schemes to support homeownership). As a consequence it is likely to underpin future rental growth.

Prime Housing Markets

Prime markets have already been affected by successive stamp duty increases. In this sector the prime central London market, where second home and investment buying activity is significant, and prime coastal markets are likely to be most affected by these changes.

This is likely to mean they remain price sensitive over the course of 2016 and 2017, as the additional costs are absorbed. In addition, buyers of weekend properties in the country are likely to be more budget conscious.

In the rental market we would expect the amount of investment demand for prime market stock to be tempered. Furthermore we would expect those struggling to sell their property to be less inclined to become accidental landlords. These factors may combine to reduce supply into the private rented sector.

On the demand side those looking to relocate out of the capital may be more inclined to rent before they buy if they are yet to sell their London residence.

Together, these factors should underpin rents, though it is too early to say whether this will lead to significant rental growth in this part of the market.