Following the introduction of a stamp duty surcharge in April 2016 mortgage activity in the UK buy-to-let sector has plummeted.
Changes implemented in April 2016 resulted in a 3% stamp duty surcharge on buy-to-let and second home purchases. This impelled a sudden surge in lending in February and March 2016 as landlords rushed through purchases to avoid the impending 3% increase in stamp duty tax.
However, the spike in mortgage lending was short lived as a sudden and significant drop followed. The Council of Mortgage Lenders (CML) figures show that following the implementation of the surcharge the buy-to-let market slumped as the UK’s mortgage activity within this sector halved.
Prior to April 2016, individuals purchasing a £200,000 buy-to-let or second home paid stamp duty of £1,500.
This was calculated on the basis that a 0% rate applied to the first £125,000 of the property value and then a 2% rate on the portion between £125,001 and £250,000.
After April 2016, landlords and second home buyers have to pay an uplift of 3% on the first £125,000 as opposed to 0% and 5% instead of 2% thereafter on the portion between £125,001 and £250,000.
As a result a landlord or an individual purchasing a subsequent home that is not their main residence would now end up paying five times more than a private first time buyer.
The buy-to-let sector has long been a controversial part of the property market with many blaming landlords for pushing up property prices. Therefore, the increase in stamp duty tax for buy-to-let and subsequent property purchases has, to some degree, enabled the market to be freer for first-time-buyers as landlords and investors no longer hold all the cards.
CML have reported that landlord/investment purchases remain low but that first-time buyer mortgages have begun to pick up.
As we head into summer, both first-time buyers and re-mortgage lending are expected to maintain momentum in the light of the very attractive deals currently available.
Though the market may appear more favourable to first-time buyers, invariably challenges remain such as the requirement to gather thousands of pounds to fund an initial deposit and the strict mortgage affordability rules.
More forecasters expect continued high demand for rental properties. Someone is going to have to provide the housing. The government is not in a position to do it, so it needs to be private sector money. It’s not a good situation for renters.
Bernard Clarke of the CML speculates that we may be seeing the start of the reversal of a long period of expansion of the private rental sector.
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