Given the approach recent governments have taken to landlords active within the private rental sector, it is somewhat understandable that there was a large degree of confusion around Rishi Sunak’s stamp duty holiday announcement last week.
Twitter was awash with conflicting opinion about whether the decision to cut stamp duty to zero on properties up to £500k until the end of March next year, was (as has previously been the case regarding such announcements) only applicable to main residences or indeed might include additional properties.
You could sense the anxiety as various practitioners and stakeholders sought out the detail of the measures, not least because Sunak himself had referred to ‘main residences’ within his announcement at the Dispatch Box.
Clarity was however in short supply for quite some time because, even though the detail appeared to open this holiday up to additional property purchasers, the government had appeared to neglect updating its own stamp duty calculator which was still showing calculations related to the previous system.
But, then the penny finally dropped that the holiday did apply although the extra 3% surcharge remained in effect. Even with that being the case, for those landlords and investors who purchase properties over the next eight months between £125k and £500k, there are going to be savings to be secured.
Indeed, at the £500k top end, if you had completed a week ago you would have been looking at a £30k stamp duty payment, while under these new holiday rules that has now dropped to £15k. It’s perhaps no wonder there is a degree of incredulity matched with excitement that the government has taken this course of action.
So, what happens next? Well, as a buy-to-let lender we were already seeing a post-lockdown increase in activity within the space, not least because landlords are acutely aware of the current shortage in PRS property compared to tenant demand, and the anticipation that prices may allow them to purchase, secure the rental yield they need, and hopefully secure capital increases over the long-term.
Since the 3% surcharge was brought in, stamp duty has been a major consideration, and we might say, brake on the ability of landlords to add to portfolios, and while this is only a temporary arrangement, we’ve seen previous holidays of this nature result in a spike in activity.
Plus eight months is a relatively large amount of time for landlord interest to turn into landlord purchase, and we fully anticipate that landlords who are able to, will be wanting to make the most of this opportunity. After all, it may not happen anytime soon again, and there is no denying that saving thousands of pounds in stamp duty is going to be appealing to those in a position to add to portfolios.
In that sense, we must all prepare for a notable ratcheting up in interest and activity; the good news is that we’ve seen lenders returning to the buy-to-let space in recent weeks and we have a growing number of product options available. I suspect that this news will act as a further catalyst in terms of lenders hastening their return to the sector, because quite frankly, why wouldn’t they?
We should adopt a note of caution though and one that we might all wish to share with clients, and that’s around the ability to move through the purchase process before the deadline for the holiday hits. It’s likely that our conveyancing partners are going to be under significant strain during this period – remember this is available to all purchasers under £500k not just one part of the market – and many still have staff furloughed, or working remotely, and now have the anticipation of an increase in work levels.
While this might hasten their decision to bring back staff and, eight months is a relatively long lead-in time, adding to portfolios is not something that landlord clients will want to be leaving to the last minute, because there is the danger that the saving will not be secured and that probably means the purchase will fall through.
It’s clearly good news for landlords but make sure they get a reality check about the need to act in a timely manner – one suspects that this is not a holiday that will be extended and therefore we all need to make the most of it while it is here.
Jeff Knight is director of marketing at Foundation Home Loans