Landlords will face higher stamp duty when they buy property after Chancellor Rachel Reeves today increased the second home surcharge to 5%.
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In the first budget for the new Labor government, the chancellor said the 2% increase in stamp duty would come into effect from tomorrow.
Buyers who are purchasing a second home are therefore directly affected by the tax.
The tax applies to anyone who buys a home that is not their main residence. For example, anyone who buys a holiday home or a second home for a family member is also liable for the surcharge.
However, the largest group affected by the change are landlords and real estate investors.
Rachel Reeves said in her speech that the increase would lead to more transactions for those buying their first home and for movers.
But mortgage brokers are concerned this could have a detrimental effect on the buy-to-let market and also on property chains involving second home purchases.
Ben Perks, director of Financial advisors from Boomgaardenvia the Newspage agency, said: “The Chancellor may have just killed the buy-to-let market with immediate effect. A 2% increase in stamp duty tomorrow will send shockwaves through the real estate sector.
“Anyone completing a buy-to-let purchase tomorrow will need to find a few thousand pounds to keep going, and for many landlords this simply won’t be possible. However, it is a broader problem than initially thought. Any buy-to-let chain is now in a very precarious position.”
Other mortgage experts have raised concerns not only about the immediate impact of this tax increase, but also about the long-term effects on real estate investors in the market.
Harpen Garcha, director of Brooklyns financial also spoke to Newspage. She said: “Tomorrow will feel like Halloween for some landlords who are facing last minute challenges. Imagine having to find an extra $10,000 for a $500,000 purchase – that’s a huge ask. Some landlords have already bartered and are now being asked to find the extra money without notice. What if they can’t make it at the eleventh hour?
“This shift will undoubtedly discourage landlords from investing in more buy-to-let properties, which could lead to a reduced supply of rental properties, especially with an unprecedented number of landlords already selling.”
The stamp duty exemption ends in April 2025
One of the benefits of increasing the tax on second properties is that it could increase the availability of housing for second homes starters.
But those taking their first step on the property ladder will also face stamp duty increases in April 2025.
Currently, first-time buyers are exempt from stamp duty on up to £425,000 of the price of their property. This threshold was increased from £300,000 to £425,000 in the 2022 mini-budget as a temporary measure. But it will be reversed again in April 2025.
For those moving, stamp duty will apply from £250,000, but under the same rules applied in the mini budget, this will return to £125,000 in April 2025.
Rachel Reeves made no mention of continuing this assistance next year.
John Fraser-Tucker, head of mortgages at broker Mojo Mortgages, said: “The inability to extend the stamp duty holiday beyond March 31, 2025 is incredibly disappointing for would-be homeowners.
“With more than a third (36%) of first-time buyers already seeking financial support from family, these additional costs could put homeownership even further out of reach for many.
“For a home with an average price (€ 328,036), first-time buyers are now confronted with € 3,901 extra in initial costs. This change could force many to postpone their homeownership dreams.”
There was also no mention of the Freedom to Buy scheme, the mortgage support initiative that Labor promised to provide in its election manifesto.