The Autumn Statement has been condemned as a wasted opportunity to scale back punitive buy-to-let reforms that will hit landlords and tenants, according to industry experts.
The buy-to-let community had hoped Chancellor Philip Hammond would water down or scrap the stamp duty land tax surcharge introduced last April and the changes to buy-to-let tax relief that will be brought in from April 2017.
The surcharge has forced buyers of second homes and buy-to-let properties to pay an additional 3 per cent to the Treasury, while the tax relief changes will cause landlords to lose increasing amounts of tax relief every year until 2020.
At present landlords can claim tax relief on mortgage interest payments, effectively reducing their taxable profits. But from April 2017 they will no longer be able to do this, and by 2020 landlords will only be able to claim tax credit at the basic rate of 20 per cent, regardless of whether or not they are a higher rate taxpayer.
Mortgages for Business managing director David Whittaker says: “Unsurprisingly, the Chancellor demonstrated his commitment to the stance taken by his predecessor by ignoring the calls made by landlord groups to roll back tax changes, some of which have yet to take effect.”
First Complete mortgage manager Karen Hedges agrees. She says: “The Chancellor has missed an opportunity to reduce stamp duty and help homemovers. The housing market is currently stalling on second-time movers and I expected a more exciting proposal to help – at the very least a stamp duty holiday.”
The Chancellor has missed an opportunity to help home-movers. I expected a more exciting proposal – at the very least a stamp duty holiday
Hope Capital chief executive Jonathan Sealey argues the stamp duty reforms in particular are “killing the market” and he is disappointed they did not feature in the Autumn Statement. He says: “We all had high hopes that the Chancellor would tackle the one thing that many believe is killing the market, but disappointingly stamp duty was again conspicuous by its absence.”
Fighting the fallout
Industry experts say the effect of leaving these reforms unchanged will be devastating to landlords and tenants. The reforms’ combined impact on the buy-to-let and private rented market could lead to the market stagnating, buy-to-let investors selling up and increased rents, they claim.
SPF Private Clients chief executive Mark Harris says: “The Chancellor didn’t make any changes to stamp duty, which is no real surprise, but it is still an issue that needs addressing because it is not just about rich people.
“Punitive stamp duty charges higher up the chain stall the overall market and prevent people moving up and down.”
The National Landlords Association said in February that the changes would contribute to 500,000 landlords selling properties before February 2017.
Fleet Mortgages chief executive Bob Young agrees the tax changes will cause some landlords to sell in the short term but argues that most are likely to keep hold of their properties.
He says: “As a buy-to-let landlord you have few choices. You can sell the properties and pay the capital gains tax due, which is a bummer. Then, what do you do with the money? Stick it in the bank and hope to get 1 per cent return? You might as well stick it under the bed.
“You can certainly go on some very nice holidays and buy a big car, but you’ve got no investment for the future. So why would you sell? You’d keep it and suck up the cost in the meantime. Very few people do buy-to-let for an instant profit, and they’re foolish if they do.”
Rent rises on the cards?
Mortgage Advice Bureau chief executive Peter Brodnicki says the Chancellor’s failure to act on the stamp duty surcharge and buy-to-let tax will lead to higher rents, as will the imminent ban on letting agents’ fees.
The private rental sector is a key provider of housing. It seems ludicrous to place even greater fiscal demands on those who contribute to this
He says: “Given the private rental sector is a key provider of housing in the UK – some would say filling the gap that the Government have left wide open – it seems ludicrous to place even greater fiscal demands on those who contribute towards this key element of the property ecosystem, which ultimately could lead to a lack of supply in this crucial area if it becomes unprofitable.
“As it stands, stamp duty is a draconian system which, even though revamped in 2014, is still poorly thought out and is surely ripe for an overhaul.”
But the market is split on whether an overhaul is likely, despite the Chancellor saying the Government has raised its profit forecast for the stamp duty surcharge by 81 per cent to £6.9bn, while admitting it was unprepared for the number of deals timed to dodge the extra tax.
Documents published as part of the Autumn Statement say the 3 per cent surcharge on buy-to-let and additional properties was expected to raise £3.8bn from 2016/17 to 2020/2021.
Young believes the Government has no political incentive to reform either tax. He says: “I couldn’t see there being a hope in hell of either thing changing.
“The underlying issue for the Conservative Government hasn’t changed. They want to stop the flow of properties from the owner occupied sector to the private rental sector because they can’t build enough properties.”
Vantage Finance managing director Lucy Hodge hopes to see reform, but admits this is unlikely for some time, if it happens at all.
She says: “They would have had egg on their faces if they went back on any of it too quickly. They will want to see how it pans out and what impact that has on the Government coffers before they make any changes.”