The rental market has been dealt a blow by the Government which has just introduced a significant hike in stamp duty for rental properties and second homes.
The Chancellor, George Osborne, has been accused of wanting to wipe out the buoyant buy to let market with the latest increase in stamp duty from April 2016. Stamp duty on second homes will cost thousands more from that point onwards with a house costing £150,000 facing a stamp duty bill today of £500 which will rise to £5,000 come April. A £300,000 house will see its stamp duty bill increase from £5,000 to £14,000.
This extra burden on the price of a buy to let house is undoubtedly going to deter many potential landlords.
Richard Lambert, National Landlords Association CEO, said the move was an attack on private landlords. He pointed out that these people invested in rental properties as a response to the housing crisis.
He said that they had put their money into investing in private properties to rent in order to provide homes for the political party they had supported in the election.
Mr Lambert added that the Chancellor should say if his intention is to wipe out the buy to let sector in the UK.
In the short term, the move could push up property prices as landlords rush to buy homes before April arrives.
The Office for Budget Responsibility forecasts the move will cut demand for second homes by 3% in the next financial year and 2% in the years after that.
It is likely that landlords with a portfolio of more than 15 properties will be exempt, so many large corporations which invest in property rentals will not have to pay. So it seems as though small investors are being squeezed out of the market.
Some believe that small landlords could band together to form a business in order to get around the new rules but they would need to get financial and legal advice on this tactic.
It could also hit letting agencies which may see a reduction in new stock to add to their rental portfolios as a result of reduced investment in this sector. It remains to be seen whether it will lead to a shortage of decent rental properties.
Another course of action could be to put up the rental price to cover the increased cost of stamp duty, which will hit families and individuals who live in rented accommodation.
The stated aim is to free up homes for people to buy but not everyone wants to buy a property – or can afford to.
Rental properties are always in demand by tenants moving to another area for work or those who live in an area in which they cannot afford to buy. Some people prefer to rent a larger home than settle for buying a smaller home or one in a less desirable area. That choice may be taken away from them in a few short months if investment in the buy to let market is significant impacted by this latest announcement.