6 December 2015, The Times
It is undoubtedly a First World problem, up there with agonising over whether to plump for Waitrose or Marks & Spencer smoked salmon this Christmas, to go tall or grande with your decaf soy latte with caramel drizzle, or to tip the builders who have been using a portable loo in your front garden for six months while you are mid-extension. But there is a new property quandary, following last month’s revamp to stamp duty. Do you rush to buy that dream holiday cottage or pension-boosting buy-to-let before the tax rises on April 1, or wait to see if prices drop next spring in response to George Osborne’s latest property manoeuvre?
The announcement last month of an additional 3% rate on the purchase of any second home costing more than £40,000 is a measure designed to keep property values in check and make the market more accessible to first-time buyers. The 2011 census revealed that 1.57m people in England and Wales had an additional property that they used for 30 days or more each year. Yet, as with many government policies, there may be unintended consequences.
Estate agents and other property professionals are split in their predictions about how the housing market will respond. In one corner sit those who believe a stampede is on the way. “The changes could create a surge in demand, as landlords look to beat the implementation date,” says Rory O’Neill, head of residential at Carter Jonas estate agency. Camilla Dell, managing partner at the London buying agency Black Brick, agrees: “We’ve taken several new inquiries from buyers who want to crack on.”
Adrian Gill, director of the Reeds Rains and Your Move agencies, talks about “a scramble for second-home purchases” leading to higher prices during winter, when values typically take a dip. Savills estate agency’s head of residential research, Lucian Cook, also anticipates a rush to complete deals by the end of March — perhaps pushing prices up in the short term. From April, he says, demand for holiday homes may dip, “with a consequential impact on pricing”.
Yet is at this point, after the new tax comes into effect, that many agents and analysts suggest canny buyers should pounce. Anyone purchasing now will probably pay over the odds, they argue, even when you take the lower stamp duty into account. “This will adversely affect the holiday-home market in the short term, with demand falling after April next year, resulting in a downward pressure on prices,” says Miles Kevin, director of Chartsedge, a Devon estate agency specialising in second homes.
For those who do wait, one thing looks certain — it will be difficult to beat the 3% surcharge. Although buy-to-let purchasers can offset it against capital gains tax when they eventually sell, they must pay upfront. Owners letting out holiday homes may still enjoy some of the mortgage-interest tax breaks recently removed from buy-to-let landlords, but they will have to pay the extra 3% if their second home is in England, Wales and Northern Ireland.
Otherwise, it appears that the well-publicised trio of houseboats, caravans and Scottish homes — the last of which are subject to Scotland’s Land and Buildings Transaction Tax, with a £300,000 cottage, for example, attracting a £4,600 tax bill — are the only sales to be exempt from the new duty surcharge.
Buy-to-let has boomed in the past year, in part because those aged over 60 have been able to access their pension pots and release cash, much of which has been invested in property. One of the biggest specialist mortgage firms, Paragon Group, last month reported a 102% increase in the volume of lending, up from £656.6m in 2013-14 to £1.33bn in the year to September 2015.
How will the higher stamp duty affect this? The impact will be felt in different ways across the country. The biggest ripples will be in areas where there are substantial buy-to-let sectors, which have been highlighted by research compiled for The Sunday Times by Countrywide, Britain’s largest estate and letting agency.
“The new rates of duty will effectively increase the price investors pay, and hence reduce the yield they achieve,” says Fionnuala Earley, Countrywide’s chief economist. “New landlords must do their sums more carefully to make sure returns on their investment add up.”
In the year to October, Countrywide’s offices in the West Midlands sold 16.7% of their homes to buy-to-letters, the largest proportion of any region in England. Yet some individual hotspots, all outside that region — Guildford, in Surrey, for example, and Doncaster, in South Yorkshire — saw much larger shares of their sale stock snapped up by investors. These are the type of places that are likely to see their markets affected more significantly if the hike in stamp duty deters buyers.
In Leeds, for example, no fewer than 41% of Countrywide’s sales in the year to October were to BTL landlords. In Southampton, the proportion was 38% and in Harrow, northwest London, 35%. Plymouth and Calderdale, in the foothills of the Pennines, were close behind on 34%. “While the region with the highest proportion of investors is the West Midlands, the highest concentrations of investors are spread more widely across the country,” Earley says.
The same principle applies to local housing markets where a high proportion of buyers are looking for second homes, either as pieds-à-terre or holiday properties. Figures from the review website TripAdvisor show that the greatest demand for rentals of holiday homes — a good indication of where they exist in large numbers — is, after London, in Cornwall, Yorkshire, Devon, Wales, Dorset and the Cotswolds.
There’s every sign that in many of these areas, the rush of buyers keen to avoid Osborne’s new levy has started. In north Cornwall, where almost half of the properties in some villages are holiday homes, the telephones started ringing as soon as the chancellor stepped down from the dispatch box.
“Sellers planning to launch in the spring were saying, ‘Get it on the market now’,” reports Jo Ashby, a partner at John Bray and Partners, a local estate agency. “The more serious buyers are aiming to exchange over the winter. This injection of energy — albeit a bit of frenzy — has changed the market, at least until April.”
According to Ashby, good-quality houses that had come off the market for the winter are going back on sale now ahead of Christmas. Yet she sounds a note of caution: while Rock, Port Isaac, Newquay and other long-standing locations will probably bounce back quickly, it may not be the same everywhere. “This is going to make a bigger dent on those less-well-known or emerging holiday-market areas.”
So, the choice is yours. You can sit tight, enjoy the mince pies and gamble on prices falling in April. Or you can take the plunge and buy now — though working to such a short deadline is not for the faint-hearted, and means Christmas may be even more fraught than usual. It takes an average of 12 working weeks to buy a property. In the 17 weeksbefore April 1, we have both Christmas and Easter, when pivotal figures in the buying process — agents, surveyors and lawyers — shut up shop for several days.
“Waste no time in speaking to your solicitor and financial adviser — don’t wait until you’ve found a suitable property,” says James Greenwood, director of Stacks Property Search & Acquisition, a nationwide buying agency. “If you get a mortgage offer, make sure you know its limitations. It may exclude properties that are listed, have some commercial aspect or are leasehold.”
He also recommends avoiding any property being sold by a vendor who may change their mind. “Careful questioning will give you an idea of the motives for selling,” he says.
Harpal Singh, managing director of the comparison website Broker Conveyancing, predicts “serious resource issues” for lawyers handling sales. “It seems almost certain that buy-to-let conveyancing fees will rise to cope with the workload,” he warns.
There is one further complication. A government-led consultation process is considering what stamp duty should be paid by people who temporarily own two homes — for example, “accidental landlords” who are stuck between sales, or those who inherit a house — and whether loopholes might exist if, for instance, you split ownership between spouses. We may have to wait until spring for these answers, too.
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