Why investors are rushing to ‘snap up homes’ prior to the buy-to-let tax introduction
During the final months of 2015 and early 2016 there has been a rush of potential buyers and increased mortgage lending, up 23% on the previous year’s figures. This has been caused, in part, by trying to beat the April 1st deadline, where George Osborne will be implementing upgrades in the buy-to-let tax structure. It has been a trigger forcing the hands of many that were contemplating purchasing for potential letting. Anyone who buys extra residential property, which includes second homes and also buy-to-lets, must pay an additional 3 % in stamp duty beginning April 1, 2016.
This extra charge will apply over and above the present stamp duty land tax rates. In essence, at present there is a zero tax on property worth up £125,000, but this will now become 3%, between £125,001 and £250,000, it rises from the old 2% tax to 5% and up to 8% on homes over £250,001, then up to £925,000. Beyond that it is 13% and eventually 15%.
Completion before April 1, 2016
Investment buyers are now starting to write into contracts, that completion has to be before 1st April. Someone spending £1m could save up to £30,000. With single bedroom properties in London selling for over £160,000, investors who do not complete before April will pay at least £4,800 more in stamp duty.
December and January is not normally a busy time for estate agents, but there has been a striking upsurge in activity. A dramatic rise in demand could mean it will quieten down in April, it may be that there will be a drop off in sales once the deadline has passed, but it should be temporary, because the demand will always be there.
If you have exchanged contracts after the statement that was issued last August, but do not complete before April 1st you will be expected to pay. However at present investors will be able to offset this extra stamp duty, against their capital gains on the property in the future.
Although the Treasury could easily change these rules any time they want. Conversely to this new trend, some investors may well sit tight, thinking that if demand is pushing prices up, they may pay more now than after April.
The Rics report, The Royal Institute of Chartered Surveyors, also found that house prices in the British capital, regions of the south-east and East Anglia are still set to increase by 5% a year for the next 5 years. With this in mind, many have been doing their maths to see which decision will benefit them best, buy now or wait. The reason for the tax increase according to the government’s view, is that there is a crisis over home ownership. George Osborne has said:
“15 years ago, around 60% of people under 35 owned their own home, next year its set to be just half of that.”
Information supplied by Auction House London, who are dedicated to provide up-to-date information, on all aspects of buying and selling property at auction.