George Osborne’s latest attack on the buy to let market is likely to subdue prices and complicate the home buying process, so say the majority of agents and brokers interviewed last week. An increase of 3% in the surcharge known as SDLT is for everyone buying a buy to let or second home from April 2016. This comes after he announced plans to limit buy to let tax relief on mortgage interest. However, the increases will not apply to companies or funds owning more than 15 residential properties.
In reality, how will this effect the market in Kensington and Chelsea and surrounding areas? My best guess is that anyone considering purchasing a second home in London will do one of two things. They will either abort their search for good or they will try to buy before the increase takes effect in April. That is a very basic analysis but it’s likely to be accurate. Buyers that were not deterred by Mr Osborn’s rehashing of the SDLT rates last December, will likely remain committed to London and those that felt nervous beforehand will almost certainly see this as the final nail in the coffin.
For those that see London as one of the best and safest places to live, dine, study, work or retire, it will make little difference, a fact Mr Osborn is all too aware of. That doesn’t make it right or sensible, it just means that more people will look back on the ‘good old days’ when the maximum stamp duty rate was 4%. I expect a rush of buyers trying to complete their purchases before April next year, this is likely push up prices and competition in the short term. After April, prices will do very little whilst the changes take hold. The net result – buying your second home or investment before April will definitely save you 3% in transaction costs, but post April, it’s value may stop climbing for a few months, by which time you may have a tenant in place or be enjoying your holiday home. A 3% rise in transaction costs to own a second (or third, or seventh) property in London will not change the fact that London is the greatest city in the world, it just means we will have to pay a little more to enjoy the privilege of owning a slice of it. Those that have repeatedly predicted that the property bubble has to pop soon have many good arguments, some of which I sympathise with. However, one overriding fact means they are likely to be wrong for some time yet. It’s the amount of cash buyers in London. Over half of all second homes are purchased with no mortgage and existing owners have low levels of borrowing. This means that owners and residents are sitting on huge cushions of equity, even if they bought in recent years. The only sellers that are vulnerable are forced sellers, perhaps those who borrowed too much or who have had a dreaded ‘change of circumstances’, other than these folk, very, very few have to sell.
If this analysis seems over simplistic, I reserve my final judgement until the details have been ironed out, for example, unmarried couples with two homes may look to own each property in separate names. Others may put any extra homes in the names of their children. If someone buys their new home without having completed the sale of their current home, only to complete within a few days or weeks, will they be taxed as owning two homes? I will post an update when the details are clear.
If you are thinking about buying or investing in London, please get in touch. I can be contacted on firstname.lastname@example.org