UK landlords are worse off by the equivalent of 11 months income due to stamp duty changes
As we have seen the new changes to the Stamp Duty have had a beneficial effect to a large number of home buyers in England and Wales, the same cannot be said for landlords wanting to add to their portfolio. Figures reveal that the changes made in the Autumn Statement of a 3% stamp duty rate for UK landlords would result in the cost to the average mortgaged landlord, of the equivalent of eleven months income, all according to new research by property services group Countrywide.
The new tax charges are likely to have an effect on the offer prices that landlords will make when negotiating a property purchase and they will, if they can, buy the property at a reduced figure to compensate and try to offset the cost. Markets in the East of England however have seen a 2% increase in rent on newly let properties year on year. The new rate also applies to second home owners as well as landlords and in both cases buyers will undoubtedly try to compensate by lower offer prices.
Unless the cost of the stamp duty is not taken into account in the purchase price of the property, then it can only mean that a landlord’s gross yield would be down by 0.2% which equates to eleven months income, when their borrowing cost are taken into account assuming an average loan to value of 68%.
The figures are not the same for all the country, as might be expected, the South West and North East of England will suffer the highest cost relative to their income and this equates to 14 months in the South West and 12 months in the North East, conversely landlords in the North West suffer to a lesser degree with the equivalent of 8 months income. To take the example of landlord property purchases in London and the South East of England, the increase in stamp duty amounts to an average of £6,000 and this region accounts for 60%, of homes that were sold to landlords. This region is also likely to see the price of houses grow, if the last five years growth rate is maintained, this would offset the cost of the additional stamp duty within 12 months.
As with all tax changes, some win and some lose and this time around it looks as though the landlords are the losers.