The decision by the government not to extend stamp duty relief for residential purchasers and first-time buyers is likely to have the impact that many predicted – some short term gain, but perhaps longer term pain.
When it became clear that it would not feature in the Autumn Budget, there were buyers who brought forward their plans in an effort to save some money. Surveying its members, Propertymark saw an uplift in activity in the sales market in January, with increased buyer registrations and viewings – driven mainly by the rush to beat the stamp duty rise.
Given how prolonged transaction times have become though, it was clear that this would only be a short window. Unless it’s a first-time buyer buying a new-build property, many brokers had already began preparing clients for the increased cost. Now with threshold change in sight, reports – such as those from the latest RICS survey – already suggest that the housing market is losing momentum as prospective buyers are resigned to the fact that the cost to move is now that much higher.
While an increase in stamp duty may not be a dealbreaker in every scenario, it can certainly make it much tougher in a residential market where affordability is still a huge challenge and where the numbers don’t quite add up for all potential buyers.
POTENTIAL UPSIDE
For a buy-to-let sector that was dealt its own stamp duty blow in the latest budget, the silver lining could be that changes in the residential market could mean tenants stay in the rental market for longer. It could even boost rental demand. That is certainly the view of landlords in our most recent survey.
When asked about the decision not to extend stamp duty relief on residential purchases, nearly half of landlords believed it would mean tenants staying put or renting for longer. More than a third (35%) said that the move might increase rental demand, with more people looking for rental properties rather than buying homes.
Among the most optimistic were landlords with medium-sized portfolios of between four and 10 properties, with one-in-three expecting an increase in demand, closely followed by those with portfolios between 11 and 20 properties. Of those landlords predicting that demand will increase, four-in-ten own most of their rental properties in London and the South East.
You cannot deny their logic, especially when you consider research by Zoopla found that the average first-time buyer would need an income of £66,600 to a buy a typical home – or more than £100,000 if buying in the capital. That figure though assumes the borrower has a 20% deposit, which certainly isn’t the case for many prospective buyers – especially if they are renting. With demand for rental properties still outstripping supply, rents have only increased across the country, meaning they make up a larger share of income and make the challenge of saving up for a deposit that much harder.
Throw in a lack of government support for buyers – despite its housebuilding homebuying agenda – and resilient house prices and it’s difficult to see how those with smaller incomes, stretched budgets and little to no deposit and can make buying a reality. As we see in the BTL space, residential lenders are playing their part and doing their best, but it cannot be up to them alone to solve this affordability crisis.
PERSPECTIVE
It’s just another reminder of the important role the rental market plays in the wider housing mix in the UK – not just for those hoping to buy one day, but for the many people who have no intention of ever buying or where their work or lifestyle doesn’t suit homeownership.
Despite the many obstacles put in their way – such as the increase in stamp duty on additional properties – landlords continue to respond to demand in the rental market and explore investment opportunities to expand their portfolios. Furthermore, brokers continue to use all the tools at their disposal to not just help with purchases, but to enable landlords to refinance in an efficient and cost-effective way.
Whether it is residential stamp duty driving demand, or the increasing number of single or young people, students, transient workers, foreign nationals or “never-buyers” looking for decent places to live, the rental market will continue to make up a critical part of the housing market. As is such, lenders like us will continue to prioritise competitive rates and innovation to help landlords build, scale and refinance a successful rental portfolio.
