The hike in the stamp duty surcharge announced by Chancellor Rachel Reeves in the 2024 Autumn Budget came as an unwelcome surprise to many landlords and buy-to-let property investors working in the mortgage market.
Effective immediately, the additional 2% stamp duty charge will add to the upfront investment costs of those looking to grow their portfolios, with those buying a second home now required to pay a 5% surcharge on all future secondary purchases.
Whether the changes have an impact on the buy-to-let sector remains to be seen, but the increase adds to the raft of legislative changes that have already occurred in the sector over the last few years, with mortgage interest tax relief changes, stricter energy efficiency requirements and the recent Renters Reform Bill all having an impact on the sector.
CRITICISMS
Critics of the stamp duty changes say it will discourage investment and lead to a shortage of properties in the private rental sector, particularly for those smaller or first-time landlords. However, given the scale of the increase in relation to the size of many professional landlord’s portfolios, it is unlikely to deter those landlords heavily invested in the buy-to-let sector.
In fact, Norton Broker Services has seen heightened demand for second charge mortgages since the increase to the stamp duty surcharge was announced. These requests have been made by landlords looking to move quickly on a purchase after finding themselves facing a cash shortfall due to the sudden hike in stamp duty.
BENEFITS
One of the many advantages of taking out a second charge mortgage is the fast turnaround. As valuations are primarily based on the equity in existing property, second charge mortgages are typically completed more swiftly than remortgages, which is ideal in situations where the borrower needs to move quickly.
For example, Norton recently had an enquiry from a client who suddenly found themselves with a £20,000 stamp duty fee they hadn’t budgeted for when the increase to the surcharge was announced. The client needed the money quickly to cover the shortfall and secure the purchase and wanted to tap into the equity in existing property to get the deal over the line.
In this instance, the cost of borrowing was less of a concern than the speed at which the money could be released, and the client was willing to pay slightly more in order to get the money as quickly as possible within a couple of days. Norton helped to secure the funding with Evolution Money and the client was able to complete the property transaction within the required timeframe.
In many buy-to-let property transactions, speed is often of the essence, so it is worth noting that day one second charge mortgages can also be immediately taken out against a buy-to-let property as soon as the landlord has made the purchase.
EXTRA FUNDS
This can prove to be a useful capital raising tool in the current climate should landlords suddenly find themselves short of additional funds once a purchase has been made, especially if they have had to stump up extra cash to cover the recent hike in stamp duty.
The money raised by taking out the second charge can also be used to cover the cost of refurbishment to update the property, improve its curb appeal and increase yields. It can even be used to buy another property.
Taking out a second charge mortgage can provide investors and buy-to-let landlords with a swift and flexible solution to addressing their capital raising needs. The loans can often be secured on the same day, certainly within a week, enabling them to cover any cash shortfalls they may encounter when buying a property.
Specialist brokers such as Norton Broker Services can help those unfamiliar with this area of the market to navigate the sector and ensure their buy-to-let clients get the advice and most suitable capital raising solutions for their needs.
