Tax policies bring new turbulence to the housing market

17 May 2016

Gary Heynes 

A report by Rightmove this week has revealed the impact on first-time buyers of the rush by landlords to purchase buy-to-let properties ahead of the introduction of the new stamp duty land tax(SDLC) surcharge. But with further tax changes for landlords on the way, the market could be bumpy for some time.

New evidence of the distortive effect of tax policies on the housing market emerged this week after Rightmove reported that asking prices for one and two bed properties in May rose 6.2 per cent versus the previous month.

Why? An 80 per cent uplift in year on year transactions in March caused by buy-to-let investors rushing to beat the introduction of the new SDLT surcharge. In its wake, first time buyers are left with the double whammy of a property drought and a sharp price surge.

Spare a thought then for those prospective buyers trying to save for their first home using a Help to Buy: ISA. They receive a Government bonus of 25 per cent of the amount saved. For the maximum monthly saving of £200, the Government contributes £50, with a maximum Government contribution of £3,000 on £12,000 of savings.

A generous perk then, but an individual saving the maximum £15,000 will have seen average asking prices for one and two bed properties jumping by around £20,000 in the last year alone.

Tax incentives designed to support one outcome (helping first-time buyers onto the ladder) have fallen victim to tax rises designed to support a different outcome (the SDLT increase to cool the buy-to-let market), which seems to have had the opposite effect on exactly the types of property first time buyers would be looking at. 

Further disruption is inevitable in the lead-up to the introduction of the removal of higher and top rate mortgage interest relief for landlords. 

Quite what the impact will be is as yet unclear. Some have suggested that landlords will look to offset their losses by hiking rents for tenants, making it even harder for first-time buyers to save for that elusive deposit. 

Others believe many landlords will be forced to sell up because of reduced margins or the higher tax costs brought about by being pushed into higher tax brackets. One thing's for sure: the tax distortions in the market haven't finished yet.

If you would like to discuss any of the points raised, please get in touch with Gary Heynes or your usual RSM contact.