Things are not exactly going to plan for a government that has spent the past few years trying to edge out one of the biggest and most powerful purchasing forces in the UK market.
The idea behind the long list of measures drawn up to deter buy-to-let investors was to free up property for first-time buyers. But since the 3 per cent stamp duty surcharge was introduced for BTL investors (and all second homeowners) in April 2016, there has been a dramatic drop in the number of new homes bought by landlords.
According to estate agency Hamptons International, landlords bought 12 per cent of homes sold in the UK in 2018, compared to 13 per cent in 2017 and 19 per cent in 2016.
Not only will existing landlords have been deterred from adding to their portfolios, but any potential new investors will have been put off entering the market.
At the same time, investors have been selling off property left, right and centre. And a quarter of landlords are currently considering selling over the next year, according to the Residential Landlords Association.
This will be a massive worry for the 4.5 million households that rely on the private rented sector and landlords – equivalent to 20 per cent of all households.
Indeed, the Royal Institution of Chartered Surveyors recently reported that tenant demand continued to rise for a third successive month in March, while new landlord instructions slipped further.
Rent rises ahead
This growing shortage of rental properties means that costs are rising for tenants. And many of these tenants are would-be first-time buyers renting while trying to save for that all-important deposit.
Data from the Office for National Statistics shows that rental prices paid by tenants in the UK rose by 1.2 per cent in the 12 months to March 2019. Between January 2015 and March 2019, private rental prices in the UK increased by 7.3 per cent.
RICS has warned that with small-scale landlords pulling out of the market and reducing the supply of rental property, rents could climb by as much as 15 per cent by 2023. This means tenants are paying more in rent and, as a result, are able to save less for a deposit for their own home, delaying homeownership for FTBs – the very thing the government said it wanted to promote.
And the government itself has also been losing out. After years of being a reliable cash source for the government, stamp duty tax receipts for 2018 in England, Wales and Northern Ireland fell by 8.5 per cent compared with the previous year, a loss of income to the Treasury of £802m, according to data from HMRC.
The amount raised from the 3 per cent higher rate in 2017, £2.01bn, fell by 14.2 per cent in 2018, equating to a drop of £285 million.
The squeeze on residential property investors has caused an unhealthy stagnation in the property market. A fluid and buoyant property market is paramount.
The government needs to overhaul the stamp duty system in the UK – and fast. Switching the liability from the buyer to the seller could certainly be the answer. Those moving up the ladder would be paying duty on the lower-priced house that they are selling, not the higher-priced one they are buying.
Hiten Ganatra, managing director, Visionary Finance