Stamp Duty slashes size of buy to let sector claims agency
By Graham Norwood
The five years since the introduction of the three per cent stamp duty surcharge on additional homes has led to a sharp fall in the size of the private rental sector.
Research by lettings agency Hamptons shows that the surcharge - coupled with the tapering of mortgage interest tax relief on buy to lets beginning in 2017 - has meant that landlords have bought fewer homes and the private rental sector has shrunk.
Between April 2016 and the end of March 2021 landlords purchased 700,100 homes across Great Britain. However, Hamptons claims that without the tax changes, landlords would have bought an extra 249,800 or 36 per cent more homes.
Fewer landlord purchases have meant there were 4.91m privately rented homes in Great Britain in 20/21 accounting for 17.5 per cent of households – 381,990 fewer than the sector’s peak in 16/17.
Hamptons believes that had these tax changes not been introduced there would have been 5.16m rented homes in Great Britain today making up 18.4 per cent of households.
Back in 2015 landlords purchased 16 per cent of homes in Great Britain, but by 2018 this figure fell to a low of 11 per cent.
Over the last year the lure of a stamp duty holiday in England has seen landlord purchases pick up marginally, to 13 per cent of sales. However, 72 per cent of all rental homes in Great Britain today were bought before April 2016.
Southern regions, where properties are more expensive, have been hit hardest by the tax changes.
In London, the share of homes bought by landlords fell from a high of 20 per cent in 2015 to 11 per cent during Q1 2021. As a result, landlords have purchased 61,300 homes in London since 2016.
However, this number would have risen to 103,300 or 69 per cent more homes had the tax changes not been introduced.
This drop-off in new investment means 81 per cent of all rental homes in the capital today were bought before April 2016, compared to just 65 per cent in the North West where landlord purchases have remained more resilient.
Higher yields and lower entry costs mean just 14 per cent or 14,800 more homes would have been bought by investors in the North West without the tax changes.
Aneisha Beveridge, head of research at Hamptons, comments: “The tax changes introduced from 2016 onwards have undoubtedly taken the heat out of the buy-to-let market. Landlord purchases have dropped and consequently the rental sector is seven per cent smaller than it was at its peak in 2017.
“Even without the tax changes, we still think the rental sector would be slightly smaller today than in 2017. Growth in the sector was slowing in the lead up to 2015 and the lure of government support measures such as Help to Buy and the removal of stamp duty have seen more first-time buyers (would-be tenants) become owners.”