Stamp Duty Reforms Ease Property Purchases - 20/05/2011
In the recent Budget, reforms to stamp duty were announced in a bid to make bulk housing purchases easier for residential investors. Here, Chris Baguley, Director of Auction Finance Limited discusses the changes and how they will affect investors...
The planned changes to stamp duty are set to be introduced this summer when the 2011 Finance Act comes into effect. The changes are a clear sign that the government is looking to buy to let investors to help solve the UK's housing crisis.
Under the plans, investors who buy more than one property will pay stamp duty on the average value of the multiple properties rather than the value of each individual home. Under the old rules, a buyer of a block of ten flats priced at £250,000 each would pay stamp duty on the total cost of £2.5 million at five per cent - a total of £100,000. The mean value of the flats is £250,000 so under the new rules the buyer will pay one per cent on £250,000 multiplied by 10 which equals £25,000. This results in a saving of £75,000.
With a shortage of rental properties and average rental yields standing at £689 per month and continuing to rise, many are regarding now as the perfect time to expand their portfolio. Many believe that a continental European approach to renting is on the horizon as people choose to rent rather than buy. Properties in good condition are being snapped up. The changes to stamp duty land tax are a welcome step in the right direction for investors that want to take advantage of this climate.
It is clear that buy to let investors are going to be crucial in addressing the housing crisis and therefore it is vital the sector is supported. It is estimated that by the end of the decade, 20 per cent of individuals will be renting. The average age of a first time buyer who has not benefited from financial help stands at 37 meaning people are renting for longer and demanding a higher standard of accommodation. The buy to let sector is responsible for providing accommodation for tenants choosing to rent for longer than ever before. More incentives are needed for investors to enable them to keep doing this. Stamp duty reforms are likely to be particularly welcome to investors in student properties who often have a number of properties which achieve high yields and often experience high levels of demand.
Buying at auction
Auction Finance Limited provides short term funding for investors at auctions across the country and many of our clients buy multiple properties below market value. Many investors find the cost of stamp duty a deterrent as it can make a substantial difference to the cost buying of a large portfolio. It is hoped that in the long term, the changes will help to reduce the barrier to investment in residential property, promoting the number of private rented houses available. We provide short term funding so that investors can secure good deals quickly and take advantage of market opportunities. Traditional mortgages still take time to arrange, so a short term bridging loan is used by many investors to ensure they don't miss out on the auction day.
Any measures to keep transaction costs down are a boost to the private rental sector. The stamp duty amends will encourage more investors to enter the market to receive a solid income from renting out a property. The measures will also benefit larger private investors many of whom buy multiple flats direct from a developer at discounted rates. Auction Finance Limited clients have welcomed the changes and call on the government to follow through with clear transparent legislation so that investors can take advantage of the changes.
Falling house prices
The change to stamp duty is not the only reason that for many, now is a good time to buy. House prices are continuing to fall and at auction, investors are benefiting from even lower costs as many properties have low reserves. Repossessions, which are typically around 20 per cent cheaper than similar properties, are still making up a number of properties ending up at auction. While repossessions have not been as high as some had feared following the credit crunch, there are a high number of mortgage arrears cases. As a result of this, industry figures suggest the number of repossessions this year will be around 40,000 with charities including debt charity Consumer Credit Counselling Service, predicting it will be double this once interest rates begin to kick in.
Buyers considering expanding their portfolios must ensure they do their research and make sure the area they're buying in is not already saturated with rental properties. Potential investors should always check out achievable yields on similar properties in the area to work out if the property is a good investment.
While buying a home is likely to remain out of reach for many, the buy to let sector will remain responsible for addressing the nation's housing shortage. It's only right that the coalition government gives the sector the support it deserves.
