As buy to let and second home owners come to terms with the UK government’s proposed three percentage point increase in stamp duty it seems this could prompt a short-term spike in property transactions. The introduction of this increase in stamp duty comes in on 1 April 2016 leaving a four-month period during which experts believe property investors will be extremely active.
When you bear a mind the introduction of this increase in stamp duty for buy to let and second home investors was to reduce demand for UK property, it could have a devastating short-term impact.
Changes to the buy to let market
Over the last few months we have seen a significant change in the landscape of the UK buy to let market. First of all we saw changes in the taxation system which allows interest payments on buy to let properties to be offset against rental income. We now have the three percentage point increase in stamp duty from 1 April 2016 as well as a reduction in the so-called “wear and tear” allowance.
While there is no doubt that the UK buy to let market has been one of the more buoyant in the world there is also no doubt that the landscape is changing dramatically. This all comes at a time when the UK government is looking to increase the supply of new builds for first-time buyers although this short-term outlook could impact the number of rental properties available. As fewer investors enter the buy to let market this is likely to see rental values move higher thereby exacerbating a difficult situation.
Balancing supply and demand
The balancing of supply and demand in the UK property market has been an issue which few governments have managed to tackle. It seems that new policies take with one hand and give with the other with no real changes going forward. This is perfectly illustrated by the UK government’s increased financial assistance for first-time buyers, a move which will push property prices higher in the short term (due to increased demand) and take the affordability factor away from more people in the future.
There is also the issue of protecting long-term property values going forward because for the vast majority of people their home will be their largest lifetime investment. If we see a sudden massive increase in new builds in theory this would impact property prices perhaps more in some areas of the country than others. As politicians attempt to curry favour with the electorate, government policies will always be on the side of homeowners.
Controlling the market
The UK property market very much has a mind of its own which is perfectly illustrated by the ever rising London property market. Despite concerns that prices are moving away from first-time buyers the influx of foreign investors continues to increase, supply issues are more prevalent than ever and despite the introduction of new/increased taxes for property owners/investors demand still appears to be insatiable.
When you also consider the fact that the UK population continues to grow this is a problem which will not go away for the current government and those in the future.