Several mortgage brokers have issued warnings about potentially unforeseen consequences of Osborne ‘s latest changes to the stamp duty land tax system.
They claim that the 3% surcharge now added to the stamp duty payable on buy-let properties and second homes could result in the disruption of housing chains if any sales don ‘t go through immediately as planned. The worry is that someone who is trying to sell and replace their current home may well find themselves stung with the extra 3% charge is the sale of their current house falls through after they have already signed for their new purchase.
Given the vast array of expenses already associated with buying a new property, this added 3% could easily end up being “the straw that broke the camel ‘s back” as John Charcol technical director Ray Boulger described.
“Inevitably,” he went on, “in this situation there will be some people who find it difficult, or impossible, to find the extra 3 percent, especially at short notice, and others who could do so, perhaps by increasing their new mortgage, but balk at the extra cost and pull out as a result.”
There are already safeguards in place with this issue in mind. If the seller manages to go through with the sale within 18 months of them being charged them purchasing their new home, then they will be entitled to a refund of the extra 3%.
However, it is the initial expense that has got some worried. Stephen Johnson at Shawbrook Bank has expressed worries about how it will affect older homeowners in particular, who are looking to downsize but find themselves facing extra charges for doing so. Mr Johnson said that “these buyers will be caught out by this. To add another 3% seems penal and they are clearly not the focus of this initiative.”
If a homeowner needs to increase their mortgage in order to account for the extra 3%, then they are likely to find themselves facing higher interest rates as their loan gets pushed into a higher LTV bracket.
Richard Lambert, who heads the National Landlords Association is, as you would expect, against the surcharge entirely. He spoke unfavourably of the government ‘s ostensible aim of “stamp ing out investment in the private rented sector.”
Lambert said: “It has been harder to become an owner occupier since the financial crisis and harder to get social housing. If you choke off buy-let it ‘s going to become more expensive to bring new stock into the private rented sector.”
However, part of the drive behind the latest measures is to increase owner-occupancy which, it is thought, will be easier with more restrictions placed on the buy-let market. As far as Osborne ‘s estimates go, the surging number of landlords and expensive rental property has been one fairly direct influence on growing house prices; and the cost of renting is something of a barrier for those looking to move from renting to buying, although it is not clear that increasing stamp duty will have a positive effect on average rental costs.