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Buy-to-let borrowing blows the roof off market ahead of stamp duty changes
Mortgage lending for buy-to-let properties leapt a staggering 142% in the year from March 2015 to 2016. And perhaps a major reason for this was the new thresholds that were brought in for stamp duties on second homes in April this year.
Figures from the Council of Mortgage Lenders (CML) released this week revealed that landlords borrowed £7.7 billion in March. The 45,000 loans taken out during the month totalled an 88% increase on the month before.
Rush to borrow
Paul Smee, Director General of the CML, says: “Activity was distorted in March due to a rush to beat the introduction of changes to stamp duty on second properties in April.” He adds that although there’s been a “substantial” increase in lending activity, it’s likely to be temporary and that things should return to normal by the summer.
So, what are these Stamp Duty changes that appeared to make landlords rush to secure a mortgage?
April 1st saw the introduction of new thresholds for stamp duty on second properties. These affect a whole host of buyers: landlords adding to their property portfolios, parents buying a home for their grown-up children, and buyers who complete the purchase of their new home before they’ve sold their old home. In that last example, there is the possibility of a refund. But for the others, the increase in stamp duty is quite steep.
Here’s a breakdown of the new stamp duty rates for second homes:
|Property value threshold||Current SDLT rates||New SDLT rates|
|£0 - £125,000||0%||3%|
|£125,001 - £250,000||2%||5%|
|£250,001 - £925,000||5%||8%|
|£925,001 - £1.5 million||10%||13%|
|£1.5 million and above||12%||15%
It may look like a difference of just a few percent, but in reality, these new thresholds could mean buyers fork out hundreds of pounds more for a second home than they would have before these new changes.
What are my options?
As we mentioned earlier, if you buy your new home before you’ve exchanged contracts with the buyer of your old one, you can ask for a refund of the additional stamp duty. There are restrictions though; you will need to have sold your old property within 18 months of buying your new one to get your money back. This should be long enough, but if your property has been on the market for some time with next-to-no interest, you might want to consider lowering the price.
If you want to help your child get on the property ladder, but you don’t want to pay the additional stamp duty, there are further options. You could give them the money they need as a gift or you could consider acting as a guarantor on their mortgage – providing you’re sure you’d be able to make their repayments if they couldn’t. You can find out more about these options here.
Unfortunately, if you’re a landlord and want to buy more properties to let out, you’ll have to pay the new Stamp Duty rate – which may explain the rush to borrow seen in March.
For all the latest news on mortgages and the property market, keep checking back with us on our Mortgages page.