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Stamp Duty surcharge will cost landlords 11 months of rental income
The 3% surcharge of Stamp Duty Land Tax that kicks in next April will be the equivalent of 11 months’ income for the average landlord buying with a mortgage.
The calculation is from Countrywide, which said that most landlords buying after next April will simply try to offset the cost by offering less.
Countrywide says its research shows that if the higher tax burden is not factored into the purchase price, it would mean a reduction in gross yield of 0.2%.
While that is the equivalent of 11 months’ income on average, there are regional variations. Landlords buying in the south-west and north-east will see the highest cost relative to rental income, with the extra tax burden being equivalent to 14 and 12 months of income respectively.
Landlords buying in the most popular buy-to-let regions of London, the south and east of England, would pay the most extra tax, with the surcharge working out at an average of £6,000.
However, Countrywide said that house price rises could offset the cost of additional Stamp Duty within a year if prices grow at the same rate as over the last five years.
In the midlands and north, landlord purchasers will typically not have faced any Stamp Duty, but from next April will have to pay an average £3,200.
Johnny Morris, head of research at Countrywide, said: “The Stamp Duty increase will impact landlords’ purchasing power. Many entering the market will be faced with a choice between making a lower offer when buying or having to cover the additional costs themselves, impacting yields.
“Most landlords view property as a long-term investment, on average holding a property for 17 years, and larger investors will be exempt from the higher stamp duty rate.
“This means over the long term the private rented sector will continue to grow, but there’s likely to be a few lumps and bumps along the way as landlords get to grips with and adapt to the changing environment.
“It’s unlikely the change to stamp duty will see an immediate impact on rents: landlords are rarely able to pass on increasing costs to tenants, as rental prices are set by market forces.
“But if fewer landlords choose to invest in the sector in the short term, a fall in homes available to rent could put pressure on prices.”
According to Countrywide, rent for newly let properties is up 2% year on year.
