Should The Stamp Duty Rate Increase Alarm You?
The Royal Institute of Chartered Surveyors claim that a surge of buyers entered the property market last January. In London alone, demand for property and sales increased for a tenth month in a row in the same month.
So what’s moving this wave of buyers to get more property? Stamp duty rate increase.
Starting 1 April 2016 ,any person buying second property either as a new home, an investment, or just a holiday home will have to pay an additional 3 per cent Stamp Duty tax from. The rate will apply provided you own the second property together with another property.
Thus, if you are buying a second property worth £1,200,000; you’d have to pay £99,750 stamp duty tax. This is added expense for those who want to build a property portfolio.
If you are going to jump into the market now, you may not have a lot of time left to beat the deadline.
Anita Mehra of Benham & Reeves Lettings explains that you have to complete the entire process of purchasing a property before 1 April to dodge the additional Stamp Duty payment.
This means that buyers should be able to make full payments, while the seller has turned over the keys of the property. Exchanging of contracts to sell is just a preliminary step in the process and it won’t help you avoid the payment of the new Stamp Duty rate.
As a solution to this loophole some lenders started to create “fast lanes” to accommodate buyers. Surveyors are also releasing their reports at a much faster rate.
Islay Robinson, a specialist mortgage broker from Enness Private Clients, attests that “across North London, the whole market is very busy trying to meet the demands of potential purchasers as a result of the SDLT changes coming in at the end of the tax year.”
While there are structures which allow you to expedite the process, I can’t help but ask if it’s wise to jump in the bandwagon.
Simon Gerrard of Martyn Gerrard estate agents points out that in an area like North West London, property investors are unlikely to lose money by investing in buy-to-let, even if they would have to pay more for their properties initially.
Rick Otton, a seasoned investor who’s had experience with constant market changes, says that investors shouldn’t just prepare for the upcoming increase of Stamp Duty tax.
“A good investor has a plan geared towards different outcomes. In that way, he/she is always in a position to make money whether the market rises or falls,” he says.
I agree with this strategy of buying properties. We all have to look at the bigger picture when buying properties, because market conditions change every time. For now our concern may be about the impending Stamp Duty rise, but a few months from now, a new issue may come that will rattle every one anew. If your strategy is geared only for a single situation, you’ll have difficulty riding the waves of change that’s going come.