Despite some pre-budget speculation, on the face of it SDLT general rates were untouched by our Chancellor in today’s announcements. Nevertheless, the SDLT regime is set to change significantly, first with the surcharge for second home purchases rising from 3% to 5% with immediate effect and second with the removal of the higher Stamp Duty threshold from April next year.
Conveyancers may breathe a sigh of relief that there is an immediacy to the second homes change, as the pressure to complete transactions before they are really ready when rates are set to rise at some future date can be overwhelming. This can also be potentially damaging for buyers who feel under pressure to make decisions that they might not otherwise make. However, this does mean that buyers of second properties with purchases that are well advanced now face an unexpected expense at the 11th hour, potentially with no opportunity to back away.
This also hits those who may be using bridging finance to allow for a purchase to go ahead while waiting for their existing property to sell. This can happen where a sale falls through at the last minute and the individuals concerned want to keep the desired purchase on track. In such circumstances, buyers will now pay the increased second home surcharge, although in most cases it can be claimed back if the sale is completed at a later date. This is still a significant cash hit, that may not be affordable for many buyers.
In addition, the increase has a significant impact on private landlords and with a high proportion of our buy-to-let clients already telling us that they are leaving the market due to an increasingly hostile tax regime for them, there is concern that the private rental market will be hit with a further lack of supply and rising rents.
The lack of any extension to the lower Stamp Duty threshold, which expires next April, will create a pressure to complete transactions before this deadline and rightly so. The change in threshold means that properties costing more than £125,000 (rather than the current £250,000) will now be caught by the SDLT regime and this will hit a huge number of low income families and those seeking to downsize for affordability in retirement for example, as well as having a negative impact right the way up the price scales. Take for example the buyer of the average UK house, priced at £280,660. Under the current arrangements they would pay £1,533 of Stamp Duty Land Tax (subject to any special circumstances or available reliefs). If the purchase completes on 1st April next year the tax bill will be £4,033.
Further announcements today that will have an impact on the property sector include the spending boost for removing dangerous cladding on high-rise residential buildings and £5bn of investment for house building and the Affordable Homes Programme, along with investment into renovation of various sites across the country.
The post-Grenfell Building Safety Act has created an invidious position in which many long term tenants of high rise flats have found themselves unable to sell their properties and facing huge bills for remedial works. More details will no doubt emerge, but it must be hoped that the government’s announcement can help such owners of blighted homes and that it comes with some action to clarify the position regarding dangerous cladding, uncertainty about which has made it extremely difficult for conveyancing practitioners to act in such cases, and therefore for sellers to get the legal support they need.
As for Affordable Housing, clearly the housing crisis is real and the cost of buying a home relative to the average wage has made it more and more difficult for first-time buyers to get on the ladder. Hopefully, the government mood reflected here is in favour of continuing to support and promote Shared Ownership schemes, which are a great way to get started without creating unmanageable levels of debt for our young people.