It’s already a legend. According to figures released by HMRC last week, the government collected just short of £1.2bn in tax from property transactions throughout March. The dosh comes thanks to more than 173,000 property transactions, a record-breaking monthly number of purchases and sales. And it’s all down to the new 3% stamp duty surcharge on second homes. What’s the story?
3% stamp duty increase drives mortgage feeding frenzy
At the end of last year the chancellor announced a 3% stamp duty surcharge on second homes, due to bite this April. As a result thousands of existing and wannabe buy-to-let landlords and holiday home owners got busy before it was too late.
Before the rise, buying a second home worth 750 thousand would have attracted £27,500 in Stamp Duty. Afterwards it rose to £50,000, and it’s no surprise the April deadline spawned an unprecedented house-buying feeding frenzy. It didn’t just cause a whopping spike in property sales, it also forced house prices up and triggered a parallel hike in mortgage lending.
The rush drives house prices up 2.5% in March
House prices went up 2.5% on February 2016, bad news for people wanting to get on the property ladder for the first time. Not surprisingly, mortgage lending to buy-to-let landlords during the month before the Stamp Duty increase were three times higher than in the previous March. And the Council of Mortgage Lenders says landlords borrowed £7.1bn in March, 163% more than March 2015. The situation right now? House prices have gone up, but at the same time there are more properties available to let: swings and roundabouts.
Blip or trend?
Was it a blip or a trend? It looks like it was a blip, with April’s residential property transactions falling right back to a more common 100,000. Mortgage lending also fell by almost a third, proving that the boom in March was directly attributable to opportunistic buyers determined to out-smart the tax rise.
Now Britain is out of the EU, and the financial situation is looking very unsteady and unpredictable indeed. Most indicators predict a big slow down in property transactions and associated government tax revenues now that the new level of tax on second homes is out there in the wild. At the end of the day we can’t predict the future, so watch this space.