Osborne to Increase Stamp Duty on Buy-to-Let, Second Homes

  • Government plans to introduce new sales-tax rate in April
  • Extra revenue will be used to build, regenerate properties

Chancellor of the Exchequer George Osborne will increase the stamp-duty rate for purchases of buy-to-let and second homes to reduce competition for first-time property buyers. Shares of small banks that provide loans to landlords declined.

Buyers of second homes and buy-to-let properties in the U.K. will from April be subject to stamp duty sales tax that’s 3 percentage points higher than those who are buying a home to live in, Osborne said during his Autumn statement on Wednesday. The additional revenue raised from the increase will be spent on the construction of new homes and improving existing ones across the country.

“More and more homes are being bought as buy-to-let and second homes and many of them are cash buyers,” Osborne said. “People who are buying a house to let should not be squeezing out people who are trying to buy a home for their families.”

Demand had already been undermined by higher stamp duty rates introduced last year, which climb to as much as 12 percent of the cost of the most expensive homes. Following that tax rise, an investor buying a 5 million-pound home paid almost 364,000 pounds more in tax than if they spent the same amount of money on 10 apartments costing 500,000 pounds each.

“Many buy-to-let investors underpin some of the bigger developments in particular,” Jeremy Leaf, former chairman of the Royal Institution of Chartered Surveyors, said in an e-mail. “There is a danger that it will kill the market and result in some developments not happening at all.”

Other measures announced today during the Spending Review address the problems for home buyers in London, where prices have risen 40 percent since the beginning of 2013. The government will offer Londoners with a 5 percent deposit interest-free loans worth as much as 40 percent of the value of a newly-built home.

Small British banks which concentrate their efforts on lending to buy-to-let landlords plunged. Aldermore Group Plc slumped 5.4 percent in London trading, while OneSavings Bank Plc fell 7.3 percent and the Paragon Group of Companies Plc declined 5.3 percent.

Osborne’s changes are “not expected to have a significant impact on our average buy-to-let mortgage customer,” a spokesman for Aldermore said in an e-mailed statement. “The broad range of housing measures announced by the chancellor today will have a net positive impact on homeownership in the U.K.”

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