The chancellor’s announcement of an increase in SDLT for second home owners has led to a rush by investors to buy and complete prior to the 1 Apr 16 deadline, but what are the predictions for the market beyond this?
Buy-to-let investors and selling agents have witnessed one of the busiest January periods for a decade, with applications for buy-to-let mortgages up 27% on the previous month as investors have flocked to beat the 1 Apr 16 deadline. With most purchases in Plymouth now taking between 2.5-3 months to complete from an offer being accepted, the window for investors getting in before the deadline has now all but closed.
This increase in investment activity has in turn generated competition amongst buyers. It is for this reason that we would argue that the 1 Apr 16 deadline is unlikely to result in the number of investment sales dropping off a precipice or the beginning of the end for buy to let investors. Whilst the deadline may see a slight realignment of vendor and purchaser expectations, this is likely to be relatively short-lived. Put simply, as competition reduces, canny investors will identify opportunities to drive bargains over and above the 3% additional SDLT levy.
Our prediction is that buyers may use the SDLT increase as a tool to bargain further. Whilst a 3% cash levy on purchases will undoubtedly be significant for buyers, those cash-rich sellers who will already have benefitted from increases in equity in their property will find the 3% levy slightly easier to stomach. To that end, we anticipate that an increasing number of buyers will make offers provisional on the SDLT being settled by the seller or reduce their offers to take account of this additional cost associated with the purchase.
Most analysts believe that it will be the sellers who blink first in accepting lower offers. Landlords in Plymouth have witnessed price increases of 5.0% in the last 12 months. This rate of price growth would cover the additional cost of SDLT within 8 months.
Of the recent changes imposed by George Osborne, the tapering of interest relief is likely to be the more powerful, leading some landlords – particularly those already in the higher tax bracket to slowly trim their portfolio whilst maximising their capital gains liability over a number of years. It is for this reason that we believe investors have no reason to panic buy now, but have patience and pick off the bargains that inevitably present themselves further down the line.
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