Populist or Protectionist? Demand dampener or driver?
The latest UK HMRC consultation about levying a stamp duty surcharge on non-UK resident investors, potentially affecting Expats and Foreign national buyers alike, comes on top of the surcharges already levied on all buy-to-let investors, introduced by George Osborne back in April 2016.
In tandem with the tax regime on buy-to-lets – Section 24* withdrawing tax relief on buy-to-let mortgage payments – some landlords have already been exiting the property market, meaning the government is collecting less stamp duty overall from receipts in England and Wales than before the changes were introduced by former Chancellor Mr Osborne. The 2016 SDLT surcharge has also distorted the market for more expensive homes in London, with a decline in the number of purchases at the most expensive end of the market.
This type of Section 24 tax is already being rolled back and reversed in Ireland where it has had a counterproductive effect. There are also calls for rental caps in England and Wales to help make living in rental accommodation more affordable. However, lessons learned from elsewhere show that this tactic doesn’t end up doing what was originally intended.
Historically Rent Controls have been tried in the UK, (Rent Act of 1965 and 1977), which laid out a RPI-linked formula for rent increases. What happened? The Private Rented Sector as a proportion of housing tenure decreased from 20% in 1971, to around 9% in 1986 only subsequently picking up once the Housing Act 1988 stopped rent controls, alongside the introduction of Assured Shorthold Tenancy contracts, and easier buy-to-let finance late 1996/1997.
UK Housing market – what’s to be done?
There is a fundamental supply-demand imbalance in the UK property market, which drives purchasing prices and rental prices upwards. The entire ‘property ecosystem’ needs to be addressed and not just seek a sticking plaster for one pressure point. There’s little point in plugging one hole in a leaking bucket, only to find another hole appears or just gets bigger.
By making it more challenging for investors to enter the market – in the same way that advocating rent controls can discourage investment – it can dampen building activity, which means there is not a natural and liquid flow of upwardly mobile homeowners progressing from First time buyers to subsequent buyers. Politicians could be making the housing market less liquid.
A sensible and sustainable way to deliver lower rents across a broad spectrum is to make it easier and cheaper for landlords to bring rental accommodation to the market, as well as providing the different types of rental accommodation needed. This means addressing; supply, the cost of rental regulation and taxes in tandem.
For Expat investors, it is a question of seeking the most cost effective ways of investing, either in areas with good prospects, but lower stamp duty thresholds, and other types of property investing.
*Section 24 of the of the Finance (no. 2) Act 2015 introduced 6th April 2016, phased in 6th April 2017
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Property Venture® is an award-winning, European investment property specialist that helps time-strapped entrepreneurs and expats enrich their lives through property investment in Europe.
The focus is mainly greater Europe: buy-to-let and homes in Poland, UK investment property, Managed Leaseback in France, Spanish homes.
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