The recent Autumn Budget has introduced a 2% stamp duty land tax (SDLT) increase on second homes and buy-to-let properties, leaving landlords facing a total 5% surcharge on new purchases.
This change is expected to drive a substantial decrease in property acquisitions by landlords, with forecasts suggesting purchases could drop below 100,000 per year for the first time in a decade. Experts warn this may worsen the UK’s rental market, already strained by rising rents and limited supply.
Rental prices have surged 6.2% in the past year, with average rents reaching £1,213 outside London and £2,148 within the capital, according to Zoopla. The added cost of stamp duty could discourage landlords from expanding their portfolios, further shrinking rental supply. Hamptons predicts that, in a year, landlord property sales could double purchases, with an estimated 156,000 sales versus 84,000 purchases, exacerbating supply constraints.
Landlords are also facing imminent tax hikes as thresholds for SDLT are set to revert in April 2025, adding additional financial pressures. However, the Budget retained capital gains tax (CGT) rates for residential properties, providing some relief for landlords considering selling.
Lucian Cook of Savills highlighted that smaller, “amateur” landlords will bear the brunt of the policy. With 43% of landlords in England owning a single property, this demographic is particularly vulnerable to the tax rise. Meanwhile, professional landlords, owning larger portfolios, are relatively rare, comprising just 0.1% of landlords.
As rental supply shrinks, higher rent costs could make homeownership even more difficult for first-time buyers, with savings potential impacted by increased rental expenses. The Office for Budget Responsibility forecasts a 25% drop in second-home purchases by 2025, likely reducing the share of landlord-owned homes from 10% to around 7-8%.
Gary Hall of Knight Frank believes that while landlords might reassess their strategies, the speed of the policy’s implementation has limited flexibility, especially for smaller investors. Cook noted that the Bank of England’s potential decision to lower interest rates could provide some market relief but cautioned that supply challenges would likely persist in the long term.
