UK Stamp Duty changes – what would it mean for investors, second home buyers and landlords abroad

Concerns Monday’s Budget would introduce up to 3% Stamp Duty levy on UK property purchases by all overseas buyers were somewhat alleviated with the arrival of the announcement. Rather than the levy being enforced, Phillip Hammond announced that the UK Government will publish a consultation in January 2019 on a SDLT surcharge of just 1% for non-residents buying residential property in England and Northern Ireland.

Should this be enforced, for investors globally this could mean a potential step change not in how they invest but in where. Watching the market closely will be both serial investors, portfolio growers and of course overseas investors with long term UK interests.

Overseas investors wanting to avoid the increase will be swiftly snapping up UK property between now and January in a bid to secure their own investments and are expected to look beyond the already deflated London market to first cities like Birmingham and infrastructure friendly locations like Oxford, Slough, Reading and the commuter belt.

How would a levy affect the market?

As all investors know the market is fickle and will rise and fall with every announcement and rumour but time and again the Property Market has proven growth over the mid to long term, doubling approximately every 15 years. Investors using property as a retirement vehicle, a 5-10 year hold investment or buying off-plan for short term capital growth will still be in the black but perhaps have to accept a slightly lower return in the short term unless they can grab a slice of the action before the potential consultation results on SDLT kick in.

UK HOUSE PRICES 1988 – Present.

 

September 1988 – £52,200 | September 1998 – £72,700 | September 2008 – £171,600 | September 2018 – £231,400

Investors everywhere will be sound in their own strategy and whilst an increase in SDLT would be an additional consideration that would have an impact on short term returns, the practical realities are pretty simple and not as onerous as it may seem.

What will it look like?

Short term investors and so called “flippers” would then have to accept a slightly lower initial return from off-plan investments but would still be firmly in the black based on a 20% capital growth.

Investors that previously favoured the London market may look to lower entry points like Birmingham, Commuter belt locations and less obvious locations like Oxfordshire, where lower value property carries lower stamp duty and represents higher yields across more diverse portfolios.

Mid-term investors and those in 5-year hold patterns will be looking for best value in both capital growth and yield and will also be looking to avoid any additional SDLT hike in the upper end of the market, particularly those in the capital – as they turn their gaze to lower cost options in the second city and boroughs including key infrastructure locations like Slough.

Investors across the sphere, regardless of strategy may find themselves in increased competition, pre SDLT rise, in lower cost destinations which will inevitably increase demand for the best quality developments in prime investment areas.

Post SDLT changes would expect that as demand becomes squeezed in these key areas residential investors will be on the lookout for key infrastructure investments like HS2, Crossrail and Heathrow expansions, local and regional strategy and private & public indicators as signposts for future tenant demand.

Assuming the consultation on 1% does result in an increase in Stamp Duty Land Tax, the big winners however will be those that deploy and retain a passive income strategy. Whilst an additional £2,000-£3,000 (for a median priced property) will be a consideration in initial investment, the long-term growth of the UK property market will continue to be an attractive market both at home and abroad.

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