While there is no solid evidence yet to support the idea, it is tempting to suggest that house numbers coming on to the market have been swollen by landlords selling properties ahead of the tapering in tax relief on mortgage payments that comes in on 6 April, while the rise in buyer enquiries could reflect landlords buying up property before the 3 per cent stamp duty surcharge on second homes comes into effect on 1 April. On the other hand, there are still grey areas within the new legislation, and it could be that some landlords are holding back on buying a new property in the hope that a post-deadline fall in prices could be enough to offset the new tax level.
True or not, the key question is what happens after the new tax regime is in place? For landlords operating as a company, nothing changes on the tax relief front, as all interest payments can be set against profits to reduce the tax liability. But for the small operator with one or maybe two properties, the increase in taxation will make it debatable in many cases whether or not it is worth the effort. The key point here, though, is that as tax relief is reduced over a four-year period, so the landlord's amount of taxable income increases significantly.
There are a number of unintended consequences arising from the changes that the Treasury has clearly not thought through. Stamp duty receipts are already down following the changes to stamp duty on primary residences, largely because transactional volumes in expensive houses have slowed to a trickle.
One possible outcome after April is that life will go on much as usual except that rents will rise to pay for extra taxes; that's bad news for people renting, where rents have already been rising. Rents last year in the east of England rose by 6.5 per cent, whereas rents in central London rose just 0.5 per cent; small surprise given that rents there are already absurdly high. There is another snag, too. George Osborne may have embraced the idea that, by deterring multiple ownership, there would be more houses for first-time buyers, but the reality is that many potential first-time buyers can afford the rent on a house that they could not afford to buy. So instead of making it easier to move out from Mum and Dad's, it's likely to become harder, because there is a danger that the number of properties to rent will decline, which in turn will help to sustain a general increase in rents charged. There is also a serious question mark over the idea that if potential second homeowners stay out of the market, then houses will become more affordable for first-time buyers. This looks to be extremely unlikely as long as the difference between supply and demand remains more of a yawning gap. More likely to have an impact is the 40 per cent interest-free loan on offer to first-time buyers. You still have to find a deposit, but it does mean that potential buyers will be asking for a modest 55 per cent loan-to-value mortgage, making the task of securing a mortgage that much easier.
The new tax regime also presents a challenge for housebuilders that attract investors looking to buy an apartment and collect the rent and capital appreciation. Those with the biggest exposure to buy-to-let from UK and overseas landlords may see demand from these areas decline, although it's hard to see how the new legislation can be policed if the buyer lives in Russia or China, for example.
Research by estate agent Countrywide (CWD) suggests that the cost of the new 3 per cent stamp duty will be the equivalent of around 11 months of rent for the average landlord. However, even modest house price inflation would be sufficient to recoup this within a year. And with most landlords viewing a second home as a long-term investment, the extra stamp duty may well not act as a major deterrent, but the tapering in mortgage rate relief will probably make some smaller landlords think twice.
