We love a good horror story. Well-thumbed copies of novels by Stephen King and The Rats by James Herbert have often found their way into our Wimbledon Village office.
But claims by the Treasury Select Committee that Chancellor George Osborne’s multibillion pound raid on landlords risks damaging Britain’s economic recovery is a step too far.
The cross-party committee of MPs says a new stamp duty surcharge on buy-to-let properties and second homes from April is likely to result in a reduction in the supply of privately rented homes and push up rents.
We think they’ve got their sums wrong.
On top of conveyancing, estate agent, mortgage valuation and surveyor fees – plus removal costs – the factor most likely to take the biggest chunk out of your property budget is stamp duty land tax.
This is the fee home purchasers must pay the government for changing the documents that specify who owns land or property.
The rates vary depending on the property’s purchase price. Stamp duty is not payable on the first £125,000 of a property purchases price, but then rises to 2% on any part of a purchase price between £125,001 and £250,000, 5% on any part of a purchase price between £250,001 and £925,000, 10% on any part of a purchase price between £925,001 and £1.5m and 12% on any part of a purchase price over £1.5m.
The average price of a flat in Wimbledon Village now stands at £671,082 – 10.6% up on values at the end of 2014. This means purchasers of property at this price must pay £23,554 stamp duty – an effective rate of 3.5%.
On the other hand, the overall average price of a home in Wimbledon Village is £1,620,690, which would land purchasers with a stamp duty bill of £108,233 or 6.7% of the property’s value.
But from 1 April stamp duty rates rise even higher for buy-to-let investors. In fact, anyone left with two or more properties in England, Wales and Northern Ireland after buying will be forced to pay an extra 3% in stamp duty on each band – including the previously exempt £0-£125,000 band.
The change, which the government claims will make more homes available for owner-occupiers, will add thousands to buy-to-let property transactions.
An investment flat costing the Wimbledon Village average of £671,082, for example, will now come with a stamp duty bill of £43,687 – over £20,000 more than if the property was the purchaser’s only home.
Supporters of the new stamp duty rates say they will deter overseas investors from using their property purchases in exclusive areas of London, such as Wimbledon Village, as a safe haven for their wealth.
They point out that a second home costing £7m – the highest price a property in Wimbledon Village sold for in the past 12 months – would come with a stamp duty bill of £963,750. While a tax demand of this amount might make a UK property buyer’s eyes water, it is likely to be treated as a necessary expense by ultra-wealthy investors from Russia, the Middle East and oil-rich areas of Africa.
The government also claims it will deter buy-to-let investors snapping up property, leaving more homes available for first-time buyers.
But that argument doesn’t hold water in the Wimbledon Village property market.
Tenants make a lifestyle choice to rent in and around Wimbledon Village. This part of London is popular with non-permanent UK residents from Scandinavia, for example, because of the Norwegian School in Arterberry Road, Wimbledon.
Demand for family homes like the refurbished three-bed property in Raymond Road that we currently have on offer for £877 per week far outstrips their supply.
Property values rise 10%
It is argued that the new stamp duty rates could force landlords to look at investing in less expensive parts of England, Wales and Northern Ireland, where stamp duty costs are lower.
For example, if landlords paid £200,000 for a buy-to-let property – the median price of homes listed for sale in the university city of Chester in north-west England last month – they would pay stamp duty of £1500 before 1 April (All Fool’s Day) and £7500 when the new rates come into force.
But if property values in the Wimbledon area continue rising at 10% per year, the stamp duty cost of £43,687 for a £671,082 Wimbledon Village flat would be recouped within 12 months – and the government’s higher rate of property tax can be used to reduce an investor’s capital gains tax bill when the property is sold.
There is a shortage of good quality rental properties in and around Wimbledon Village. We are, therefore, confident that the higher rate of stamp duty will not deter landlords from investing in this part of London.
If you require an up to date valuation of your property, contact Robert Holmes & Co today. Our team of valuation specialists will be happy to give you a sale or rental value of your property.