Want to invest in property? The pros and cons of stamp duty cuts.

Property sales to investors last month were the highest in the past 4 years. The stamp duty cuts earlier this year meant homebuyers don’t have to pay stamp duty on properties up to £500,000 until April 2021. Buyers could save up to £15,000 if they choose the right home. So should you invest in property?

Stamp duty thresholds were raised to support the property investors during the coronavirus pandemic after fear that the housing market may crash. Before July, homebuyers in England and Northern Ireland only had to pay stamp duty on properties over £125,000 (or £300,000 for first-time buyers). Rishi Sunak announced this would rise to £500,000 to provide nine out of 10 people to benefit from this break.

Stamp duty land tax is a lump-sum tax that property or land buyers must pay. The rate you pay depends on the property price and type with rates at:

• Nothing on properties up to £125,000
• 2% on the portion of a property £125,001 – £250,000
• 5% on the portion £250,001 – £925,000
• 10% on the portion £925,001 – £1,500,000
• 12% on the portion costing more than £1,500,001

But with the stamp duty break:

• Nothing on properties up to £500,000
• 5% on the portion £500,001 – £925,000
• 10% on the portion £925,001 – £1,500,000
• 12% on the portion costing more than £1,500,001

On average, property buyers will save around whopping £4,500!

Who does this benefit?

First-home buyers already benefited from a raised stamp duty exemption so few will benefit from the scheme. Whereas people moving up or down the property ladder to just below the new exemption limits will see the greatest savings. Rightmove reported a 49% increase in people looking for properties within the £400,000 – £500,000 band.

Second homeowners can also reap the rewards of this stamp duty holiday. The 3% levy paid if you are buying an additional property worth more than £40,000 and up to £500,000 still applies. However, this extra charge can be discounted by the stamp duty holiday.  So for example if you buy a property for £400,000 as a second home, the £10,000 you would usually pay in stamp duty would be saved!

Are there more buy-to-let investors now?

Being a landlord is looking more attractive with the stamp duty break making it even more economical to buy-to-let. In addition, more first-time buyers have considered buy-to-let properties while continuing to rent in more expensive areas. However, over the past few years tax changes have pushed some landlords out of the market due to higher tax, agency bills, maintenance, and regulation costs. The returns on buy-to-let investors is been lessening over the years, though, with the stamp duty holiday perhaps now is the time for old landlords to get back on the market.

How has it affected markets?

The stamp duty cuts could encourage greater competition for properties in the £125,000 – £500,000 band and push prices up. Furthermore, the falling house prices mean that waiting for the right time to buy would be more beneficial than taking advantage of the stamp duty holiday according to British estate agents.  

Is it a good time to invest?

Investors made 15% more property purchases last month than in in the last 4 years. Don’t jump on the bandwagon unless you are serious about being a property investor, it’s not for everyone. While for experienced investors the opportunity of lower acquisition costs is worth it. For newbies, be cautious at every step.  Also keep an eye on your buying timeline, due to the length of time it takes for a property transaction to go through (around 14 weeks), people coming to the market now will likely struggle to get the sale through in time to benefit from stamp duty cuts that end at the end of March. Although with MPs lobbying to extend the holiday no one can say for sure.

Information is key to success and learning the pros and cons of investing in property now should stand you in a much better position to make an informed decision. Learn how best to invest with Bullbear.