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Crackdown on landlords gives boost to first-time buyers

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First-time buyers should find it easier to take their first steps onto the property ladder after the government announced plans to raise taxes on buy-to-let purchases.

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The government has announced plans for higher taxes on landlords and buyers of second homes in a bid to help first-time buyers get onto the property ladder.

In his Autumn Statement last month, Chancellor of the Exchequer George Osborne announced details of the Conservatives’ new housing plan.

Tackling property shortage

This aims to address the shortage of new properties in the UK, as well as make it easier for young people and families to afford their first home.

The government is to double its housing budget between now and 2020. It has promised to support the building of 400,000 new houses and flats over the next five years.

But first-time buyers could get an even bigger boost from the increase in stamp duty planned for buy-to-let investors and purchasers of second or holiday homes.

By taxing landlords more heavily, Osborne hopes that fewer people will invest in buy-to-let.

Less competition for homes

Estate agents

As a result, there should be less competition for starter homes. This is likely to keep prices down and make it easier for those in genuine need to afford their first home.

The increase in stamp duty for purchases of homes that are not the buyer’s main residence follows plans announced in July’s summer Budget to restrict the tax relief landlords can claim on mortgage interest.

At present, buy-to-let investors can offset interest charges against their earnings in order to cut their income tax bills.

But from 2017, relief will only be available up to the 20% basic rate rather than the 40% or 45% that is possible at present.

Families ‘squeezed out’

It’s thought, however, that the stamp-duty rise – which comes into effect in April 2016 – will have a greater impact.

Osborne said: “Part of our housing plan addresses the fact that more and more homes are being bought as buy-to-lets or second homes.

“Many of them are cash purchases that aren’t affected by the restrictions I introduced in the Budget on mortgage-interest relief; and many of them are bought by those who aren’t resident in this country.

“Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy.”

Soaring tax bills

Toy houses on pound coins

The stamp-duty reforms mean that landlords will pay three percentage points more tax when buying property.

This change will translate into significantly higher bills: for example, the current stamp-duty liability on a £150,000 property is just £500.

But from the start of the next tax year on 6 April 2016, landlords will pay £5,000 on a purchase of this value.

For a £200,000 home, the rate will rise from £1,500 to £7,500, while on a £300,000 property, duty will increase from £5,000 to £14,000.

Housing market experts predict the reforms will dampen demand for buy-to-let.

‘Major blow for investors’

Rachael Griffin at Old Mutual Wealth said: “The government expects to pocket £880m a year from this measure by 2020-21, making it another major blow for buy-to-let investors following the curb on mortgage interest tax relief announced in the summer.

“Many landlords are already concerned that the margins on buy-to-let investment are being squeezed and for some this may be the final nail in the coffin.”

But Mike Coady at deVere Mortgages warned that the impending tax hike could result in a higher level of purchases by landlords immediately before the new stamp-duty system comes into effect.

“It may trigger something of a ‘rush-to-buy’ phenomenon between now and April by those wanting to purchase a buy-to-let property racing to avoid paying the extra levy,” Coady said.

“This will, of course, push up prices in the short-term.”

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