"As awareness increases and the realisation of the stamp duty changes sets in, we may see competition in the buy-to-let and holiday let market heat up, making now the time for investors to act. "
As investors absorb the news of the unexpected stamp duty hike announced in the Budget, it’s important for those considering purchasing a buy-to-let or holiday let to stay focused and act quickly before another stamp duty increase next year.
From next April, stamp duty thresholds will revert back to their pre-2022 levels, meaning for those investors buying a property priced between £125,001 and £250,000, their stamp duty rate will increase once again, from 5% to 7%.
In September 2022, former Chancellor Kwasi Kwarteng temporarily raised the nil rate stamp duty threshold on residential properties from £125,000 to £250,000. From April 1st next year, however, buyers will once again pay 2% stamp duty on properties priced between £125,001 and £250,000 if it’s their primary residence. For first-time buyers, no stamp duty is currently charged on properties up to £425,000, but this threshold will drop to £300,000 come April.
For those investing in a buy-to-let or holiday let, they pay an additional 5% rate on top of the residential rate, which means there are potentially big savings for investors if they buy a property under £250,000 before next April.
The stamp duty bill on a £240,000 second property bought on April 1st 2025 for example, will be £4,800 more than if the same property were bought a month earlier on March 1, 2025 - before the stamp duty rate reverted back.
With the deadline only around five months away, investors hoping to take advantage of the lower stamp duty threshold need to start planning now in order to complete their purchases before the changes take effect.
High yields on offer
Although the average buy-to-let property price in the UK is slightly above the threshold at £261,897, according to Zoopla, most regions outside London - except for the East of England and the South East - have average buy-to-let property prices below £250,000.
In the North East, the average buy-to-let property is priced at just £109,072, with a rental yield of 7.65% and an average rental income of £695. Even in the South West, where prices are typically higher, the average buy-to-let property still comes in just under the threshold at £240,472, according to Zoopla.
Certain cities within these regions can offer even more affordable prices. In Sunderland for example, the average buy-to-let property costs just £83,842 and offers a rental yield of 8.96%. It’s a similar picture across many Northern cities, with the average price closer to £100,000 than £200,000.
With all rental properties needing to hold an Energy Performance Certificate (EPC) rating of C or above by 2030, buying now and taking advantage of the lower stamp duty threshold gives investors time and potentially more money to spend on upgrading properties that are currently lower EPC rated.
Lower priced properties can also help investors who might be struggling to meet affordability requirements and manage the higher repayments that come with a more expensive property.
Might not be on investors’ radar
While the stamp duty changes have been well publicised for first-time buyers, there may be some investors who are not aware of the changes - especially expats living overseas. UK buy-to-let properties and holiday lets are a popular option for expats looking to maintain an income from UK property.
Staycations are also still booming in the UK, and with cities such as Blackpool and Manchester offering yields above 6.50% and property prices under £200,000, according to Zoopla, there are still investment opportunities to be had. By taking a personalised approach to underwriting, specialist building societies such as ourselves can help investors from all walks of life, even those with varying and complex incomes.
We recently helped a first-time landlord secure a £112,000 mortgage for a new build flat worth £140,000. Unable to buy in London, they decided to invest in their hometown instead. Our underwriting team assessed the case based on full affordability, taking into account their salary, rental shortfall, and expenses. Thanks to our personal and flexible approach, we were able to offer a tailored solution at 80% LTV.
Given the recent hike in stamp duty, now is a great time for brokers to reach out to clients both in the UK and abroad and remind them about the additional changes coming next year - whether it’s through email, social media, TikTok, or good old fashioned face-to-face advice.
As awareness increases and the realisation of the stamp duty changes sets in, we may see competition in the buy-to-let and holiday let market heat up, making now the time for investors to act.
