Lenders tell government: buy to let reforms may be overkill

The three per cent stamp duty surcharge proposed for purchases of buy to let and holiday homes risks being seen as overkill - especially in the light of other tax changes for the private rental sector.

That’s the view of the Council of Mortgage Lenders in its submission to the Trasury’s consultation - which closes today - on the surcharge plan. 

The CML view is that even without the new surcharge, what it calls “the forthcoming adverse tax changes for private landlords and the potential macroprudential interventions in the buy-to-let market” will result in a slowdown in buy-to-let activity. 

It says there is a risk of overkill in dampening investor sentiment to the extent that the flow of available private rented property could be disrupted, without any necessarily corresponding increase in the ability of households to become home-owners.

In addition, with around a fifth of households currently renting in the private sector, there is the perverse risk that the stamp duty increase could cause landlords to charge higher rents, and so actually make it harder for tenants who want to buy to save the deposit needed to do so.

The CML says that under George Osborne’s current proposals, some people will be caught by the requirement to pay the three per cent surcharge even when they are buying their main residence (for example, if they have a short-term overlap between owning their previous home and acquiring their new one, perhaps as a result of problems in the housing chain).

So the council says it would be better to allow people to defer their payment of stamp duty for 18 months subject to conditions, rather than require them to pay it upfront and then potentially reclaim it in the form of a rebate. 

“This would be both fairer and more efficient” says a CML statement.

CML director general Paul Smee says the council’s longstanding view is that stamp duty is a blunt policy lever. 

“Given the complexity of the proposals, we also suspect that in practical terms the surcharge could cause more problems than it solves. We urge the government at least to move away from a position where people will have to pay and then potentially claim back to one where payment is deferred, and only triggered if the buyer genuinely falls into the intended target category” he says.

“If the surcharge proposal is designed to promote home ownership, we think that there should be better evidence as to why this requires a reversal of growth in the private rented sector.”