'Chaos' as home sales fall through amid stamp duty shock in Budget

The sudden increase in stamp duty on second properties has led to a pause or collapse of home sales, dealing a major blow to buy-to-let landlords and individuals seeking holiday homes. With immediate effect, stamp duty has leapt from 3% to 5%, adding a whopping £7,000 to the cost of an average purchase.

In a separate development, no extension was granted for property tax breaks introduced by the previous Conservative government, setting up a significant hike in stamp duty that will affect first-time buyers and others. The tax-free threshold will revert to £125,000 from £250,000, while for first-time buyers, it will decrease from £425,000 to £300,000 starting April.

Pressure is mounting in the industry as forecasts suggest first-time buyers could be saddled with an extra £3,500 in costs to secure their initial step onto the property ladder. Experts are also anticipating a flurry of property sales activity before next spring's deadline as prospective homeowners scramble to complete purchases to evade the looming, hefty stamp duty fees.

Rightmove's property specialist, Tim Bannister, commented: "Increasing stamp duty on additional home purchases by 2 percent means that, based on the average asking price for a home (£371,958), a landlord could face an additional charge of more than £7,000 when buying a property."

Mortgage broker Jack Tutton of SJ Mortgages has raised concerns for those stepping onto the property ladder, cautioning: "We expect that the typical first-time buyer will be over £3,500 worse off come 1st April based on current prices. After paying fees, carrying out any surveys, and stretching their budget with high mortgage rates, this will be an unwelcome additional charge next Spring."

He also suggested a potential surge in activity, saying: "We may now see a rush of buyers, particularly those purchasing for the first time, either bringing their plans forward or trying to get their deal done before charges go up."

Tutton highlighted the lengthy process involved in property transactions, noting: "It currently takes a lengthy 152 days on average to complete a property transaction once a sale is agreed, which would mean agreeing a deal tomorrow to complete on time. While this is an average and many will be hoping to complete more quickly, it highlights that those who are hoping to avoid higher charges will need to act quickly."

The immediate increase in stamp duty on second properties has already had a tangible impact, according to Tutton: "Within an hour of the Budget, we had two landlords withdraw from their purchases despite being close to completion," he revealed. He criticised Labour's decision to hike stamp duty for second properties by 2 percent with less than 12 hours' notice, claiming it "The decision that Labour has taken to increase stamp duty for second properties by 2 percent with less than 12 hours' notice has, and will, cause many properties chains to fall apart putting the property market on its knees."

Kelsey Phillips, Head of Specialist Lending at Arose Finance, expressed concern about the impact of tax increases on landlords and the property market to Newspage: "I am sure more will follow, as landlords cannot stomach yet another increase in the tax they need to pay. The government are also likely to miss out on a lot of tax receipts as a result of these broken chains and a reduction in housing transactions."

She also noted the immediate reactions to the Chancellor's announcement: "Within minutes of the Chancellor announcing the additional surcharge, our investor clients were on the phone to estate agents renegotiating purchase prices lower."

Stephen Perkins, Managing Director at Yellow Brick Mortgages, highlighted the disruption caused by the tax changes, saying that many investors are now "shredding their plans". He predicted a decrease in buy-to-let investments and renovation projects, leading to increased rents due to a reduced number of rental properties.

Rohit Kohli, Director at The Mortgage Stop, voiced his frustration with the short notice given for the tax hike: "The less than 24-hours notice is causing chaos across many transactions as landlords are actively considering their options."

He warned that the consequences would extend beyond landlords, potentially affecting homebuyers involved in buy-to-let or let-to-buy transactions within their purchasing chain.

Ben Perks, Managing Director at Orchard Financial Advisers, lamented the adjustments, arguing they "may have just killed off the buy-to-let market". Justin Moy, Managing Director at EHF Mortgages, also expressed concern, warning: "This is a serious game changer for the property investor, making bricks and mortar far less attractive and the knock-on effect won’t take long to see."

He added, "Fewer private landlords will provide less social housing, generating higher rent and more strain on the social state for housing."