A mortgage chief is warning that thousands of buy to let purchases may now be abandoned.

This follows the stamp duty on additional homes rising from 3% to 5% – the change took effect from midnight.

Peter Stimson from MPowered Mortgages says: “Buy-to-let landlords and second home owners were expecting another tax squeeze from the Chancellor. But what they got was a whack with a hammer.

“Not an increase in general taxation or the Capital Gains Tax they pay when selling a rental property, but a whopping 2% uplift in the Stamp Duty payable when buying a home to rent out. A sector rendered fragile by successive tax raises and interest rate rises is now likely to be clinging on by its fingernails after today’s announcement.

“Fewer than one in 10 mortgage applications made this year were for a buy-to-let loan, less than half of what it was just a few years ago. That share is now likely to plunge further as would-be landlords run the numbers and decide they just don’t stack up.”

He continues: “The irony is that it’s not just landlords who will feel the pain. A third of Britons don’t own their own home, and for many of them, renting privately is the only option. With rents already rising and the supply of rental properties about to be further disrupted, rents could now climb even higher. Far from solving the housing crisis, this, at least in the short term, could well exacerbate it.”

And the increase in stamp duty on buy to lets and second homes – which came into effect at midnight – is likely to result in a slump in demand, warns Zoopla.

Richard Donnell, head of research and insight at the portal, comments: “Changes to stamp duty land tax, together with higher property prices, has seen stamp duty raise over £11.5 billion in 2023/23. It’s a tax that falls most heavily on buyers in southern England with London and the South East accounting for over 50 per cent of annual tax receipts from stamp duty.

“The extra 2% cost on buying second homes and investment property will reduce demand from second home buyers and investors. Second home buyers are already responding to last year’s Budget which allowed councils to charge double council tax for second homes. This is resulting in a higher level of selling by second home owners. In areas with above average second homes we have seen four times more homes come to the market. 

“This announcement also comes with changes announced previously which will see first time buyers pay more from next year. A return to previous stamp duty thresholds from April 2025 will result in an additional 20 per cent of first-time buyers being liable to pay stamp duty and a further 14 per cent will be required to pay a partial amount. 

“The impact is felt across London and the South East in markets with average house prices over £425,000. This will increase costs for buyers by an average of £5,600 in London and £1,390 in the South East. In parts of London with home values over £600,000, FTB could pay an additional £15,000 in stamp duty. Buyers will want to take this off the price they pay for homes, keeping price rises in check.”

But Donnell did at least see some consolation for the private rental sector from Reeves’ decision not to change Capital Gains Tax on properties. 

He says: “It’s positive to see that capital gains tax has not increased for landlords (already 24 per cent for higher rate taxpayers). 

“The private rented sector has seen static supply since tax changes introduced in 2016 and there is a steady net selling by landlords in response to tax policy but also greater regulation of housing and higher mortgage rates. We need to keep as many landlords as possible in the market to provide choice for renters facing limited choice and to prevent rents rising faster than earnings, which hits those on low incomes the hardest.” 

Other property-related tax measures announced yesterday included:

Capital Gains Tax for non-residential assets will rise at its lowest rate from 10% to 18% and the higher rate from 20% to 24%. But there will be NO change to Capital Gains Tax for residential property – which already has 18% and 24% rates.

The Conservative government’s Inheritance Tax threshold, frozen until 2028 by Rishi Sunak, will be extended to 2030.  It will remain the case that the first £325,000 of any estate can be inherited tax-free.

These are part of what Reeves admitted to MPs would be a Budget with tax rises and spending cuts to the total of £40 billion.