Levy deterring investors
Tax hike sees second home buyers flee market
Jacqueline Law: ‘what started as a trickle as become a flow’ (photo by Terry Murden)
Fewer property investors are buying a second home because of the 3% levy introduced by the Scottish Government.
Independent market research shows that 62% of Scots have been discouraged from purchasing a second home by the additional dwelling supplement which the Holyrood government imposed in April 2016.
This is payable on top of the Land and Buildings Transaction Tax (LBTT) due on their purchase.
Estate agency Aberdein Considine’s Property Report says the tax changes have weakened demand for homes in some parts of Scotland by flooding the market with stock.
The report reveals that sales fell in 17 of Scotland’s 32 local authority areas during the final quarter of 2017.
Jacqueline Law, managing partner, said a perfect storm of tax and legislation changes has left many landlords running for cover.
“What started as a trickle of landlords leaving the sector in 2017 has now become a steady flow. For many, the numbers no longer stack up in what was once one of the most reliable asset classes for investors.
“The Scottish Government’s stated aim of ADS was to impose a greater tax burden on those purchasing additional property for investment or recreational purposes, and to increase the volume of owner-occupiers.
“Many people agree with that principle and would welcome lower house prices and a more sustainable Scottish housing market, particularly in our major cities.
“However, it’s a case of being careful what you wish for, as should this trigger a house price correction of any kind, it needs to happen at a pace which our financial system can cope with.
“Consideration also needs to be given to what will happen to the rental market in the medium-to-long term. The basic principles of supply and demand dictate that if there are fewer landlords and fewer rental properties, then average rents may start increasing.”
Alongside the introduction of ADS, the UK Government is withdrawing a relief which allows higher-rate taxpayers to offset their buy-to-let mortgage interest payments against their tax bills.
Compounding the problems further, it has become harder to secure a buy-to-let mortgage due to more stringent underwriting rules for portfolio landlords.
Since the turn of the year, there has been a surge in existing landlords looking to sell properties.
In Aberdein Considine’s Aberdeen branch alone, almost a quarter of the stock taken on the market so far this year has been from landlords looking to sell.