Chancellor George Osborne’s sudden three per cent hike in stamp duty on second homes and buy-to-let investments has caused panic among landlords. Missing the April 1 deadline will mean paying an extra £7,500 upfront on a property worth £250,000 and an extra £15,000 on one costing £500,000.
Estate agents and auction houses are reporting a scramble to buy one- and two-bedroom city-centre flats and low- maintenance, modern family houses in good commuter districts.
Given it is now nearing the end of February, and only sales completed before April 1 will be exempt from the extra tax, some investors have left things a little late. However, if you are determined to beat that looming deadline there are ways to secure a speedy sale.
As ever, thorough groundwork is essential. “Preparation is central to a swift buying process,” says David Lee, head of sales at Pastor Real Estate. “It is paramount that before even putting in an offer, a solicitor is instructed and finance is arranged.”
1. Auctions: the fast track for the brave
Property auctions are probably the speediest way to buy. “The standard turnaround time is 28 days, which is far quicker than most people are accustomed to when buying via a high street estate agent,” says Mark Harris, chief executive of mortgage broker SPF Private Clients.
There are several major property auction houses with sales in London to choose from. Try allsop.co.uk; auctions.savills.co.uk; mchughandco.com; or auctionhouselondon.co.uk.
“We’ve already experienced a spike in interest from buyers and vendors alike looking to do deals before the introduction of the ‘additional home’ stamp duty tax from April 1, and we are scheduling in an extra auction for March 2 to cater for surplus activity,” says Chris Coleman-Smith, head of Savills auctions.
Traditionally, auction prices can be anything up to 20 per cent below the mainstream market — though with less time for viewings and surveys there is always an element of a gamble about buying a home in the saleroom.
It is vital to find a potential lender in advance. Not all will lend on auction properties, particularly if your chosen property has a glitch such as a short lease or a sitting tenant. Failure to come up with the cash within 28 days of purchase will result in a loss of the 10 per cent deposit you need to put down immediately. To make sure you don’t get caught out — and this will be just as true after April 1 — remember that buy- to-let mortgage offers are based on the amount of expected rental income.
“Investors are advised to research average rents in their target area, be aware of the list prices at auction and speak to a mortgage adviser to find out the level of rental income needed for approval,” says Andy Frankish, new homes director at the Mortgage Advice Bureau.
2. New Build for speed
The best way to secure a speedy deal is to buy a new-build property — there’s no chain, no need for pre-prepared legal packs, and the price is fixed. You must, however, be able to complete the sale by April 1 in order to get under the tax wire. If you buy off-plan you can exchange contracts super fast but you will not be able to complete until the property is finished and ready to use, which could be years down the line.
What you need, therefore, is a new- build flat that is ready to move into right away. In London this cuts your choice dramatically, since lots of apartments are sold years in advance.
But if you do find a finished flat you like, you may also find that the developer is willing to do a deal to get rid of it and close his books on a scheme —particularly with year-end accounts looming, and the urgent desire to bring in some cash.
3. Zero carbon means you pay zero tax
Interestingly, another new-build option, and one that could allow you to avoid paying stamp duty altogether, is to go eco.
“Zero-carbon homes under £500,000, including flats, are exempt from stamp duty,” explains Rachel Thompson, partner at The Building Solution. “And zero-carbon homes over £500,000 have their stamp duty bill reduced by £15,000.”
4. Chain free for quick completion
On the mainstream market, another way to try to secure a quick sale is to restrict your property hunt to homes that are chain free. This could be a probate sale — although these properties can be in a bit of a grotty state — or even buying a property from another landlord. News of April’s three per cent stamp duty surcharge, along with the removal next year of private landlords’ right to claim mortgage interest tax relief, has inspired some investors to move out of the game altogether. This, according to Rightmove, means there has been an increase in the number of two-bedroom flats for sale of almost seven per cent year on year.
However, even as you are plotting your speedy investment buy, it is vital always to bear in mind that a hasty decision could end up costing you far more than one made at leisure. “The important thing is to be diligent, research your market and invest enough time that you feel comfortable you can make informed decisions,” advises buying agent Sam McCardle, associate at The Buying Solution.
To ensure good and continuous rent it makes sense to buy within walking distance of Tube and train stations, near schools, popular high streets, green spaces and leisure facilities.
“I would anticipate less competition throughout the rest of this year and the chances are that you might be able to negotiate three per cent more off asking prices anyhow,” says McCardle.