Stamp duty changes:prices of London starter homes drop by £20k as buy-to-let demand falls

This month's stamp duty changes have caused the buy-to-let market to collapse and the price of London's one-and two-bedroom flats to fall by up to £20,000, giving first-time buyers a better chance of getting on the ladder...

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This month’s dramatic stamp duty hike on second homes has created a collapse in demand from buy-to-let investors — and a significant fall in the price of London’s one- and two-bedroom flats.

The first clear evidence of the impact of the three per cent duty surcharge for landlords and second home owners, published today, suggests the number of investors has slumped by more than half, with prices sinking.

“This is of course very good news for first-time buyers, many of whom were edged out of the market by investors in March,” says Paul Smith, boss of haart estate agents.

“We have seen a significant fall in buy-to-let activity since the introduction of the surcharge. In the first two weeks of April, the number of buy-to-let purchases was down by more than 55 per cent on the same time in March. Most investors brought forward their purchases to complete ahead of April, so it is likely that this dip in sales will continue for at least a few weeks yet.”

With fewer investors on the scene, haart calculates that the sale price of one- and two-bedroom flats has fallen almost seven per cent month on month. The average first-time buyer in London spends £314,626 on their first property, according to the latest data from Your Move & Reed Rains. This means  that, potentially, buyers could expect to see savings of around £20,000.

Across the capital agents agree that the buying landscape has changed dramatically in recent weeks.

“Since the implementation of the higher stamp duty we have seen a drastic decrease in enquiries and offers from buy-to-let investors,” says Tom Lodge, director of Property Eagle. “Town centre one- and two-bedroom flats that usually appeal to investors have had a fraction of the buyers they would normally have had last spring.”

Jeremy Leaf, principal at Jeremy Leaf & Co estate agents, says that prices are “softening” in the suburbs — Zone 3 and beyond. “We are still seeing plenty of first-time buyers as the withdrawal from the market of investors means it is an opportunity for them,” he said. “First-time buyers are still taking advantage of low mortgage rates and these don’t look set to rise anytime soon.”

Buying agent Karelia Scott-Daniels, managing director of Manse & Garret Property Search, says the number of investors on her client list had plummeted “by 90 per cent”. “In March the market was exceedingly busy with lots of buyers and several sealed bids situations,” she says. “It has now died a death. Vendors aren’t getting any interest so are much more likely to listen to offers than they were a couple of months ago.”

The latest study by the National Association of Estate Agents  found that almost 40 per cent of estate agents in the UK believe first-time buyer sales will increase now that there is less competition for properties. 

“In the past few months first-time buyers have had to compete with landlords for the same properties and those landlords have really pushed hard to complete ahead of the rise in stamp duty,” says Mark Hayward, managing director of the association. “Now, in theory things should get easier … as those seeking to buy to let will tail off.”

 However experts agree that first-time buyers will not have things all their own way for long.

“We believe that this is a temporary phase which will not hinder the buy-to-let market in the long term, and we anticipate the market returning to normality towards the end of the year,” says Lodge.

Scott-Daniels also believes that investors will come to accept the new stamp duty regime and begin returning to the market this year. “I think it might take till the autumn for things to go back to normal,” she said.

The three per cent levy on stamp duty came into force at the start of this month, and also affects second-home owners or parents buying homes for their children.

Chancellor George Osborne introduced the additional charge to suppress the buy-to-let market, amid concerns that investors are buying up affordable starter-type homes, making it even more difficult for first-time buyers to get a foot on the property ladder.

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