In next week’s Budget, George Osborne, the UK’s Chancellor, will finalise details of a 3% stamp duty surcharge on purchases of second homes.
Coming into effect in April, the move is seen as an attempt to stop the UK turning into a nation of landlords, pricing out individuals and families from getting on the first rung of the property ladder.
But the Bank of England (BoE) is still worried.
The first reason is that the stamp duty will only apply to individuals – not companies – buying second homes. This means that to avoid the surcharge a person or a group can simply buy a house through an existing company, or set one up to do it.
As Steve Olejnik, sales director at buy-to-let broker Mortgages for Business, told the Financial Times, the proportion of mortgage applications through companies had gone up “well over 50 per cent” in the past six months. “There’s a definite shift to company structures,” he added.
The second reason for the BoE’s concern is that the UK has had record low borrowing costs for seven years, with no signs of rising, and and the appetite for second or third homes has increased accordingly.
As Bloomberg reports, buy-to-let advances soared to 250,000 by the end of 2015, up from just under 100,000 back in 2010, and the Bank of England isn’t necessarily convinced an easy-to-bypass stamp duty will stop it. By the end of last year mortgages for investors were rising twice as fast as that of owner-occupiers.
So many people owning second or even third homes matters because it increases the fragility of a property bubble.
If there’s an unexpected downturn in the market, people not living in the homes they own are much more likely to sell, which will oversupply the market. In certain areas like London, the housing bubble has become so big the prospect of it bursting is almost unfeasible.
In 2016, both George Osborne and the Bank of England will hope property prices stabilise, rather than move in either direction. But at the moment, it could go either way.