What the stamp duty holiday means for property investors

In the first half hour after the Chancellor made the announcement, property portal Rightmove recorded a 22% increase in visitors to their site, and stated the number of people contacting estate agents about properties for sale set a new record - up 93% on the same day in 2019. 

The cuts are intended to spur the housing market’s recovery, and mean those purchasing a main home costing less than £500,000 before March 31 2021 won’t pay any stamp duty land tax. 

Purchases above the £500,000 threshold will be subject to reduced stamp duty rates. 

This boost in demand is a good sign for the UK’s economy, as Sunak stated, “one of the most important sectors for job creation is housing.” 

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And whilst the stamp duty holiday is good news for homeowners who intend to use their stamp duty-exempt home as their main residence, what does it mean for property investors?

The impact on buy-to-let investors

For buy-to-let investors, the announcement of a stamp duty holiday was, most likely, a welcome one. 

However, it’s not all good news. Those purchasing additional properties - such as buy-to-let investors - are still required to pay a 3% surcharge on top of the revised stamp duty rates. 

The cost of being a landlord has been soaring in recent years, resulting in the more ‘traditional’ method of investment into the property sector steadily declining in popularity - with buy-to-let income down by 13%.

In addition to the rising costs for landlords, the economic impact of COVID-19 on many private tenants is beginning to show in the figures.

According to the National Residential Landlords Association, ‘17% [of renters] had approached their landlord or letting agent for support such as for a rent deferral, a rent reduction or some other assistance.’ With the uncertainty surrounding job security increasing over recent months, this number could be set to rise. 

This, as well as changes to mortgage tax relief and the tightening of underwriting standards for buy-to-let mortgages, means more and more property investors may be looking for suitable alternatives - for example, the property-backed IFISA.

The impact on property-backed IFISA investors

For experienced investors, the property-backed IFISA has many benefits. In particular, for those wanting to get involved in property investment without the hands-on nature or expense and risks of buy-to-let, the property-backed IFISA is an important consideration. 

The often low minimum investment amounts attached to property-backed IFISAs mean that, when compared to the initial capital needed in the purchase of properties for the purpose of renting or refurbishment to re-sell, they’re more readily accessible to a wider range of experienced investors. 

For example, with the CARLTON Bonds IFISA, there are no fees to invest, and the minimum investment amount is just £1,000. In contrast, buy-to-let investors must consider the costs of a mortgage, stamp duty, landlord insurance, property maintenance and more. 

Though property-backed IFISA investors don’t have to worry about the cost of stamp duty (or any other fees related to the direct ownership of property), the Chancellor’s stamp duty holiday is still highly beneficial.

All property investors will be pleased to know that house prices are rising, in what has been dubbed the ‘mini-boom.’ Halifax’s House Price Index found that house prices increased in July, 1.6% higher than in June, and 3.8% higher than the same month in 2019. 

And as people reassessed their living situations post-lockdown and pent-up demand was released, enquiries were surging even pre-economic update, and the stamp duty holiday has only helped to fuel the housing market’s recovery. 

A rise in new-build enquiries - which hit a new record, exceeding the previous record set on June 11 by 21% -  is promising for property-backed IFISA investors. 

In particular, CARLTON Bonds’ Strategic Housing Delivery Partner, Homes by Carlton, have seen a huge increase in the number of enquiries on their new-build developments across the North East post-announcement. 

There are a number of reasons attributed to the popularity of new-builds. From the lack of a chain - meaning a quicker, less stressful buying process - to the availability of the government’s Help to Buy scheme. 

But for property-backed IFISA investors, the core benefit is their resilience and adaptability. 

The agile, forward-thinking regional house builders that utilise the alternative finance provided by the property-backed IFISA are able to build bespoke, high-quality homes, while offering tenure options that are suited to the current climate. 

For example, Homes by Carlton’s Cathedral Gates development in County Durham comprises 14 mixed-tenure plots - with some available for private sale, and others on a rent-to-buy basis with an established housing association.

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This places property-backed IFISA investors in a good position, because wherever the market picks-up the most - sales or rentals - they’ll receive the same benefits of high potential returns.

In contrast, buy-to-let investors face more restrictions, as renters who find themselves in financial difficulty due to the impacts of COVID-19 may be unable to make rent payments.

Is property still a good option for investors?

Property has long been one of the most popular assets for investors, and it can be a valuable addition to any diversified portfolio. 

The key for experienced investors is to access the market in a manner that is suitable for them. 

The decline of buy-to-let and rise of the property-backed IFISA shows a desire among investors for a more passive income. Many want to reap the benefits of investing into property - namely, the high potential returns - without having to confront the time-consuming responsibilities or expenses that come with being a landlord. 

In this case, the property-backed IFISA - which is expected to become more important than ever amidst the UK’s fight for economic recovery - is a valuable consideration.