Southern Stamp Duty Increase Squeezes Buy-to-Let Investors

Since the introduction of the Stamp Duty surcharge for additional properties in 2016, the landscape of the buy-to-let market in Southern England has drastically shifted. According to a detailed analysis by Paragon Bank, which drew on extensive industry data, there has been a marked decrease in the proportion of buy-to-let properties purchased in this region.

In 2023, only 35% of properties bought with a buy-to-let mortgage were located in the South East, Greater London, and the South West. This figure represents a significant drop from 39% in 2022 and an even steeper fall from 52% in 2015—the year before the surcharge came into effect. It appears that the Stamp Duty surcharge has had a sustained dampening effect on investment in Southern regions, with a brief interruption during the Stamp Duty Holiday of 2020 and 2021 amidst the Covid pandemic.

The Shift Away from London and the South

Further examination of the data reveals a distinct regional shift within the south itself:

London: The proportion of buy-to-let homes in London fell from 19% of the UK total in 2015 to just 12% in 2023.
South East: Experienced a decline from 24% to 17% over the same period.
South West: Dropped from 9% to 6% of the total.

Rising Northern Attraction

In contrast, the North West and Yorkshire & Humber regions have seen an increase in buy-to-let investments:

North West: Rose from 9% in 2015 to 14% in 2023.
Yorkshire & Humber: Grew from 6% to 10% of mortgaged buy-to-let purchases during this period.

Apart from the East of England, all other UK regions recorded an increase in buy-to-let acquisitions since 2015, underscoring a broader geographical diversification within the market.

Economic Impact of Stamp Duty Surcharge

Richard Rowntree, Managing Director of Mortgages at Paragon Bank, pointed out that the Stamp Duty surcharge has particularly impacted markets in the South where house prices are above average. He noted, “Compared to 2015, the number of homes purchased with a buy-to-let mortgage was 70% lower last year.” This decline is so pronounced that during three of the past five years, more buy-to-let homes were purchased in the North West than in London.

The Future of the UK’s Rental Market

Looking ahead, the demand for rental properties is expected to surge. With the UK’s population projected to grow by 9.9% or 6.6 million people by 2036, the need for rental homes, particularly in Southern areas like London, will intensify. London’s transient population makes the availability of rental properties crucial.

Rowntree concluded by emphasising the importance of addressing the housing supply issue: “Unless supply is boosted to meet forecast growth in demand, rents will only grow higher in markets with extreme supply/demand imbalances.” He advocates for a vibrant private rented sector that can accommodate the increasingly diverse needs of renters across the UK.