The increase in stamp duty on buy to lets and second homes – which came into effect at midnight – is likely to result in a slump in demand, warns Zoopla.

Chancellor Rachel Reeves announced the increase from 3% to 5% at yesterday’s Budget.

Richard Donnell, head of research and insight at the portal, comments: “Changes to stamp duty land tax, together with higher property prices, has seen stamp duty raise over £11.5 billion in 2023/23. It’s a tax that falls most heavily on buyers in southern England with London and the South East accounting for over 50 per cent of annual tax receipts from stamp duty.

“The extra 2% cost on buying second homes and investment property will reduce demand from second home buyers and investors. Second home buyers are already responding to last year’s Budget which allowed councils to charge double council tax for second homes. This is resulting in a higher level of selling by second home owners. In areas with above average second homes we have seen four times more homes come to the market. 

“This announcement also comes with changes announced previously which will see first time buyers pay more from next year. A return to previous stamp duty thresholds from April 2025 will result in an additional 20 per cent of first-time buyers being liable to pay stamp duty and a further 14 per cent will be required to pay a partial amount. 

“The impact is felt across London and the South East in markets with average house prices over £425,000. This will increase costs for buyers by an average of £5,600 in London and £1,390 in the South East. In parts of London with home values over £600,000, FTB could pay an additional £15,000 in stamp duty. Buyers will want to take this off the price they pay for homes, keeping price rises in check.”

But Donnell did at least see some consolation for the private rental sector from Reeves’ decision not to change Capital Gains Tax on properties. 

He says: “It’s positive to see that capital gains tax has not increased for landlords (already 24 per cent for higher rate taxpayers). 

“The private rented sector has seen static supply since tax changes introduced in 2016 and there is a steady net selling by landlords in response to tax policy but also greater regulation of housing and higher mortgage rates. We need to keep as many landlords as possible in the market to provide choice for renters facing limited choice and to prevent rents rising faster than earnings, which hits those on low incomes the hardest.”