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A steady rise in housing supply is being offset by a surge of buy-to-let investors who are rushing to buy property ahead of a tax hike in April and driving up house prices as a result, says the Royal Institute for Chartered Surveyors (Rics).
Surveyors reported the best month for new instructions to sell since August 2013, Rics said in its January residential market survey. Average stock levels – homes for sale – at each branch in January 2016 is 46, up from 44.5 in December but still 21% below the same month in 2015. Anecdotal feedback from surveyors reports that a flurry of buy-to-let investors helped drive new buyer enquiries to a tenth consecutive monthly rise. Of the surveyors polled, 74% expected buy-to-let activity to increase sharply ahead of April.
Chancellor George Osborne has targeted the buy-to-let sector with tax rises to raise money for a doubling of the government's house building budget to £2bn and schemes to support first-time buyers, such as starter homes and Help to Buy. From April 2016, an extra 3% levy will be added to existing stamp duty rates on the purchase of additional property. And Osborne scrapped a tax relief allowing buy-to-let investors to offset their mortgage interest payments against their income tax bill.
Simon Rubinsohn, chief economist for Rics, said "with buy to let investors rushing to get into the market ahead of the stamp duty hike, the near-term pressure on prices is if anything intensifying despite a higher level of supply".
"How the tax changes planned for the buy to let sector over the next few years play out remains to be seen," he said. "But there are concerns raised in the survey that some existing landlords will look to either gradually scale back on their portfolios or exit the market altogether as the more penal regime begins to bite. Against this backdrop, it is perhaps not surprising that the key Rics indicators points to further rent (as well as house price) increases."
A survey of landlords by the Residential Lettings Association (RLA) found 46% trying to complete new property purchases before the higher stamp duty rate in April. RLA also found that 10% now plan to exit the market – potentially 200,000 landlords – and 33% will consider no longer investing.