A hole in the chain?

First-time buyer!  Landlord!  Cash buyer!  All music to the ears of sellers – especially those in a hurry to move.  What they all have in common is the ability to break a chain of sellers waiting for buyers to find buyers to complete their purchases.  But rising prices and changes to the taxation of the buy to let market seems to be affecting the numbers of chain free sales.

 

The proportion of chain-free sales in London has been falling for some time and dropped from 28% in 2008 to 21% this year.  Rising prices in the capital have a part to play because as house prices rise, more transactions depend on selling an existing property to release the equity.  But the trend has accelerated since the introduction of the 3% stamp duty surcharge on second homes and buy to let property.

 

Buy-to-let landlords have typically been even less reliant on selling a property to complete a purchase, but as prices have risen the extra burden of the surcharge is more difficult to absorb.  An extra 3% is a big chunk of money to find on top of basic stamp duty.  And on top of that, landlord returns are being hit by the phasing out of tax relief on mortgage interest payments.  Buy-to-let investment in London has more than halved since the introduction of the stamp duty surcharge.

 

But that doesn’t mean landlords are abandoning the market.  Some of the fall in chain free sales is simply due to a change in where landlords choose to buy.  As prices have increased in London, many have chosen to invest in cheaper markets outside, where lower prices mean it is more manageable to buy and absorb the extra surcharge.  And that is reflected in the proportion of chain free sales increasing outside of London.