Mortgage experts have warned that Chancellor George Osborne's latest assault on buy-to-let could trigger a housing market "boom and bust".
The surcharge was announced in Osborne's Autumn Statement and Spending Review on Wednesday, and will increase the stamp duty bill on a £300,000 property from £5,000 to £14,000.
Yesterday brokers warned of a short-term buying spree as investors buy property before the new 3% surcharge on stamp duty is launched next April.
Now Ray Boulger, senior technical manager at John Charcol, has said that giving four months' notice of a substantial hike in stamp duty will revive memories of the short-term "boom and bust" when the Chancellor gave similar notice of the abolition of double MIRAS in 1988.
He predicted a “rush to buy” over the next few months. "Saving tax is so ingrained into the UK psyche that the imbalance in the market between buyers and sellers will be greatly accentuated as anyone already thinking of buying a second home or buy-to-let will start actively looking."
Buy-to-let makes up more than 15% of total house purchases and the tax changes are large enough to distort prices in an inelastic market, Boulger said.
They could quickly snap back after the tax comes into force.
“Buyers need to be careful price falls after April don’t wipe out the 3% stamp duty saving they make by rushing to buy now."
Laith Khalaf, senior analyst at Hargreaves Lansdown, said buy-to-let has always been a relatively expensive investment, even before the double whammy of higher stamp duty and less tax relief.
“In the short term this could lead to a buying spree as would-be landlords act ahead of the rise in stamp duty.
“The longer term effect will be to make buy to let less attractive as an investment proposition.”
Stephen Smith, director, Legal & General Housing Partnerships, agreed that the Chancellor's reforms will dampen buy-to-let activity.
“This is particularly concerning given that it is to be introduced in conjunction with the reduced tax relief for landlords announced in the summer Budget.”
Steve Griffiths, head of sales and distribution at Kensington, calculated that the surcharge would add on average £4,565 to every buy-to-let purchase and make investing in property more complex.
“This puts even greater emphasis on the role of good advice and should encourage more mortgage intermediaries to establish partnerships with accountancy firms to offer more holistic guidance to clients and generate leads.”