Advice to beat stamp duty deadline 'could cause chaos'

Estate agents selling properties worth over £1m are advising buyers how to beat the stamp duty deadline.

But the advice could fall foul of lenders and cause chaos, lawyers are warning.

From April 6, stamp duty on £1m-plus homes is going up to 5%. It means that on a £1.1m house, the buyer would pay £55,000 rather than £44,000.

A number of agents are advising buyers to exchange and complete before the deadline, and then allow the current owners to rent the property back at a nominal rent.

One agent doing this is WA Ellis in Knightsbridge, London, where partner Simon Godson said that the rise in stamp duty was a real issue for many buyers.

He said the renting solution gives the seller the certain knowledge that a sale has taken place and allows them a little more time, if necessary, to find their onward purchase. The purchaser meanwhile has mitigated the increase in stamp duty.

He said: “As the next month rolls on, I believe this will become a familiar picture.”

But lawyers are warning that buyers who rent back homes to sellers to complete earlier but may be in breach of mortgage terms.

John Stephenson, senior partner and head of residential property team at city firm Bircham Dyson Bell, said that the increase “will create chaos for buyers, sellers, solicitors and lenders alike”.



Stephenson said: “There’s one very real difference this time around which few have realised at first: the relevant date for assessing the rate of SDLT is at the point of
completion, whereas in the past it has been at the point of exchange of contracts.

“There will be an almighty rush to get contracts completed before April 6, and I fully expect that some will not realise yet that it’s the completion date that is relevant.

“Further, lenders and the banking system generally will be put under immense pressure in those last few days up to April 5 to transfer funds before the cut-off , with the potential for all manner of knock-on issues if they fail.”

He said he had heard of many buyers looking to push through completion before the deadline, and who would then be happy to sign a tenancy agreement with the current occupiers.

He warned: “In principle, this is simple to effect legally and is superficially very attractive, but it comes with a big warning because many mortgage offers require that vacant possession is given at the date of completion, which is when the buyer’s mortgage kicks in.

“Breach of the mortgage terms could result in the lender calling in the loan or (as a price for not doing so) insisting on converting it to a buy-to-let mortgage at a much higher interest rate.”

He advised: “For those with such plans, it’s wise to consult with the lender and get permission to rent back the property for a short period of time to avoid the risk of such serious penalties.”