Tough times for buy to let but is it time to throw in the keys yet?

In a poll of over 1,000 landlords, half said they expect to see the value of their investments fall considerably in the next few years. Why?

The introduction of two new Government tax changes designed to help first time buyers on to the property ladder.
The new taxes are significant:

1. There’s a minimum of 3% rise in Stamp Duty (paid on purchase) kicking in in April ’16
2. The removal of mortgage interest relief over 4 years from April 2017

It’s great news for first time buyers and provides a much needed leg-up for people wanting to buy their own home.

For landlords it’s not so good. Where mortgage interest is concerned wealthier landlords will suffer most, as every £1 of finance cost they currently incur allows them to pay 40p or 45p less tax. The changes will almost double the effective cost of borrowing for them.
The new stamp duty levies add further pressure. Whilst a mortgage of up to $250k will incur 2% tax, those buying at the higher end will pay as much as 12% on properties over £1.5m.

So is it time to pack it all in?

For many it may be the end to any plans to continue to invest. Those with small deposits for starters, may find upfront costs prohibitively high or simply be excluded by lenders. Supported by the Bank of England, lenders are beginning to up the pressure by being increasingly demanding about who they lend to and the size of deposit they require.

With regards to stamp duty, higher rate taxpayers proportionately will pay the most but those on lower incomes may be able to compete, and with a reasonable deposits may be able to continue to operate effectively.

On the plus side, housing shortages are unlikely to disappear any time soon so good landlords will always find a steady stream of tenants. A few are considering a company structure that avoids some of the tax. That way they pay corporation tax and not the new stamp duty levies.

Some believe the taxes are counterproductive and tenants will continue to suffer as landlords  up rents to try to offset some of their new costs.

The 2% stamp duty levy at the lower end might make cheaper properties the more ‘investable’ ones.  Landlords may then continue to snap them up, rendering the new taxes ineffectual as a way of encouraging first time buyers in to the market.

Many worry about both capital growth and rental yield. It remains to be seen what will happen in the next few years. It’s the Government’s intention to encourage private home ownership and at first glance this may not be compatible with many landlord’s aspirations. However, the property shortage won’t be fixed any time soon so it’s hard to see how shortages will keep prices and rents down over the medium to long term.

Landlords have had it pretty good over the last few years and the new taxes are likely to bring some balance back to proceedings. My belief is that buy-to-let still represents a good long term investment for those who choose carefully, treat their tenants well and buy and sell at the right time. More than ever, sound financial advise before taking the plunge is important.

One thing’s for sure. If you were thinking about buying in the next six months then don’t delay. You have until midnight on 31st March to complete on any buy-to-let or else be subject to the new charges.

Get in touch now and give yourself the best chance of beating that deadline.


For an interesting overview of renting & letting, listen in to this week’s Moneybox live