Autumn Statement: Buy-to-Let Review

Posted on 8 December 2015

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Autumn Statement: Buy-to-Let Review

After allowing time for reflection since the Autumn Statement, here are John Charcol’s thoughts on the announcements made by the Chancellor regarding the increase in Stamp Duty Land Tax (SDLT) for buy-to-let mortgages and second homes. Although there has been much doom and gloom in the press’ initial reaction, we think there are four reasons for investors to take a different view. 

1 Back to the future

Firstly, for those old enough to remember MIRAS (Mortgage Interest Relief at Source), the decision to set a deadline of March 2016 before the new SDLT threshold comes into effect will be familiar and could precipitate a mini-boom. 

As buy-to-let represents over 15% of total housing purchases, we believe these tax changes are large enough to distort prices in an inelastic market. While there is a risk of price increases in the very short term, and a possible correction thereafter, buy-to-let has always been about the long term.

2 Yield – the Holy Grail?

As the increase in Stamp Duty will have a far bigger impact in higher-priced areas such as London and parts of the South East, we think it is likely that anyone looking at buy-to-let purchase now is more likely to focus further afield, in the search for better rental yields and a lower SDLT bill. Major provincial towns and cities may be targeted by investors looking for both lower prices and higher rental yield. Manchester, Hull and Blackpool recently topped a list of rental hotspots drawn up by The Telegraph.

3 A Triple Whammy? Not necessarily…

With the changes coming to income tax relief set out in July’s budget, plus the Chancellor’s earlier statement that he’s handing powers to intervene in the buy-to-let sector to the Financial Planning Committee (FPC), the announcement represents three big changes for buy-to-let investors in a short time period. However, once again, we feel that although there’s no denying the first two will have an impact, they make it less likely that the FPC will look to cap buy-to-let lending.

4 Long term focus

Although these changes will naturally result in fewer landlords buying, along with more landlords selling their existing buy-to-lets, the resultant reduction in the private rental sector is likely to push rents up, thereby providing those remaining landlords with the higher yield they require. Also, let’s not forget that the private rented sector houses around a fifth of the population, which includes many households that either can’t or don’t want to buy a property. We can expect the government to monitor the situation carefully to ensure there is an appropriate supply of rental properties.

What to do? 

There remain some very pertinent questions which need answering by the government and HMRC, including whether or not this will affect purchases within a Limited Company structure. It is hoped these questions will be answered during the forthcoming consultation and will undoubtedly influence decisions to buy, sell, or expand an existing investment property portfolio. 

John Charcol will be monitoring this moving situation extremely closely and keeping you up to speed with developments and our view of the market through our monthly newsletter Much Ado About Mortgages.

This article is for information only and does not constitute advice. Please obtain professional advice before taking out a mortgage. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. 

All information is correct at the time of publication.


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