Insight 16 | The next page of buy-to-let
There has been a reordering of the property status quo, with aspiring owner-occupiers shifting closer to the top of the hierarchy, displacing older homeowners and buy-to-let investors.
This reshuffle does not take effect until April 2016, when an extra 3 per cent stamp duty will be payable on rental and second homes worth more than £40,000. This surcharge is to be added to every stamp-duty rate, with the result that the tax on a £350,000 property will be £18,000 for a landlord, compared with £7,500 now.
In the interim, there is expected to be a rush to acquire holiday and rental properties, although anyone buying a new-build home should be aware of the new-build premium. This is the difference between the valuation of such a property and an equivalent second-hand dwelling. This premium can be as much as 20 per cent in many areas.
Meanwhile, the search for loopholes in the stamp-duty legislation has begun. It has emerged that when you dispose of a rental home, you could offset transaction costs — including stamp duty — against the capital gains tax bill. Landlords will be interested in such concessions, but they will be more concerned about the outlook for their investment, taking into account the stamp duty increases as well as the removal of mortgage interest relief from April, 2017. Most Landlords will conclude that there will still be huge demand for rental properties, especially as the proposed 400,000 new homes cannot be built by next week and affordability and the ability to build a deposit will still be an issue for Generation Rent (despite Help to Buy and other schemes).
Those realistic landlords will also know that by simply bumping up the rent to recoup additional costs may not work everywhere and for everyone, but they still should be assured of a reasonable income provided they don’t borrow too much. Buy-to-let investors could also negotiate discounts to account for the rise.
This is certainly not the end of buy-to-let. It is merely the next page of the story; a story where the savvy will prevail.