The buy-to-let market has seen some very significant changes in 2016, most significantly the increase of the additional 3% in stamp duty on any property you own in addition to your primary home.
What this means for those looking to invest their money in buy to lets or property generally may not find the same kind of sound investment that property once provided and offered.
The hike in stamp duty means that any buy-to-let property now attracts a 3% surcharge, which is a considerable increase from the previous rate. Under the old system, if you were buying a property for £200,000, you would pay nothing on the first £125,000 and 2% on the remaining £75,000, resulting in a stamp duty tax bill of £1,500. Now with the 3% levied on the first £125,000 and 5% on the £75,000, you get hit with a much larger £7,500 stamp duty tax bill. This now makes the wait to get additional cost back from any profits much longer.
The longer term prospects for the financial health of buy-to-let does not look good. From April 2017, new limits are being introduced on the amount of mortgage interest that can be offset against rent payments.
It’s a complicated system that some predict will transform profitable buy-to-lets into loss-making properties in most locations, which in turn could force landlords to raise rents considerably or put their properties up for sale.
The chancellor has also stated there will also be cuts to the ‘wear and tear’ allowances, which allow costs for maintenance to be offset against rental income, making achieving a profit even harder to achieve for landlords.
There are also plans in the pipeline from the Bank of England for greater restrictions on who will be eligible for a buy-to-let mortgage. These will mean a wider consideration of a potential landlord’s financial situation, including scrutiny of their monthly income and outgoings, as opposed to just consideration of the rental income of the property under the current system.
The landlords association feels this is a deliberate ploy by the chancellor to free up housing to substitute those the government has failed to plan for.
Ultimately, if you are looking to enter the buy-to-let market soon, you should consider the returns and these new rules. When investing it is always wise to spread your investments and have a diversified portfolio that doesn’t rely solely on placing your money in property just in case as now bricks and mortar means that, even if matters in the property market don’t go your way.
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