People buying second homes will face an extra 3% stamp duty from April 2016, George Osborne announced in the Autumn Statement yesterday. This will impact the buy-to-let market as those looking to invest will be subject to further costs.
People buying second homes will face an extra 3% stamp duty from April 2016, George Osborne announced in the Autumn Statement earlier this year. This will impact the buy-to-let market as those looking to invest will be subject to further costs.
For example, if you are looking to buy an investment property for £500,000, the cost of your stamp duty will raise from £15,000 to £30,000.
If you’re a landlord or thinking of buying a second property, it is worth considering what this announcement means to you.
What should you do now?
If you are planning on buying any more properties for your portfolio, it is highly advisable that you look to buy now to ensure the transaction is completed before April 2016. However, if you are not thinking of adding to your portfolio, then this latest change won’t affect you. It is worth bearing in mind the income tax changes for buy-to-let landlords from 2017, as these may impact on your rental income. If you intend on selling it may be worth your while looking at this sooner rather than later.
What about if you are looking to buy an investment property after April?
Rentals work as investments both in terms of yield and capital growth. The more you spend on the property the lower your yield is likely to be. However, if you do your maths the increase you have paid in stamp duty may be covered in the amount you can achieve in rent and therefore have a smaller impact on yield. At the end of the day, the property should still be positive geared and your rental should cover your mortgage, insurance and maintenance costs as well as void periods between tenancies.
It is also worth doing your research about where is good to buy an investment property. Our research currently shows that areas such as Crystal Palace, Harrow and Golders Green achieve excellent yield. And we are predicting that property prices in greater London will rise by 6% for flats and 3% for house in 2016 – making them also a good investment in terms of capital growth. With rentals being the second largest tenure in the UK, buy-to-let is still a very good investment.
How will this impact on the housing market?
It is likely these measures have been introduced to try and free the market up for first time buyers and help them on the ladder. Movement in the market from all ends is usually a positive thing as it creates a more sustainable market. However, landlords may be encouraged to reduce their stamp duty by buying in the lower end of the market and therefore will be in direct competition for the types of houses first time buyers can afford.
The buy-to-let market itself is likely to see a surge before April as people attempt to buy before the new changes come into place. However, while investors will be disadvantaged by these changes, property is often viewed a secure long-term saving, and given other asset classes offer poor returns, we doubt that landlords will be deterred.
For further predictions on the property market for next year click here.
The best thing to do when considering your options as a landlord or potential landlord is to speak to a property expert in your area to discuss your options. To find your nearest Winkworth office click here or to book a market appraisal click here.