In contrast to the referendum uncertainty, which hampered the performance of many other domestic assets this year, the buy-to-let market fared remarkably well at the start of 2016.
However, part of this was due to buyers’ wish to get in ahead of April’s stamp duty hike and other legislative alterations, and with mortgage interest tax relief changes also on the horizon, the foundations of buy-to-let (BTL) may not be as firm as once perceived.
The 3 per cent stamp duty surcharge, introduced on 1 April, was the first of the former chancellor George Osborne’s legislative blows to BTL. Investors’ rush to complete purchases following Mr Osborne’s announcement of the change in last year’s Autumn Statement saw lenders such as Countrywide note an acceleration in transactions in the first quarter. But the firm was not alone in also predicting a subsequent slowdown as buyers faced up to a more uncertain future.
Stamp duty change
The stamp duty change – introduced as a means of reducing BTL purchases and bolstering prospects for first-time buyers (FTB) – has been unwelcome news to some BTL investors.
Stephen Smith, director of housing partnerships at L&G, says the impact on landlords, particularly those of a higher income, will not be longstanding.
“Most [of those] who invested in private rented property to become landlords are taking a long-term view. If you amortise [the 3 per cent stamp duty] over 10 or 15 years, it’s relatively negligible, and will presumably be passed on by landlords to tenants in the form of higher rent,” Mr Smith says.
Alistair Hargreaves, mortgage and protection consultant at John Charcol, explains that paying off stamp duty will be feasible for a number of landlords, even those with mortgage terms of 10 years and rental yields below the UK average.
Mr Hargreaves says, “Because it’s a one-off tax, if you want to buy a property over 10 years and you’re going to get yields of around 4.5 per cent, and capital growth of 3.5 per cent conservatively, you will pay that tax back within 18 months.”
He continues, “It’s just another investment cost you have to factor in at the start, for someone who is doing it properly; someone who is actually planned ahead and said, ‘this is going to be part of my retirement strategy going forward’, then that is what they will do, and it is not going to stop those people from buying”.
On its own, stamp duty reform may not be enough to slow the once-accelerating momentum of the BTL market, but further changes do not stop at mortgage interest relief alterations.
Wear-and-tear tax allowance
