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Buy to let: Is it still worth it?

PUBLISHED: 10:04 19 April 2016 | UPDATED: 12:52 19 April 2016

Charlotte Ashe, conveyancing executive with Rogers and Norton solicitors, of Norwich and Attleborough

Charlotte Ashe, conveyancing executive with Rogers and Norton solicitors, of Norwich and Attleborough

Archant Norfolk 2016

The government’s plans to increase the Stamp Duty Land Tax levy against additional homes has sent shockwaves through the buy to let market, as Charlotte Ashe, conveyancing executive at Rogers and Norton solicitors, explains

THE PROPOSALS made are set to increase the rate of Stamp Duty to three percent on any property bought as a buy to let or a second home and have been referred to by lettings experts as “catastrophic for the private rented sector”.

The unveiling of these plans comes as an additional blow to the property investor market after George Osborne’s announcement of a crackdown on mortgage interest tax relief in the summer Budget.

Currently, Stamp Duty Land Tax is charged at two percent for properties valued at between £125,000 and £250,000, the average price band that investment properties fall into. A second property falling into this bracket will now attract an additional three percent tax. For a landlord purchasing a property at £175,000 under the new rules, Stamp Duty Land Tax will rocket from £1,000 to £6,250. Properties falling within the next price bracket (£250,001-£500,000), the stamp duty on a £300,000 would over quadruple, going from £3,000 to £14,000.

In addition to this hike, the maximum tax relief will drop from 45pc and 40pc to just 20pc, so a landlord with a £150,000 buy to let mortgage on a property worth £200,000 will see net annual profits drop from £2,160 a year to just £960.

There has been growing concern about the shortage of affordable housing stock available for families and first time buyers, so much so that the Bank of England has been closely monitoring the buy to let increase. In 2000, buy to let accounted for four percent of mortgage lending, by the second quarter of 2015 this had risen to 16pc. The Council of Mortgage Lenders reported that the number of buy to let mortgages has increased by 36pc over the past 12 months. Unfortunately for the “average” buyer, this all points towards a lack of affordable properties.

According to the Chancellor: “Fifteen years ago around 60pc of people under 35 owned their own home, next year it’s set to be just half of that”. So it would seem that the clear motivation behind this move is to effectively “put off” property investors and make buy to let an unattractive form of investment.

In the long term, the move could prove good news for first time buyers and families. The hurdles of the increase in stamp duty, reduction in mortgage interest tax relief and also the reduction in annual wear and tear allowance will no doubt mean some landlords decide that buy to let is no longer a viable business model.

The changes may result in landlords buying up lower priced properties for renovation, thus decreasing their initial tax outlay but increasing their rental yield. This could have the effect of not only a remaining shortage of affordable properties but also limiting the amount of new housing stock brought to market as the properties are retained for rental, as well as causing a rise in rents, making it harder for first time buyers to even be able to save the money for a deposit. Don’t forget that these changes won’t affect just buy to let landlords. The second home and holiday letting market, which is particularly buoyant here in Norfolk, will inevitably be hit.

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