I dropped my car off to be serviced last week and got chatting to the owner of the garage. I subsequently found out he owns a couple of properties in the area. It turns out not everyone is aware of the forthcoming changes in the property market, so here are my thoughts…
Following many announcements in 2015 by the government, with a view to slow down the buy to let market, I still believe that both the legislation and tax changes won’t affect the local market drastically. As always, the key is to be diligent and understand.
In my opinion, here’s why….
Naturally there’s been an uproar about the changes to both stamp duty for buy to lets and holiday homes, and also, the government plans to prevent landlords offsetting mortgage interest costs. By the way, I completely agree with the uproar!
Let’s look at the stamp duty changes to start off with…
Stamp duty is always painful! As of April 2016 Stamp duty rates will be three percentage points higher for buy-to-let investors. I do think it is worth remembering that the chancellor did reduce stamp duty in December 2014, which the Telford property market would have benefitted from for a short period. The increase was going to happen at some stage, similar to the ridiculous VAT Changes a few years ago, a reduction from 17.5% down to 15%, then up to 20% all in the space of 18 months!
The southern market (London in particular) will undoubtedly be hurting by George Osbournes announcements, however locally, I don’t think we have to panic as much.
If we look at Telford during the last year (2015), detached properties sold an average price of £222,501. Semi-detached properties sold for an average of £131,524, with terraced properties fetching £116,346.
One of my previous blogs suggested that 3 bedroom semis were the most popular properties for both sales and rentals. Based on a £131,524 purchase price up until April you would be paying just £130 stamp duty! Following April 2016 you will have to pay £4,076. Clearly this will slow down the buy to let market for “green” landlords with inexperience in negotiating and sourcing decent deals.
The goal posts will have to change slightly… Based on the changes in stamp duty, for a 3-bed semi at £131,524 you will have an effective stamp duty rate of 3.10%.
There are still properties which are selling for 3.10% lower than the open market value! Just be patient and the right deals will come along.
My 2016 new year’s resolution is to provide you with at least 1 “good buy” per week, which I feel will let well and, more importantly, you could purchase at the right price.
Here’s a basic table to help understand the changes:
|Value of second property/buy to let (£)
||Current SDLT (£)
||SDLT from 1 April 2016 (£)
||Increase in tax (£)
Here is a tool we have created to help work out the changes:-
Buy to let income tax changes: – I do feel the crowd-funded “judicial review” have a strong case to overturn the controversial “Clause 24” of the 2015 Finance Bill. (Absolute Spiel!) In case you weren’t aware, this is where the Government plans to prevent landlords offsetting mortgage interest costs against rental profits before calculating tax. The government aims to implement this between 2017 and 2020. Whilst this isn’t an imminent threat, large portfolio landlords, highly geared landlords, and higher rate taxpayers may look to offload some of their stock.
I will keep you abreast with this as I feel there will be some decent buy to let properties coming to market as a result of this news.
All in all, clearly there are changes happening, it is important to keep up to date with the changes. The key thing is about being aware of the changes and factoring them in to both negotiations and gross to net rental yields. I have never seen the buy to let market as being a “get rich quick” scheme. It is something to run alongside your pension plans, and if done right can be profitable.
We are in a position to keep you posted on the local market, good buys and changes in legislation. If you would like a chat any stage, feel free to pop in the office. The kettle is always warm!