Buy to let landlords are having to dig deeper into their pockets to add to their property portfolios. April 2016 sees the beginning of buy to let landlords and second home purchasers paying an extra 3% on stamp duty; both companies and individuals will be subject to this extra tax.
The Chancellor, George Osbourne said, receipts from the extra stamp duty would be put towards community housing trust projects where the lack of housing has had an adverse effect, (Source, This is Money). Mr Osbourne has also excluded residential properties from any Capital Gains Tax cuts.
There are some alterations to the existing plans, the treasury had realised that in some cases having a second home for a short period of time can be unavoidable. For example, having to relocate for work, or taking out a bridging loan when a chain falls through. In these types of circumstances, a stamp duty refund within 36 months could apply, at this time you can go back to 25 November 2015.
The Government appears to be serious about curbing house price increases, and trying to cut the number of people investing in buy to let properties. The Treasury’s and the Bank of England main concerns are that Buy to Let artificially boost house prices, in some cases taking first time buyer stock out of the market, also and it could cause larger house price falls. They are making the market less attractive to the average purchaser, whilst trying to encourage investors to invest elsewhere, in stocks and shares for example.
That said, buy to lets are still seen by many as an attractive investment at a time of low interest rates and volatile global activity, re stocks and shares. It’s all about doing the maths. Buy to let lenders typically want rent to cover 125% of the mortgage repayments and most are looking for 25% deposits, or larger in some cases. Arrangements fees need to be taken into account, plus the usual maintenance costs. Factor in an empty property, and consider how you will make mortgage repayments in that event.
When looking for a suitable buy to let, remember to research the market, consider the risks as well as the benefits. For example, an ISA will see you escape tax on income and get capital growth tax free. Secondly, you can sell an ISA quicker than a property.
Property ownership/investment can pay of really well especially in the long term, when prices rise there are profits to be had, however, as we are all aware the flip side of that is when the market crashes, property prices are first to take a tumble.
Shopping around for the best mortgage is a key element in the buy to let investment market. Staying with your original lender could cost you a lot of money. Speaking to an independent financial advisor is a good move, they can talk you through all the available deals, (as well as undertaking your own research).
If you need to buy or sell a property in Wakefield please contact us and we will be happy to help.