After a busy year for the buy-to-let industry we wonder if we will approach the usual festive wind down. In fact as I write this piece I look forward to our Christmas party when we will be cruising down the Thames on a party boat.
However, given the shock of the changes announced in the Autumn Statement buy to let is unlikely to be cruising for much longer.
Mr Osborne in his wisdom has decided to take another shot at landlords by announcing a 3% surcharge for buying a buy-to-let property. In addition Capital Gains Tax on buy-to-let properties will need to be paid within 30 days from 2019. All this after adjustments to mortgage tax relief announced earlier in the summer and the impending regulation of consumer buy to let.
Bricks and mortar will always be a desirable investment, so landlords will look for ways to finance the extra cost, clearly an obvious route will be to increase rents. Increasing rent is more feasible, given some potential landlords will be put off entering the market thereby decreasing supply and thus increasing demand.
Also the quality of the accommodation may drop as landlords look to defer expenditure by putting off renovations. By giving a five-month window before the Stamp Duty goes up it will create a Black Friday style rush to get purchases and completions on properties. This will create a potential surge of business before the inevitable lull in May. Wasn’t one of the objectives to create a stable market?
The wording of the statement is still yet to be fully interpreted but it does seem that some “corporate entities” will be exempt. Depending on how this is defined this could yet be another reason why buying in a limited company structure is the way forward for buy to let.
Finally, BM Solutions has announced changes to the way it stress tests for buy-to-let and let-to-buy applications.
The lender will now have a tiered stress rate. Applications for a five-year fixed rate product will have a stress rate of 4.99%, regardless of loan-to-value (LTV). For all other products where the LTV is more than 65% a stress rate of 5.49% will be used. Where the LTV is less than or equal to 65% a stress rate of 4.99% will apply.
There are interesting times ahead for buy to let, but as always landlords will evolve, landlords will adapt and landlords will continue to be resilient.