So much has been written about the buy-to-let market recently it’s enough to make your head spin. Doubtless the government’s attempt to stem the flow of money invested in property using the old one-two of cutting tax breaks and raising Stamp Duty will affect the market; the question we have to ask ourselves is by how much?
Property website Zoopla has warned that the 3% surcharge on second homes and buy-to-let properties could have ‘negative repercussions’ for tenants, with higher rents coming into force. The levy, which comes into effect in April, could result in some buy-to-let landlords leaving the market. This would limit supply and push up prices. This view was endorsed by the chairman of housebuilder Berkeley Group, who warned that changes to property tax may result in ‘unintended consequences’ for the industry.
BNP Paribas believes, however, that the Stamp Duty surcharge will have little national impact, with the caveat that it will dampen house price growth in regional town centres and the capital. Those communities with a high proportion of new-build stock bought for investment such as central London, Manchester and Leeds would be most affected: BNP Paribas suggests there are likely to be high levels of property market activity prior to the April deadline before subduing.
Certainly landlords aren’t feeling optimistic. In a poll of over 1,000 buy-to-let landlords, more than half said they expected the value of their investments to fall considerably. Some 54.6% of respondents said the 3% rise in Stamp Duty for buy-to-let investors was likely to affect the value of their investments, while two-thirds believed there would be a decline in the number of properties for rent. When asked about the future of their property empires, an overwhelming 53% of landlords added they were not planning to buy any more properties following the tax changes.
Whether you expect the market to change considerably or not, you can bet that there will be those investors looking for loopholes around the tax changes. Kent Reliance has suggested that changes to the tax treatment of buy-to-let landlords has led to a rise already in the number borrowing though limited companies.
We shall wait to see how developments unfold over the next few months and beyond April 2016. No one quite knows what the effects will be but for what it’s worth I think it will hit the amateur end of the market but not so much the committed seasoned portfolio investor.
I do hope, however, that the Bank of England will leave this market alone for now and resist any urges to further curb lending.
The government recently published its consultation which is open to responses now until 1 February. Mortgage Solutions has compiled a round-up of the main points for interested parties to consider.
