Following what has been a golden spell for landlords, with low interest rates personifying this period for landlords, changes are set to be made to stamp duty payable on rental properties and second home purchases, which will shake up the Buy to Let market in dramatic fashion. The changes are set to take place from April 2016.
So, What are the Changes?
Chancellor, George Osborne announced in his Autumn Statement that an additional 3% in stamp duty will be payable. The 3% will be applicable to each threshold for landlords, which can lead to a significant growth in the payable stamp duty on a property. For example, a Buy to Let property worth £275,000 will now be subject to stamp duty of 8% rather than 5%. The way to calculate this would be £125,000 at 3% plus £125,000 at 5% plus £25,000 at 8%, which equals a total of £12,000 rather than the current £3,750, which equates to an increase of more than 200%.
Whilst the impact of such a change in stamp duty is unlikely to be devastating, it will force prospective landlords to think twice about the profitability of higher value property investments. Lower value properties will be less profoundly affected, and will still offer a profitable option, if not a standalone source of income. In the short term, choice for first time landlords is also expected to increase, with many long-term landlords choosing to exit the marketplace sooner rather than later.
The Other Big Change in Buy to Let
Whilst stamp duty changes will have a large effect on the rental market, they are by no means the only changes on their way. A number of main high street lenders, including Barclays have recently tightened lending criteria, with rental income now needing to exceed 135% of interest payments at a mortgage rate of 5 to 6%, instead of the previous figure of 125%.
This new criterion will no doubt have far reaching consequences for landlords. In the short term, it is expected that larger deposits are likely to be required, which may see the market stumble somewhat as a result, whilst it adjusts. Having said that, although savings rates continue to give little encouragement for people to save money in saving accounts with such low interest rates, value will probably still be seen in investing in property.
If you would like to discuss this further, get in touch with Nicholas Estates today.