Double whammy for buy-to-let investors

  • Innes England's head of professional services, Steve Holland 

Chancellor George Osborne dealt an unexpected blow to buy-to-let investors in Wednesday’s Autumn Statement – that’s according to Innes England director Steve Holland.

He said: “It was already known that from 2017 the mortgage interest tax relief previously available to a buy-to-let investor was being reduced to the basic rate, under the banner of ‘levelling the playing field’, pointing out that owner-occupiers competing in the same market enjoyed no such benefit.

“The massive impact of this change is still not widely appreciated; those highly geared will be dramatically affected. There is also a dilution in the allowance available against wear and tear and an ever-increasing regulatory burden on private landlords including not only health and safety issues but extending to deposit controls and even immigration checks.

“From 1 April next year, stamp duty land tax on buy-to-let residential purchases will be subject to a 3% increase. So, if a dwelling was purchased for £150,000 today the stamp duty payable would be just £500 – under the new rules that will rise to a staggering £3,800, an increase of 660%. On a £250,000 property, the stamp duty would rise to some £8,800.

“In the short term, the impact is perhaps more likely to be downward pressure on the capital value of dwellings suitable for the rental market, rather than dramatic increases in rents, and quite probably the exit from that market of many landlords. That will reduce the viability of many new schemes which might otherwise have come forward.”

“It is a surprise that the sector is being hit so hard. Many buy-to-let investors are private individuals with only one or two properties, taking their own initiative and providing for, usually, long term income and, effectively, their pensions. And yet it is already recognised that, in the majority of cases, pensions are generally under-provided to the extent that companies have been forced to implement contributory schemes.

“Also, the private rented sector (excluding registered providers) makes up around 20% of the rental market in the UK, with successive governments continuing to badly miss new housing provision targets and, in some areas, a chronic shortage acknowledged.

“These new changes seem to fight against other recent policies and initiatives aimed squarely at encouraging pension provision and increasing housing supply.

“Equally, investment in property remains, sensibly, a long term vehicle. The underlying attraction of historically demonstrated substantial capital appreciation, the continuingly volatile stock market and exceptionally low interest rates will no doubt remain an attraction for some.”