Is buy to let in north London still a good investment in 2016?
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Our property expert Simon Gerrard looks back on the 2015 property market and predicts what’s in store for 2016
As we settle into the New Year I wanted to look back on 2015 and explore what 2016 might have in store.
We entered 2015 on the back of a significant change to the way stamp duty was calculated. The previous ‘slab system’ created unnecessary bands that held back prices at key levels such as £250,000 and £500,000. This was replaced by a ‘progressive tax system’ where the new rates of stamp duty only apply to the amount of the purchase price that falls within the particular stamp duty band. This has certainly helped the majority of the market and in particular first time buyers. Anyone buying a property for less than £937,500 instantly saw significant savings of up to £4,500 in their stamp duty liability. Unfortunately those paying in excess of £937,500 have seen an increase – other than an anomaly between £1.01m and £1.11m where you will pay less under the new system.
The General Election didn’t dent demand for property as many had predicted, other than a slight hiatus in the build up to the election due to the uncertainty surrounding the outcome. Post May the market picked up again and continued its progress for the remainder of the year. The Halifax reported that during 2015 prices rose across the UK by 9.5 per cent. Prices in the capital did not fare quite so well, (mainly due to property prices in central London above £2m stagnating) but has still seen healthy growth. The Land Registry in their report up to the end of November showed year on year price increases of 5.9 per cent in the borough of Islington, 7.0 per cent in Haringey and 8.7 per cent in Barnet. The main factor behind this continued growth is simply a shortage of supply and strong demand.
As the general economy improves and wage rises kick in, demand from buyers is increasing while the number of properties coming to the market each year has hardly grown over the past six years. This situation will continue into the foreseeable future and I believe will keep the upward pressure on prices in this area. My prediction for 2016 is for an increase of 5 per cent to 7 per cent.
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The Mortgage Market Review, first introduced in 2014, has continued to tighten lending criteria. Banks and building societies are likely to strengthen the ‘stress tests’ they apply to applications in light of potential interest rate rises. Both the Chancellor and Mark Carney, Governor of the Bank of England have made it clear that rates are likely to rise. However what is not clear is when and by how much. The most likely scenario is a rise of 0.25 per cent towards the end of the year.
Housing is a major priority for the government - who pledged 200,000 new homes a year or one million new homes within this parliament. They also have announced a number of plans and incentives for small / medium sized house builders to increase the rate new homes are being built. The government is keen to promote home ownership and have introduced schemes such as Help to Buy ISAs to encourage first time buyers to save and discounted starter homes as well as enhanced Help-to-Buy for London.
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2015 will be looked upon as a bad year so far as announcements for anyone considering entering the buy-to-let market. The Chancellor in the Budget and the Autumn Statement embarked upon what many felt to be a surprise attack on small/medium sized investor landlords. These measures included a reduction in tax relief and a 3 per cent increase in the stamp duty paid for an investment property or second home from April 2016.
This may be considered to be a reaction to the concerns Mr Carney had expressed at the speed the buy-to-let market was growing. These measures, are ostensibly designed to deter amateur buy-to-let investors and free up property for owner occupiers but are likely to have the further effect of increasing rents, as new supply is majorly curtailed.
Although headlines shout about the end of the buy-to-let market, there will remain a strong case for investing in buy-to-let, even after March, provided you have carefully considered your options and taken proper advice, as rents rising will mean medium-term good returns especially if you take advantage of investor clubs.
Growing legislation on landlords, together with the new financial penalties, which make it harder to receive a good return, will deter many from entering the buy-to-let market. However demand for property remains strong, especially in our area of London and simple market forces will continue to put upward pressure on rents. So there has never been a better time to purchase a buy-to-let property than between now and the end of March but you must act quickly to enable you to complete in time to avoid the extra 3 per cent cost.
Simon Gerrard is the managing director of north London estate agents, Martyn Gerrard. Email your questions to email@example.com or tweet @hamhighproperty