Is this the end of buy to let?
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Estate agent Simon Gerrard outlines the changes that will affect landlords and tenants that were announced in the latest Budget.
While it has made big waves for other reasons, for the first time in a number of years the Budget did not contain any significant headline grabbing initiatives or tax changes, aimed directly at the residential property market. Or so it first seemed!
If you read below the headlines and look at the details there is still plenty that affects the property world, some of which could have a significant future impact on the supply of suitable homes to buy and rent.
Government has announced a number of schemes over the past few years encouraging home ownership, including incentives for first time buyers and amendments to the planning system to stimulate house builders. This will help in the long term, but in the medium to short term Buy to Let plays an integral and vital role in providing homes.
Last year the Chancellor announced amendments to stamp duty land tax (SDLT) rules that sees anyone purchasing a residential property that was not to be their main home, pay a 3 per cent surcharge on their SDLT bill. This included anyone buying a holiday home, but more specifically it is aimed at the buy to let landlord.
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At the time the Chancellor said a consultation would be held to see if landlords with a portfolio of properties should be exempt from this surcharge. It was widely expected that the threshold would be set at 15 properties thus removing institutional and corporate investors. But last week in a surprise move the Chancellor announced that every transaction would apply, no matter what size portfolio the buyer was purchasing or already owned.
While this will be seen by many as a fair move, treating smaller landlords the same as their larger corporate cousins, it is yet another burden put upon this sector of the market. In his efforts to level out the perceived advantages for buy to let purchasers over owner occupiers the Chancellor could be throwing the baby out with the bath water. Landlords of all sizes play a vital role in providing much needed good quality rental stock.
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Smaller landlords are the backbone of this sector of the market. As changes in tax and other rules including the stamp duty increases come into force many smaller investor landlords may be deterred from entering the market, increasing their current portfolio or even selling up altogether. This would mean fewer suitable homes coming to the market to rent which will inevitably lead to a rise in rents as supply and demand comes in to play.
One of the positive statements to come in the Budget is the reduction in Capital Gains Tax (CGT). This will drop from the current 18 per cent to 10 per cent. And for those on a higher rate of tax the reduction will be from 28 per cent to 20 per cent. But what may have gone under the radar of many is that these reductions will not apply to residential property. (CGT is not payable if you are selling your main residence, only on second homes or rental investments). So landlords are being hit at both ends – when they buy and when they sell.
All this may sound like I am calling the end of the buy to let market – this is certainly not the case. I agree that the changes in this and previous Budgets hit landlords hard and will result in keeping many people who would have made excellent landlords from entering the market. However there are a significant number of people for whom buy to let remains a viable and profitable investment vehicle offering a healthy growth in the capital value of the property and regular income which is likely to increase.
For all its faults the private rented sector plays a significant and essential role in providing homes and provides many individuals with a secure investment and income for their retirements.
It is here for many years to come.
Simon Gerrard is the managing director of north London estate agents, Martyn Gerrard. Send your questions for Simon to firstname.lastname@example.org or tweet us @hamhighproperty.