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What will happen to Buy-To-Let?

Wed 21 Dec 2016

After reviewing different sources and speaking to different people, we have our view on what we can expect from 2017 following some changes to laws in the Private Rented Sector, which may have left some in despair.

It was obvious that the year of 2016 was the time the Government started their crackdown on landlords and with that reducing their potential profits.
A variety of changes were announced, the first being an increase in stamp duty on additonal homes.

The three per cent increase proved to be massive. For example, stamp duty on a £250,000 buy-to-let property rose from £2,500 to £10,000! Whilst for a £400,000 property it more than doubled.

The number of approved buy-to-let mortgages shot up by a staggering 222% in March 2016 from 8,800 to 28,700 as investors rushed for completion before the borrowing rates increased.
This also saw the rise in the amount of landlords effectively selling their properties, but to themselves as a limited company. This is free to do however this is still treated as a normal sale meaning you are still suceptible to stamp duty, corporation tax and other charges.

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Although acting as a limited company doesn't stop investors being subject to stamp duty, this made it clear that professional landlords and those up to date with new legislation have already adapted their 'tactics' in order to put themselves in a position where they can survive the wave of changes that are due to come in.

The reduction of mortgage interest relief was also announced to come into effect from 2017, meaning landlords would lose the current relief they get in 25% increments over the next four years, meaning by 2020 landlords would be taxed on their total turnover, rather than their profits as is normal in any other business.
As discussed above, those operating as limited companies will avoid this change, however corprate entities are still subject to a host of other charges. With every portfolio being different this would need to be discussed with an accountant before making any changes.

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With interest rates at a historic low, buy-to-let is still seen as a good option to make a second income and to gain value on savings for later life that would otherwise we sat in a bank account earning next to no interest.
For this reason we think it is still forecast to grow as a choice of investment.

Current base rates of 0.25% have also been forecast to remain at their all time low thorughout 2017, which should further encourage investors to delve into the private rented sector.

Another change that would have a negative effect on landlords is the proposed ban on lettings fees.
Tenants have always been charged aministration/letting fees in order to carry out referencing, credit checks, draw up and print tenancy agreements and agree rent guarantees or insurances.

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With agents no longer being allowed to charge for the time and materials this takes up, as any other business such as solicitors or banks, this will have to be either:
Absorbed by letting agents, which will inevitably effect profits. Who knows what this could lead to? Maybe even redundancies or wage cuts;
Costs being passed onto tenants yet again through higher rents or;
Costs being passed onto landlords which will have similar impliacations to the first two points.

Buy-to-let is still seen to be an area of growth in the UK as companies also alter their own strategies to help investors. Together Money have said "we lowered our rates, increased our loan sizes and removed the maximum age limit, so that those looking to invest in property as part of their retirement plans arent affected"
They have also expanded their auction team as many investors will look to auctions to get a cut-price investement.

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This is just one example of how landlords and investors are not on their own in trying to combat the implications of these changes, but that other companies involved in the selling, purchasing, letting or renting of property such as surveyors, solicitors and banks, have also already began to make changes to ecourage the level of investement.

Yes, this may be to protect and boost their own profits to offer a service that will be higher in demand, but this will still be music to the ears of many investors in the private rented sector.

How this will pan out... Only time will tell!

"Thanks to you and your team for everything you have done. "
M Shaw. Jan 2017