With extra SDLT at 3% from April 16
The announcement in the Autumn Statement that an additional 3% Stamp Duty Land Tax (SDLT) will now be charged on all buy-to-let properties and second homes has come as a big shock to landlords, who have already just absorbed the news of the cut in tax relief on their mortgage interest. What now? Will investors be put off investing in buy-to-let properties all together?
The nail in the coffin for buy-to-let
It really has been a run of bad news for buy-to-let landlords and prospective property investors.
Lenders have started to tighten their loan criteria as Bank of England have announced they have their eye on this area of the mortgage market.
Secondly, the removal of higher rate and top-rate tax relief on buy-to-let mortgage interest which is to begin on a tapered approach from April 2017, will affect thousands of landlords, many who are already currently considering their options
Read more – Buy-to-let and the new tax rules
Most recently, the news as delivered by Mr Osborne in the 2015 Autumn Statement, that STLD would be charged at an additional 3% for all property purchases intended for buy-to-let or second home ownership, will be the nail in the coffin for many property investors.
Deterring property investment
The key objective to introducing this additional tax is to deter more investors from joining the already over-spilling buy-to-let market, many of whom are out-pricing first-time buyers in negotiations, which is adding to the “housing crisis”.
George Osborne communicated that home ownership is reaching crisis point, with estimates that just 30% of under 35 year olds will own their own home by next year, compared to 60% just 15 years ago.
The Council for Mortgage Lenders (CML) reported that in the past year, buy-to-let mortgages had increased by a massive 36%, and when comparing against first time buyer mortgages that had risen by just 10%, it shows in black-and-white how the market is developing.
Paragon’s data also showed a 102% increase in buy-to-let lending in just the past few months.
The raw deal for landlords, renters and pensioners
Landlords are already having to consider raising their rents to cover the additional tax they will face in future years. This alone is expected to cause wider issues for renters that needs attention.
Also, the new pension reform allowing pensioners to withdraw funds early, had also encouraged investment in buy-to-let property. This now appears to be a case of giving with one hand and taking with the other, as this will stump some pensioner’s plans to use their pension funds for property investment.
Will investors look elsewhere?
The additional 3% is going to make a significant difference to the cost of buying a buy-to-let, see the table below for comparisons:
Investing in a £250,000 buy-to-let property in this current tax year, the SDLT will be £2,500; after April 2016 the cost rises to £10,000 – it’s 4 times the tax.
In London, with the inflated property prices, a say £400,000 apartment would jump from £10,000 SDLT to £22,000 SDLT – a huge cost increase of 120%.
Tick tock – 4 months to take action
There is expected to be a surge in activity from buy-to-let investors seeking the right property before April 2016, to avoid being clobbered with the extra SDLT.
However, this is likely to be balanced with the tax relief cuts that may have already put property investor’s nose out of joint, and they may now be considering alternatives, full-stop.
Whatever your current position, talk through your strategy with a specialist financial and mortgage adviser who can help ensure you have covered all angles.
Dental & Medical Financial Services can help organise a buy-to-let mortgage for your investment. Act soon as the clock is ticking to the April 16 deadline to avoid excess Stamp Duty.