BANG! Chancellor George Osborne hammered another nail in the coffin of the ‘amateur’ landlord this week, but personally, I think all the talk of the death of buy-to-let as a result of his tax changes is a little premature.
The Chancellor announced in his Autumn Statement on Wednesday that stamp duty for those buying rental properties and second homes (presumably also third, fourth and fifth etc) will have to pay an additional 3% stamp duty from April 2016.
That’s 3% on top of the standard rate for residential property purchases, which means that landlords buying even a modest flat at £250,000 will see their stamp duty bill rocket from £2,500 to £10,000.
As the rise in stamp duty comes on top of the removal of the 10% wear and tear allowance from next April and the reduction in mortgage interest tax relief from 2017, some have suggested it could be the final nail in the coffin for landlords.
The Chancellor has certainly left us in no doubt that he wants to discourage private individuals from owning rental property and that he’d prefer the rental sector to be dominated by corporations.
It’s interesting to note that higher rate stamp duty won’t apply to funds or corporations investing in 15 or more properties. These organisations are “supporting the government’s housing agenda” - and presumably us minnows aren’t?
However, the rise in stamp duty alone won’t make any difference to those of us who have already invested in rental property, In fact, we might even benefit.
Property prices could rise over the next few months as investors try to snap up properties before the stamp duty hike in April, so now might be a good time for those landlords who want to exit the market to sell up.
After April, only those of us who expand our portfolios will be immediately affected by the rise in stamp duty, which I think will almost certainly deter many existing landlords from buying more properties. Also, it will create a significant financial barrier to those wanting to invest in BTL for the first time, including pensioners who might previously seen property as a more lucrative investment than an annuity.
However, if the result of these tax changes is to prompt a significant number of landlords to sell up or scale back their investment, those of us who remain in the market might benefit from a shortage of rental accommodation.
People have to live somewhere and if there are fewer homes available to rent but no reduction in the number of tenants, rents could rise, giving us better yields.
Of course, you could argue that in some areas rents have already peaked and people simply can’t pay any more, but at least it should mean that landlords have a greater pool of tenants to choose from.
In the longer term, there’s a real possibility that prices will start to fall, especially in markets that have been dominated by buy-to-let investors. If this is the case, landlords who do continue to invest should see better yields, especially if the fall in the price of the property is greater than the rise in stamp duty.
There are lots of ifs and buts, who knows how the market will react and what the best course of action will be. Personally, I still think property is a viable investment for the time being and I won’t jump ship just yet, but as the Chancellor has made it clear he wants to tax the profits out of buy-to-let, he might have some even nastier tricks up his sleeve.