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Friday, December 4, 2015

Have the Tory’s killed the buy to let market in Northampton?

Well George Osborne, in his Autumn statement last week, caused Northampton landlords to ask whether buy to let is a viable investment option, when he announced that landlords, when buying another buy to let property from April 2016 will have to pay an additional 3% stamp duty on top of the standard rate. 

So for example, on a £100,000 property, the stamp duty goes from nil to £3,000. It becomes quite stark when you look at the middle to upper market, so it means that the stamp duty bill for a £285,000 buy to let home will rise from the current £4,250 to £12,800 from April next year. 

Some say property in Northampton will be worth less because potential landlords will not be willing to pay as much for them, and if house builders or existing homeowners don't feel they are going to get as much for them, then there is less motivation to build / sell them?... and the person we can blame for this is George himself. Back in 2012, he choose to utilise the British housing market to kick start the UK economy, with  subsidies, Funding for Lending and Help to Buy. However, whilst that helped the Tory’s get back into power in 2015, some say this impressive growth in the UK property market has been at the expense of pricing out youngsters wanting to buy their first home.

Others say this will be the straw that breaks the camel’s back as over the next four years Landlords will slowly lose the ability to offset all their mortgage interest against tax on rental income, after changes announced in the Summer Budget. At the moment, landlords can claim tax relief on buy to let mortgage monthly interest repayments at the top level of tax they pay (i.e. 40% or 45%). However, over the next four years this will reduced slowly to the basic rate of tax – currently 20%.

Surely this is the end of Buy to Let in Northampton? Probably.. but before we all run to hills panicking .. let me give you another thought.

Stamp Duty rules were changed in December 2014. Before then, landlords were eagerly buying up properties under the ‘old slab style Stamp Duty’ system. For example, the stamp duty bill on that £285,000 property was lower on the old slab style duty (pre Dec 2014), at £8,550, yet it isn’t a million miles away from new £12,800 stamp duty bill. Interestingly though, George has left a legal loophole in the new rules, because when it comes to selling up, they can offset purchase costs against any eventual capital gains tax, including stamp duty.

I believe that total returns from buy to let will continue to outpace other investments, such as the stock market, gilts, bonds and even pensions.

Buy to let has enough impetus behind it that prospective landlords will continue to buy even with a larger stamp duty bill. Northampton landlords will need to be savvy with what property they buy to ensure the extra stamp duty costs are mitigated.   In the past, it didn’t matter what property you bought in Northampton or at what price – you would always make money.  Now with these extra taxes, the adage of ‘any old Northampton house will make money’ has gone out the window.

You wouldn’t dream of investing in the stock market without at least looking in the newspapers or taking advice and opinion from others, so why would you take the same advice and opinion about buying a buy to let property in Northampton? Give me a call; 01604 607080, drop me an email; or pop in and see me at our office on the Wellingborough Road. 

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