The Uncertain Future of the Buy-To-Let Market in Post Brexit Britain
The days of the buy-to-let market could be over after a slump in the number of properties sold for a buy-to-let purpose. It is said that the 3 per cent increase in stamp duty on properties is to blame for the uncertain future of the market.
England and Wales have seen a drop of 63.7% since the beginning of year to November, in properties sold to buy-to-let investors and landlords. London in particular is facing the slump hard with a drop of 40%.
Stamp Duty changes hitting hard
Stamp Duty Land Tax (SDLT) is paid on properties that cost over a threshold of £125,000 and there are a series of stamp duty rates depending on the value of the property. This means if a buy-to-let property is bought for £200,000, the tax has jumped from £1,500 to an eye watering £7,500.
The increase in stamp duty by the Government has led to what some have described at the "war on landlords". So how exactly does this affect the buy-to-let market? It's been predicted that the number of prospective landlords is down by 52.9% annually, so it seems the consequences of the war on the market are pretty severe.
Britain's biggest buy-to-let landlord, Fergus Wilson, told The Guardian that he believes the days of the buy-to-let market are "numbered", due to the tax changes and tougher mortgage rules. Fergus, who has bought just under 1,000 properties during his career, warns future investors that they may not have the same financial success as he has had in the past and described that landlords are exiting the market due to the restrictive tax conditions set up by the Government.
However, it is not all doom and gloom. As long as mortgage rates stay at their current levels, Jason Harris-Cohen, Director of the Open Property Group believes that market will stay a buyer's market. In a recent interview he stated, "Historically low interest rates are supporting the property market with cheap money available. This makes buying a house attractive for homebuyers and buy to let investors too. The latter of which are chasing yields as bank interest returns are derisory".
The Perennial need for Buy to Let Properties
The need for buy-to-let properties will somewhat always be there as long as the housing shortage is still an issue. There's a constant need for properties to let as overcrowded families search for bigger homes and students look for a place to call home whilst studying. However for individual investors and landlords, are these needs worth the hike in stamp duty?
Some are saying no as a quarter of buy-to-let investors have reportedly already sold, or plan to sell, their properties in a bid to keep as much profit as possible. Many landlords are now left worrying about their investments, many of whom intended to use their properties as investments for their pensions.
Tenants could also face the consequences of the increase as many are being warned of a potential increase in their rent. Some landlords plan to increase the rent on their properties in order to scramble back some of their profit, as now it is the case that if mortgage rates rise, but rent rates do not, landlords will be quickly left out of pocket.
A study, conducted by Residential Landlords' Association, found that a staggering 56% of landlords will increase rent prices to cope with the dramatic tax changes. So the tax hike is not only harming landlord's profits but is also having a knock on effect to their customers too.
However, the tax changes are not affecting limited companies, so many landlords are now setting themselves up as buy-to-let limited companies. In the first nine months of 2016, a total of 100,000 limited company mortgages were issued to landlords, which is a positive indication that the buy-to-let market could still survive the shock of the tax increase.
Time is needed to be able to clearly see if the tax hike has had a lasting impact on the market. The predictions made by experts are, realistically only predictions. A study conducted by crowdfunding Platform Property Partner reported a 6.8% increase in new rental listings in the UK in November, compared with October.
The study also found that Bristol has seen a 162.7% rise of buy-to-let properties going on the market in November alone, so it's evident the market is currently in an uncertain situation. We will have to wait and see what the new year brings.