Blimey we didn't see that coming - Part 2
Is this a reasonable investment
Yesterday the chancellor adjusted stamp duty so that from April anyone who invests in a buy to let property will pay an additional 3% stamp duty. Adding an extra £5,400 to the purchase price of a typical £180,000 buy to let property.
Does George Osborne hate landlords? I only ask as whenever he wants to seem populist he bashes buy to let investors. In the emergency budget in July he took away tax relief for buy to let investors and then yesterday this.
The Conservatives want people to own their own home, this is both a political and practical policy. Political because the Tories believe that home ownership is a basic right, and practical because home owners tend to vote Conservative whilst tenants vote Labour.
I suspect that the Conservatives have looked at the political maths and calculated that there are more people wanting to get on the housing ladder and therefore more votes than there are landlords and have acted accordingly.
Is this as the Daily Mail said today “The final nail in the coffin” of buy to let? Or is it a temporary hiccough? I personally feel that it is a hiccough. It will scare off people who have thought about investing in BTL because their mates down the pub are doing it and they read about it in the Daily Mail, but people who look at BTL as a business will still be considering investing. Why? Because over the long term buy to let still makes sense, with the caveat: If done correctly.
The intelligent investor will now factor in the extra stamp duty and ask him/herself “with this additional expense does the property still give a reasonable return?” If the answer is yes then there is no reason not to proceed. This change will deter people looking to make a quick buck, the long term investor will see this as a minor blip, and in fact landlords can offset the stamp duty charge against any when they come to sell the property. The government is also consulting as to whether the exemption for companies owning more than 15 properties should continue.
So it is not “the death of buy to let” there will be a bit of a frenzy in the first quarter of 2016 as people try to complete their purchases before the stamp duty goes up, there will then be a lull, and we predict that by June of next year volumes will return to normal as potential landlords see that the right buy to let is still a good long term investment.
Investors look for ROI - and an extra couple of % on the purchase price will dim that a tad, but not outrageously, especially in a place like Bristol . And if house prices come down a shade in response to reduced demand that should cover their losses. There still aren't enough houses being built and that won't change any time soon, so the rental market will stay strong and capital growth should be maintained. Don't panic, Mr Mainwaring. Tony Watts November 26th 2015 16:02:54