Chancellor stamps down on buy-to-let landlords
11-30-2015
BUY-TO-LET has been the liveliest investment of the last 20 years but last week Chancellor George Osborne effectively signed its death warrant.
His chosen method of execution is death by taxation and hundreds of thousands of amateur landlords can already sense the axe falling.
Osborne began his assault in July, announcing in his emergency Budget that he was phasing out higher rate tax relief on buy-to-let mortgage interest from 2017, and reducing wear-and-tear allowances from next April.
Then last Wednesday he sounded what may be the death knell for buy-to-let, a new 3% surcharge on stamp duty when landlords buy a new property.
The Chancellor said he was doing this to make life fairer for fi rst-time buyers, because the surcharge does not apply to people buying their own home. But investors also make a tempting target for the cash-strapped Treasury, which will cash in to the tune of around £880 million a year from 2020.
The surcharge will be a severe blow for ordinary people with hopes of investing in buy-to-let or a second home, when it comes into force from April 1, 2016.
Mark Harris, chief executive of mortgage broker SPF Private Clients, thinks the Chancellor’s Autumn Statement and Spending Review was a “truly aggressive attack” on buy-to-let investors: “The 3% surcharge is a staggering kick in the teeth for landlords and could have a devastating impact on the buy-to-let market.”
Harris says a first-time buyer purchasing a £250,000 property will pay £2,500 in stamp duty from April but a landlord will pay a whopping £10,000.
On a £300,000 property the buy-to-let stamp duty bill will soar from £5,000 to £14,000.
Financial planning expert Rachael Griffi n at Old Mutual says: “The margins on buy-to-let are being squeezed and for some investors this may be the fi nal nail in the coffin.”
Hard-pressed savers will feel rightly aggrieved by the Chancellor’s punitive tax grab because they saw buy-to-let as the last way to secure a decent retirement income in today’s low interest rate world. The over 55s were lining up to take advantage of April’s radical pension freedoms to invest in buy-to-let but what the Chancellor has given with one hand he has now taken away with the other.
Karen Bennett at find-an-adviser service, Unbiased.co.uk, says the surcharge will hit ordinary savers hardest of all. “The Chancellor said he wanted to deter the buying-up of property by the super-wealthy living overseas but it is those at the lower end of the market who may be forced out,” she explains.
“That will only leave more property for the super-rich to snap up.” Some landlords are already struggling to make a profi t and that could quickly turn into a loss as the tax bill mounts, she adds.
Landlords could find life even harder if interest rates start rising next year, which would push up their borrowing costs.
Another danger is that the impending tax change will throw further fuel onto the UK’s raging housing market, as investors embark on a buying spree in order to beat the surcharge.
Doug Crawford, chief executive of My Home Move, says the stamp duty hike will “turbo-charge” the housing market as buy-to-let landlords and holiday home buyers race to beat the deadline: “This will inevitably push up property prices in the short term, especially in locations popular with investors, such as London.”
With the average London property now costing an incredible £513,000, according to the Offi ce for National Statistics, the last thing the capital needs is a rush of buyers pushing prices higher. Especially if investors then abandon the market after the stamp duty surcharge kicks in.
Ray Boulger, senior technical director at brokers John Charcol, warns investors against getting swept away by the “rush to buy” over the next four months. Buy-to-let currently accounts for 15% of all property sales, and house prices could fall if investors now quit the market.
“Price falls after April could wipe out the 3% savings you make if you buy before the new surcharge, so be careful,” says Boulger Buy-to-let investors should brace themselves for further misery with the Chancellor also announcing that from 2019 when they sell their properties they will have to pay any capital gains tax due within just 30 days.
This naked tax grab from the Treasury should raise £1 billion a year but some landlords could struggle to settle what may be a substantial bill, especially those with large mortgages. Landlords are not the only victims of Osborne’s assault on the rental sector.
David Cox, managing director of the Association of Residential Letting Agents, says tenants will also suffer as a result.
“Landlords will pass on their increased costs to tenants by charging higher rents and spending less on maintaining their properties,” he warns.
Deterring new investors from entering the market will also shrink the supply of property lettings, driving rental costs even higher, Cox says.
Ordinary savers are the ones hurting most today, as they see yet another door slammed in their faces.
Buy-to-let offered hope amid plunging savings rates and volatile stock markets but now it looks set to die a slow death.