The year 2016 has definitely been a turbulent one for Britons, especially landlords. The property market is still reeling from the result of the EU referendum in addition to some of the new changes made by former Chancellor, George Osborne.
In November’s Autumn Statement, Osborne proclaimed that from April 2016, people in England and Wales will be expected to pay a 3% surcharge on their stamp duty band. The extra charges will be used to raise an excess of £1 billion for the treasury by 2021. This wasn’t received happily by landlords. The other changes revealed by the Chancellor included a prolonged Help to Buy scheme in London, and more funds for the Starter Homes initiative.
Landlords in the UK expressed disappointment at the perceived indifference to their plight from the Chancellor’s office regarding the 3% surcharge. Many believe it would quash investment in buy-to-let property. According to a survey conducted by Towergate, 59.6% of UK adults agreed that the new increase in stamp duty will stop them from buying a second property to let.
How it affects landlords
The stamp duty surcharge raised each band by 3 per cent. This means that if a property has a value between £125,000 and £250,000, and the stamp duty is 2 per cent, landlords of buy-to-let properties will pay 5%. Hence, for the standard buy-to-let purchase of £184,000, prospective landlords will have to pay an extra £5,520. This charge is exempt for commercial property investors with more than 15 properties.
Owners of buy-to-let properties were also hit by changes in the rules of Capital Gains Tax (CGT). According to the new law, starting April 2019, landlords will be expected to pay any CGT that is due within 30 days of selling a property, instead of waiting until the end of the tax year.
In addition to this, landlords will get a reduced rate of tax relief. The chancellor announced that from 2017, they will only be able to claim the basic 20 per cent tax relief – a reduction from the previous 40 per cent – on their mortgage fees.
Already, the fallout of the announcement led banks and other mortgage lenders to increase their lending criteria for buy-to-let homes. In subsequent events following the Brexit result, the property market is currently experiencing a decline in growth of house prices. In reaction to this, some banks have decided to limit buy-to-let lending completely.
According to Richard Sharp, an authority in the Bank of England’s committee on financial policy, the decision by banks is to enable them study the property market carefully before resuming ‘aggressive lending’.
The demand of buy-to-let borrowing has fallen sharply since, no doubt as a result of the additional surcharge.
How landlords will react
Many landlords will likely increase their property rents in a bid to pass on the cost to their tenants. The result of a survey released earlier in the year showed that 40 per cent of landlords intend to increase their rents in the coming months. Three-quarters of that figure admitted that they would do so to offset the reduced tax relief.
Government Help Scheme
In a bid to encourage home ownership and reduce housing benefits bill, the Chancellor announced that funds will be injected into the starter homes scheme. Home builders will receive a 20 per cent discount on prices £450,000 and above in London, and £250,000 in other locations.