Is Buy to Let Still a Good Investment?
If you’re a landlord or you’re thinking about investing in property, the changes in stamp duty and in tax relief on interest payments for buy to let mortgages may have given you something to think about. Indeed people buying a second property may be caught by the new tax change.
Some examples of where the charge may apply are:
• Buying a holiday home.
• Letting out your home and buying a new one
• Buying a house in multiple occupancy (HMO)
• Buying a property jointly when or the other purchasers already has one of their own, for example buying with children or a new partner.
The current market
Since the financial crash of 2008 property prices have been rising in most parts of the country with London and the south leading the charge to really outstanding returns; will this continue following the increase in taxation?
It should also be considered that since the base rate reached 0.5% in March of 2009 and subsequently 0.25% in 2016, mortgage rates have steadily come down and particularly in the last couple of years as banks have once again begun to compete with one another. We have also seen a reduction in product fees and a developing remortgage market for buy to let products. Many people will also have forgotten about the adjustment of stamp duty in December of 2014 which tended to greatly reduce the level of stamp duty to be paid; all of these things contribute to the overall appeal of property investment and we can draw the conclusion that prior to these tax changes the market is in a favourable position.
The Future of Buy to Let
I have heard a few people saying this is going to be the end of the market and there will be fewer people taking the plunge and buying investment properties or second properties and it is likely some will no doubt be put off by the high initial cost, yet investment and property remain two words which seem to go together like bricks and mortar.
For most people, property has been a place where they have made more money than any other type of investment, the term "safe as houses" has been around a long time and there's a very good reason as to why. A 3% stamp duty rate and less tax relief on the interest payments may put a few people off, however taking a long term view of the market these changes will make very little difference to the choice many experienced investors will make. Most types of investment have costs and these changes simply increase the cost marginally. It should also be borne in mind that as costs and the law change, updated products are developed to reduce these costs and mitigate the tax changes.
Given the balance of low interest rates, increasing property prices and high demand for rented properties, the market may pause slightly, however it is very likely that this will be shrugged off and the appetite for property investment will continue.
Already we are seeing a growth in the availability of mortgages for limited companies and special purpose vehicles. These types of arrangements are said to be outside of the scope of the new stamp duty rules and so there are already alternatives to owning the property yourself and paying the additional tax.
Property has proved to be a very good long term investment and like all investments quality property in the right location, which is well managed and appropriately leveraged can show some very appealing returns.
So while there is currently a rush to get the last few deals across the line before the rise in stamp duty arrives, the demand for rental properties will still be there after its introduction. The amount of property being built still falls short of demand, meaning there will still be a need for the landlord and with good balance of income and capital appreciation canny investors will still be there picking off properties to let out and growing their portfolios.
If you need detailed advice on the tax changes and how they will affect you, speak to your accountant. Remember that using a limited company may increase the cost of your accountancy and record keeping.
Are You Thinking of Buying Now?
If you are thinking of buying a second property or investing in a buy to let, make sure you check with your solicitor and have a detailed discussion around tax implications and what the position will be regarding the stamp duty costs. HQ Mortgage and Finance Ltd will be able to offer you impartial, whole of market advice on traditional and limited company buy to let mortgages and explore the best option for you.