Is the end nigh for Buy-To-Let?

The Chancellor’s announcement in his autumn statement - that buy to let landlords and purchasers of second homes would face an additional 3 percent stamp duty on purchases from April - has certainly caused a stir.

Whilst 3 percent doesn’t initially sound like a lot, the average Buy-To-Let purchase in the St Albans and Harpenden area is a one or two bedroom flat, currently selling for between £300,000 and £400,000; and the increase could make a significant difference. Currently, existing stamp duty on those purchases would be £5,000 to £10,000, so when you add the extra £9,000 to £12,000 you get quite a shock to realise this now means a tax of between £14,000 and £22,000!

Buy-To-Let landlords have had a tough time recently - in addition to this change in stamp duty, new tax changes that are being phased in from 2017 will also mean that landlords will not be able to deduct all of their finance costs from their rental income for tax purposes.

A number of market commentators have suggested that this is potentially the end of Buy-To-Let as an attractive investment. David Cox, the Managing Director of ARLA, was quoted as saying that this was “catastrophic news for the private rental sector”.

So what is likely to happen? Our thoughts are that the increase in stamp duty which comes in to effect on April 1st is likely to cause a short term distortion in the market for 2016. We have already been contacted by a good number of investors keen to buy before the deadline and predict that there may well be a lull in the later part of the year, as a result of investors bringing their buying forward.

Beyond that, our view is that Buy-To-Let investments may well prove to be more resilient than many think. Property has been a great investment for long-term growth; alongside low interest rates and the lack of other more attractive investment options, this means that, in our opinion, despite the increase in tax, Buy-To-Let will still be popular.

Whatever your plans are, we at Frost’s would be happy to offer you further advice to meet your investment needs.