There have been two major changes for home buyers that have had an impact over the last twelve months. The first was the introduction of higher rates of stamp duty for second homes which is particularly important to the buy to let industry and landlords. The second, a little more subtly, is the impact of Brexit and what will happen in the housing market once Article 50 has been implemented.
Over the last year, the housing market had slowed from 9.3% in June to 6.9% by October and many industry insiders believe that the 3% rise in stamp duty for second homes has had more of an impact than the impending Brexit decision. Some estate agents are predicting a further fall in the market over at least the first part of 2017.
The buy to let market has certainly been affected by the stamp duty increase. Prior to April 2016, there was a rush to purchase properties with landlords applying for over 29,000 mortgages in the months prior to the change. Naturally the amount being lent to landlords after this date fell considerably but there were still over 89,000 mortgages applied for after the April change, suggesting more ardent property investors were still buying.
There are going to be tougher times ahead after April 2017, however, which could further impact on the buy to let market. Firstly, stronger affordability checks are due to be introduced for mortgages and landlords will begin to see tax relief on their mortgages steadily being withdrawn.
The percentage of financial cost that can be deducted from financial income for things like mortgages will reduce to 75% in April 2017 and gradually reduce to 0% by 2020. From then the tax relief that landlords get will be subject to the basic rate of tax. How this change further affects the buy to let market is yet to become apparent. Combined with new laws due to come in for 2018 that properties need to have a good energy rating, current changes appear to be putting a lot more pressure on landlords. From April 2017 as well, letting agents will not be able to charge tenants fees for services such as credit and immigration checks which will undoubtedly see these being pushed onto the landlord. That will inevitably lead to a rise in rents. For landlords, this could also mean being more selective in the services they get from letting agents.
There may be some good news on the horizon, however. A housing white paper due in January 2017 which asks for some of the tax changes to be rolled back could make a difference and there is a suggestion that Chancellor Phillip Hammond considers the stamp duty change in April 2016 as a ‘bad tax’.
For the moment, buy to let landlords have to cope with the changes as best they can. There’s no doubt that some of their costs are going to be pushed back onto tenants making renting more expensive, at least in the short term.