Should we should keep the buy-to-let stamp duty tax hike...

Should we should keep the buy-to-let stamp duty tax hike…

As the Budget approaches, the clamour to reverse buy-to-let tax hikes will undoubtedly be raised

I’m no fan of stamp duty, nor an enemy of buy-to-let, but reversing the 3 per cent surcharge for additional properties would be a mistake.

That’s because it might just be working. Council of Mortgage Lenders figures this week revealed buy-to-let mortgages for purchases down 13 per cent last year, while first-time buyer loans rose by 8 per cent.

Buy-to-let purchases mortgages spiked in the run-up to the stamp duty hike last year, CML figures show, and then fell to below the previous year’s level

First-time buyers reached their highest level since 2007 and they accounted for 48 per cent of all home purchase mortgages – the highest proportion since 1998.

This is not a sign that the housing market is fixed. House prices continue to rise from their already high level – up another £15,000 in 2016, according to the ONS.

That was a 7.2 per cent annual increase in a year when wages went up by 2.6 per cent, according to the ONS average weekly earnings data.

The average house in the UK rose by £1,250 a month to hit £220,000, whereas pay went up by the equivalent of £52 per month to £24,870.

That makes raising a deposit tougher and pushes property values to an even greater level compared to wages.

Yet, there are some indications that property investors are losing some of their edge in the tussle for the limited number of homes available.

It’s far from true to suggest that buy-to-letters always have the whip hand, but they have had their advantages.

Most have deep enough pockets to raise a deposit on an extra home, could tap into cheap monthly payments on interest-only buy-to-let mortgages, and could then offset that interest against their tax bill.

Those advantages are now being chipped away at.

Buy-to-let mortgage interest tax relief will be limited from this April, while last year’s stamp duty hike threw up an extra barrier to entry.

Neither move changes the game on buy-to-let, but both do act at the margins – making pockets a little less deep and eroding returns.

The plan to ultimately limit buy-to-let mortgage interest relief to 20 per cent will see some landlords taxed on revenue and not on profit, which is something that I struggle to see as a good move.

Yet, while I think stamp duty itself is a bad tax, if you are going to impose it then adding a bit extra for those purchasing a property as an investment rather than as their home seems reasonable.

Anecdotal evidence from the market, suggests that this extra cost is making some potential buy-to-letters think twice. The CML figures appear to back that up.

All regions are seeing house prices rise with the East performing strongly, the ONS reported this week.

On the flipside, the claim this week that 61 per cent of landlords are now buying in cash illustrates what first-time buyers and home movers are up against when it comes to Britain’s niche of wealthy property investors.

The bad news is that if one of this crew want to buy, they will almost always be top dog; the good news is that while it is surprisingly large, this pool of cash-rich investors is limited.

Landlords provide a vital service in offering people a home to rent and I’m not convinced swapping our buy-to-let market for a corporate system would make life much better. (Overpriced student flats anyone?)

Useful as they are though, for many years buy-to-let investors had too great an advantage over first-time buyers and home movers.

As I said above, there is no axe to grind here. I am not anti-buy-to-let. In fact, if I had to take a position, I would say that I was for it.

In a perfect world this mild deterrent against buy-to-let investment wouldn’t be necessary, but Britain clearly has a house price problem and buy-to-let has contributed to that.

Former chancellor George Osborne’s oddball stamp duty policy looks to have dented the demand for buy-to-let, we should keep it for now. Read more at the Daily Mail Here….

Malcolm Davidson
Mortgage Broker in Leeds

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