Is The Buy To Let Boom About To Go Bust?
With only five weeks to go before a hike in stamp duty for buy to let property purchases there has been a massive increase in mortgage lending, the highest level in nine years, for buyers who want to get in before the 3% rise.
Harshinder Hundal, a property legal specialist at the award winning and leading regional law firm Pictons says “For landlords who want to buy a rental property, or someone wanting to purchase a second home, they only have until April 1st to avoid the soaring cost of stamp duty.
“Property investment still tends to offer much better value as a long term saving option rather than risking shares or poor returns in ISAs and savings accounts. Only fairly recently people were given access to their pension pots and while some may have been enjoying themselves and ‘spending the ‘children’s inheritance’, most are investing for their own and their families future and this is where a property purchase looks rock solid.
“While it’s true that you can never guarantee that property prices will continue to rise, and certainly I am sure they will never again be as much as they have been over the past 10-20 years, especially in London and the South East, with such a national shortage of new houses being built I would predict that the value of your home will not decrease and is likely to prove a very wise buy.”
Harshinder continues “Although lenders vary in their criteria for loaning money to potential landlords, the market remains buoyant and I think it is likely to continue to do so for a long time to come, despite the stamp duty increase.”
The last Stamp Duty changes were in 2014, when the threshold was dependent on the price of the property, which fell into these different bands:
Band Rate
Up to £125,000 0%
£125,001 to £25,000 2%
£250,001 to £925,000 5%
£925,001 to £1,500,000 10%
£1,500,001 + 12%
From April 2016 there will be a new Buy to Let/second home rate as well as the standard rate:
Band Standard Rate Buy to Let/second home rate £0-£125,000 0% 3%
£125,001 to £250,000 2% 5%
£250,001 to £925,000 5% 8%
925,001 to £1,500,000 10% 13%
£1,500,001 + 12% 15%
The new proposal will affect anyone owning a second property that isn’t their main residence and buying another, or replacing the one they don’t live in.
This means if you already own a portfolio of buy-to-let properties, or have a second home, but plan to buy yourself a new home to live in and sell your old one then you will not have to pay the extra stamp duty.
Key points to note are:-
- Higher rates will not apply to your main residence,
- The higher rates will only apply to additional properties purchased in England, Wales and Northern Ireland on or after April 1 2016,
- Will not apply to those buying 6 or more buy to let properties in one transaction,
- Only residential properties are affected so that excludes commercial or mixed use premises,
- The 3% charge will not be payable by someone whose only property is a Buy to Let, such as where they live with their family or friends,
- The government will treat married couples and civil partners living together as one unit. This means any homes already owned by either partner will be considered in the stamp duty calculation when they buy another property and so the higher rates will apply. If the original property is sold within 18 months of the purchase they may be able to claim a refund.
In some cases for people who are buying and selling, if their sale is delayed it means they will probably complete on their purchase before the sale goes through. The Stamp Duty on the purchase will be payable at the Buy to Let rate, but provided the sale completes within 18 months of the purchase, HMRC will refund the additional Stamp Duty paid.
Another proposal is to reduce the 30 day period within which to submit the return for Stamp Duty to 14 days Buy to Let investors.
Final details of the calculations are expected on 16 March 2016 when the next budget will be announced.