Crowdfunding site The House Crowd recently published research suggesting that buy-to-let investors see 2016 as a negative year for their investments because of the legal changes to the sector. So much so that a fifth of them claim they intend to sell their buy-to-let properties this year – and perhaps reconsider their retirement plans. It seems to be the smaller investors with two or three properties who feel most victimised, with 43% of them claiming the government is trying to peter them out and protect landlords with larger property portfolios.
The legal changes affecting the buy-to-let market in 2016 include the EU Mortgage Credit Directive and the increase in stamp duty for buy to let properties or second homes.
EU Mortgage Credit Directive
This is due to officially start on 21 March 2016 and is supposed to cultivate a single market for mortgages and protect consumers. The legislation introduces regulation on buy to let mortgages – meaning it will become more difficult for people to get them – but this only affects borrowers who are not making an active decision to acquire a property to become a landlord and where they do not seem to be acting in a business capacity. For that reason, the Directive is unlikely to have any significant impact on buy-to-let investors because the regulation won’t extend to them.
From 1 April 2016, investing in buy-to-let property or purchasing a second home will result in an additional 3% stamp duty being payable. While this may well deter some from purchasing a buy-to-let property after this date, it won’t affect existing property. This certainly could have an impact on lower investment landlords with smaller portfolios (and therefore a more modest income): stamp duty on a £250,000 property would increase from £2,500 to an eye-watering £10,000.
For more details on the upcoming stamp duty surcharge, click here.
We agree that the smaller landlords are more likely to be adversely affected by the legislative changes in 2016 unless they have good loan to value rates, but the survey seems to have overlooked the fact that the UK is supposed to become a renting nation come 2020. The boom in property prices nationwide over the past few years has resulted in many people being unable to get a foot on the property ladder. And if you can’t afford to buy, you have to rent! This increase in demand will continue to drive up the rental prices, and while that may play more favourably into the hands of the landlords with numerous buy-to-let properties, those with smaller portfolios will still be able to benefit.
Interestingly, the research also showed that over a third of those asked think landlords should look at ‘newer and smarter ways of investing in property’. We’ll see what 2016 holds in that regard.
If you’re a landlord concerned about the upcoming legal changes, call LegalforLandlords on 0333 577 9050 for advice from one of our team.