SDLT discourages buy-to-let landlords

Owner-occupiers are becoming more active in the auction room, while residential landlords are increasingly seeking out commercial and mixed-use lots in response to the new tax regime for buy-to-let investors. Jeremy Lamb, director and auctioneer at London-based Andrews & Robertson, said: “Buy-to-let has slowed down a bit, and certainly at the higher end of the market there are fewer people buying on a buy-to-let basis.” He said many properties valued at more than £500,000 were being bought by owner-occupiers rather than buy-to-let investors because of the additional 3% stamp duty charge on second homes. At the firm’s February sale, owner-occupiers bought a two-bedroom house in Battersea, SW11, for £750,000; a four-bedroom home in Stockwell, SW9, for £1.25m; and a three-bedroom house in Shepherds Bush, W6, for an undisclosed sum. An owner-occupier would pay £1,500 in SDLT on a £500,000 home bought today, while an investor would pay £30,000 in SDLT on the same property. Investors hit by SDLT It is now a year since the introduction of this additional stamp duty charge for second homes. The taxation position further worsened for buy-to-let investors this month with the phased reduction in mortgage interest relief. Landlords also face an increasingly stringent legislative framework and additional compliance checks. “The more experienced investors are going over to commercial, but most people don’t understand it, and haven’t got the time to get their head round it,” Lamb said. Andrew Parker, auctioneer and managing director of Midlands and North West auctioneer SDL Auctions, said his firm was seeing a “surge” in interest in mixed-use lots in response to the tax changes. “Retail units with an apartment above have risen in popularity, as buyers pick them up at auction and then seek to get planning permission for a change of use of the shop to residential,” he said. However, he also said that demand from buy-to-let investors had now recovered to “normal levels” in the markets where SDL operates. “Clearly, there was a supply-and-demand issue immediately after the introduction of the 3% rate, and we saw a dip in interest. “But across 33 auctions in the Midlands last year, we can report that in the second half of the year, demand returned to what we would describe as ‘normal’ levels,” Parker said. “Overall, we are still witnessing strong interest in buy-to-let by canny investors with an eye on the long term.” Jamie Cooke, managing director of Newcastle-based IAM Sold, which offers auctions predominantly in the Midlands and North of England, said the effect of the stamp duty rise had been outweighed by the imposition of poor savings rates. He said 42% or nearly 1,100 of the lots purchased in IAM Sold transactions during the last financial year were buy-to-let. More cash buyers There was a higher proportion of cash buyers now, he said, making up 80% of the total. Allsop’s spring issue of the Rent Check report, which covers England and Wales, found that the percentage of existing landlords intending to purchase one or more property in the next 12 months was just 16%. This is the lowest level since the report began in autumn 2012. Around four-fifths (83%) of landlords reported that obtaining buy-to-let finance had become more difficult in the past six months. The report, compiled with market research consultancy BDRC Continental, tracks the experience of more than 1,500 members of the National Landlord Association, covering 11,595 properties. Despite the worsening tax position, it forecasts a positive picture for buy-to-let returns over the long term (see panel) and found that 37% of landlords anticipated rental growth over the first half of this year. Buy to let can still beat savings rates Buy-to-let investment in the long-term still has strong potential to beat savings rates by a significant margin over the coming years, despite tax increases, according to Allsop’s spring issue of the Rent Check report. Compiled with market research firm BDRC Continental, the report estimates the annual return for three-, five- and 10-year periods after tax for basic rate 20% taxpayers and 40% taxpayers, and has analysed rental yields, house price growth and running, finance and legal costs. For this analysis, variables applied included borrowing based on a 145% rent cover at an assumed 5.25% interest rate, a five-year fixed-term mortgage at an interest rate of 3.25% and 4.5% for the remainder of the term and running costs of 25% of income. Using Office for Budget Responsibility national forecasts for wage growth and house prices, the top-performing regions for indicative returns are the East Midlands and Yorkshire, with returns of 11.25% pa over a five-year period for a 20% taxpayer, and 9% pa for a 40% taxpayer. Using the same national analysis, London was the worst-performing region at a still respectable 5.75% pa for a 20% taxpayer and 4.75% pa for a 40% taxpayer over the same period. Of the landlords polled, 45% were higher-rate income taxpayers. Paul Winstanley, partner at Allsop, said: “For those with equity to invest, buy-to-let returns still have the potential to outstrip savings accounts over the long term. While tax changes and toughening lending criteria are challenging landlords, most are in it for the long term and we still expect only a small minority to exit as the tax changes feed through. “With no quick solutions to the housing crisis, long-term private landlords providing decent accommodation will continue to play an important role in housing our population. As long as there are no new tax rises targeting landlords, buy-to-let will remain a stable and attractive sector for long-term investors.” Investment period (years) East England East Mids North East North West South East South West Wales West Mids Yorks London 3 2.25 3.5 3 2.5 2 2.25 2.5 3.25 3.5 1 5 6.25 9 7.7 7 5.75 6.5 6.75 8.75 9 4.75 10 6.25 8.5 7.5 7 5.5 6.25 6.5 8.25 8.5 5 20 5.5 7.25 6.5 6 5 5.5 5.75 7 7.25 4.5 Investment period (years) East England East Mids North East North West South East South West Wales West Mids Yorks London 3 5.5 4.75 4.25 3 3.5 3.75 5.5 5.75 2 1 5 7.75 11.25 9.75 8.75 6.75 7.75 8.25 11 11.25 5.75 10 7.5 10.75 9.5 8.75 6.75 7.75 8 10.5 10.75 6 20 6.75 9.5 8.25 7.75 6.25 7 7.25 9.25 9.5 5.5