Will UK Buy-to-Let Remain a First Choice Property Investment?

In the third installation of our First Choice Property Investment Series, we look at what may affect the UK’s buy-to-let property market in 2016.

Rising property and rental prices have enticed many people to invest in the UK’s buy-to-let (BTL) market to generate a passive income.

In 2015, the total value of the UK’s housing stock surpassed the £6 trillion mark for the first time after gains of £385 billion.

The total value of the UK’s private rental sector has increased by 55% over the last 5 years, with the number of BTL properties entering the sector up 28%. Read more…

The UK’s buy-to-let market has been a popular choice for investors for many years however, will it remain a first choice property investment after the introduction of new tax laws?

New Challenges in 2016…

There are two big changes on the horizon for UK BTL.

The first, which will come into play in April 2016, will be an additional Stamp Duty 3% levy on buy-to-let property and second homes purchases.

The ins and outs of how the new additional property SDLT rates will work have not been fully disclosed however, the government is reviewing how the changes will work as we speak. The final outcome of the policy design will be announced at the Budget on 16th March 2016. Click here to read the government’s proposed Stamp Duty changes.

If approved, the new Stamp Duty rates will look something like this:

Band Existing Residential SDLT Rates New Additional Property SDLT Rates
£0* – £125k 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
£1.5m + 12% 15%


Source: HMRC

The second obstacle buy-to-let investors will have to face is a change to the amount of tax relief which can be claimed.

Last summer, the chancellor announced a cap on the amount of tax relief property investors can claim on mortgage interest payments.

Currently, landlords can claim tax relief of up to 45% however, over a 4-year time frame, this level will be cut to 20%. These changes will be introduced in April 2017.

What Affect Will This Have On The Market?

With April looming, people in the property industry have commented on what affect these new changes will have on the market.

www.propertyreporter.co.uk has reported the findings of the latest Shawbrook Broker Barometer.

50% of 300 brokers believe that new regulations will be an issue which will impact their clients, 21% believe that interest rates will be an issue.

80% of those surveyed believe that changes will have a negative impact on the UK’s property market.

However, it’s not all doom and gloom. According to the research, 85% of brokers remain confident about business growth in 2016.

Karen Bennett, Sales & Marketing Director Commercial Mortgages stated: “While it is obvious that 2016 will see some big changes in the Buy-to-Let market, it appears that brokers are not buying in to the commentary that the market will suffer. The majority of our broker partners are confident that the market is one in which their business can grow and BTL presents many opportunities to investors. Lenders, brokers and customers will have new factors to consider but the outlook for 2016 remains positive.”

The acute shortage of housing will play an important part in the future of the UK’s buy-to-let market.

An overall lack of rental property has pushed the price of renting up. Figures from Landbay show that the average cost of renting increased by 3.8% in 2015 (when compared to the previous year).

Many landlords will have no choice but to increase rents to cover the rising cost of keeping BTL property.

Will the changes go ahead?

On the surface it seems like the changes will come into play from April however, there is a lot of opposition against the higher rate of Stamp Duty on buy-to-let and second homes.

The Residential Landlord Association (RLA) has called the 3% levy ‘discriminating against UK-based investment in the housing market by making it easier for wealthy foreign investors to purchase property.’ Read full article…

RLA has asked for new-build properties to be exempt from the stamp duty levy to encourage private investment in UK real estate.

A survey conducted by RLA showed that 30% of landlords would be more likely to buy new-build property if new Stamp Duty taxes did not apply to them.

The Future of BTL…

It is safe to say that the UK’s buy-to-let market will experience some changes in light of the changes which have been outlined in this article.

The big question is, ‘Will buy-to-let still be profitable?’

And the answer seems to be, ‘Yes’. Here’s why…

  • Many people buy investment property as a long-term investment. They will absorb the initial Stamp Duty increase and will factor the cost in when working their returns out.
  • Property prices continue to rise in the UK which presents strong capital gains prospects.
  • Property is a good way to build a diverse portfolio. Although the initial cost of buying will increase, many people will continue to purchase BTL property as part of their investment strategy.
  • Securing a long-term rental income will appeal to those who wish to create a passive income stream. The prospect of an income generating asset will still appeal to investors.
  • The tangible nature of property is a draw for many investors.
  • Landlords can ‘re-position’ their property. For example, they can split one house into flats or extend their property to add or create value.

2016 will be an interesting year for the UK’s buy-to-let market however, we believe the asset class will remain a first choice property investment.

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