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Impact of stamp duty changes for buy to let investors

stamp duty changes

Written by: Category: Landlords, News February 26, 2016

Given that stamp duty changes are due to be implemented for people buying an additional home or buy to let property has been implemented to reduce the number of people buying additional homes, it is likely that there will be an impact on the property market. The Government believes that this action will make many buy to let investors decided against buying property, which will provide genuine home-buyers with an improved chance of getting on the property ladder.

If this proposed change occurs, it could see a fall in the demand for rental property, as people may look to buy rather than rent and this could lead to buy to let investors deciding that there is no benefit in buying property, which will further the cycle of more property being made available to buyers. With this line of thinking, it could be argued that buy to let investments will disappear once stamp duty increases. Of course, this is just one potential outcome and the more likely outcome is that there will still be plenty of scope for buy to let investors to invest in property.

The rise in STAMP DUTY means that buy to let investors will need to spend more when investing in property. It can be seen that this is likely to impact on demand for property, which should fall, and following basic economic principles, this could lead to a fall in property prices. After all, if a seller finds that there is less of a market for their home, and that normal buyers are still being outpriced, they may decide to lower their property prices. Of course, if property prices fall, buy to let investors may decide that this is enough to offset the increase in stamp duty they have to pay, making the investment a viable one again.

Buy to let investors can justify Stamp duty changes

There is also the argument that buy to let investors will incorporate the added cost of investing in property into their operations. One of the most important aspects for buy to let investors to consider is the rental yield. To work out rental yield, a landlord or property investor needs to know:

  • How much they spend in buying a property (including stamp duty)
  • How much they spend in maintaining a property on an annual basis
  • How much rental income they receive on an annual basis

Whilst a buy to let investor may spend more money in buying a property, they may be able to lower the amount of money they spend on maintaining the property or they could raise the rental amount, bringing in more income on an annual basis. This means that the additional spend on stamp duty can be offset, which means that the rental yield may be unchanged for a landlord. If this is the case, there is likely to be no difference to the actions of buy to let investors.

Even if fewer buy to let investors buy property, there is no guarantee that first time buyers or families will be able to secure a deposit or mortgage that will allow them to buy property. This means that there will still be a high demand for rental options, and if this creates the platform for raised rental fees, buy to let investors may decide that the additional stamp duty is worth paying.

It is clearly an issue that every buy to let investor has to consider for themselves and it should be measured on a property by property basis, but there is every likelihood that buy to let will remain an integral element in the UK property scene for many years to come.

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