While the UK is currently experiencing a supply problem with regards to newbuild properties it seems rather bizarre that the Chancellor of the Exchequer has today attacked the UK buy to let market. The three percentage point increase in stamp duty for those who already own property means that a buy to let investor will from April 2016 pay 10 times the amount of tax than they do today. While this obviously brings in the second home market it is the impact on supply from the buy to let investment arena which many are concerned about.
Are buy to let investors an easy target?
Buy to let investors have been tarred with the bankers brush over the last couple of years deemed by many to be taking advantage of supply and affordability issues in the UK. The fact is that the buy to let market is nowhere near as lucrative as many would have you believe with an estimated 20% of buy to let investors struggling to break even or actually trading at a loss. It is also worth remembering that the UK government recently reduced the ability to offset finance charges against rental income for buy to let investors.
At a time when the UK authorities are struggling to balance their books it seems as though buy to let investors are an easy target. However, today’s proposed increase in stamp duty for those already holding property could well be a step too far.
Will we see further supply issues in the future?
Even though the UK government announced plans to introduce a further 400,000 new homes in the short to medium term there is no doubt that the reduced return on buy to let investment will have an impact. Many people do not appreciate that the buy to let investment arena already funds a significant percentage of new builds in the UK. As a consequence, while the government has committed to building more homes in the future there may be fewer new builds funded by private investors.
It does seem rather bizarre that the UK authorities have decided to attack the buy to let market which has proved to be vital chain in the UK property market. At a time when many have been complaining about austerity and reductions in the welfare system the Chancellor has performed a dramatic U-turn dropping many of his austerity plans while targeting other areas.
Reduced investment returns
The simple fact is that buy to let investors have invested heavily in the UK in recent times because there was a potentially attractive return in the longer term. This dramatic increase in costs going forward, together with restrictions on offsetting rent against finance costs, has significantly reduced this potential return. At the end of the day buy to let investors are looking for the best return in the longer term and have no specific loyalty to the UK property market.
If you were in their shoes, would you hang around to see your investment returns reduced year-on-year? Or would you look towards other investment markets or even buy to let opportunities overseas?