BTL tax changes driving landlords to chase higher yields

BTL tax changes driving landlords to chase higher yields
This tax is punishing buy-to-let landlords and dis-incentivising them from buying more residential properties to rent out which goes against the national interest to “fix the broken housing market”

Jean Liggett, Founder and MD of Properties of the World investment agency believes that the imminent tax change for landlords introduced by the former chancellor is likely to change property investment strategies, not in terms of the asset class itself, but its location.

Jean had this to say: "We are finding that buyers who hold exclusively London-based portfolios, who would never have bought properties outside the capital before, are now doing so in search of higher yields.
London landlords with properties in zones 1 – 3 are now buying properties near or just outside the M25 and/or close to Crossrail stations. By looking to city fringes and to the regions, buyers are able to pay a considerably lower purchase price, achieve higher yields, pay less stamp duty and benefit from higher capital growth.
For example, only a fortnight ago, we sold one bed apartments adjacent to Heathrow International Airport from £235,000 with a projected yield of 6% and forecast capital growth of 38% over the next 3 years. Similarly, we have sold two developments in Slough, Berkshire over the last year with property prices between £179,000 and £270,000 and yields of 6%.
We now have a number of buyers who before, only purchased in London, but are now investing buy-to-let units in secondary cities such as Liverpool and Manchester.
Property prices start from c. £80,000 in Liverpool and offer yields of 5% to 7% NET so not only are landlords getting strong yields but they are also paying less stamp duty. And as the yields are higher than in London, landlords can hold a mortgage (at 75% LTV) and still be in profit even after the tax changes.

No mass selling up on the horizon
Looking at the UK property market as a whole, with interest base rates at a historical low at 0.25%, landlords in most cases will still make more money by investing in bricks and mortar rather than holding their funds in the bank. Even if NET yields drops to 1% or 2%, in most cases when owners sell the property they will benefit from capital growth.
Thus, I believe most landlords will not sell their existing properties.
What they may do is seek alternative property investment strategies purchasing commercial properties including hotels and care homes offering fixed returns of 8% to 10% NET, duty, with no management or maintenance fees and no stamp duty. Indeed, we are noticing that buy-to-let landlords are diversifying their portfolios through these asset classes.
Time for a buy-to-let tax U-turn?
Given the current chancellor’s penchant for U-turns (!) I would not be surprised if, when the full effects of the buy-to-let tax changes come into effect as of 6th April this year, that a U-turn might be on the cards.  
The buy-to-let tax introduced by George Osborne was not fully thought through for there is a well-accepted chronic housing shortage in the UK and with the government not building nor intending to build any housing (private or social no matter the Housing White Paper blusters of late) it has been the private sector that has stepped in to fill the gap.
This tax is punishing buy-to-let landlords and dis-incentivising them from buying more residential properties to rent out which goes against the national interest to “fix the broken housing market”.

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Christian Donovan
Christian Donovan 18 Aug 2017

The write-down on house values, combined with the fall in the GBP saddled the fund?s property portfolio with a 1.4% loss in the second quarter. The shocking amount of $240 million.

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Samantha Goodman
Samantha Goodman 11 Aug 2017

Interesting point of view.

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Samantha Goodman
Samantha Goodman 11 Aug 2017

It depends on the people, some older adults decide to make a long-distance move in order to live closer to their children or settle in a place with a lower cost of living.

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brandonlee10 24 Jul 2017

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IrisJ. 19 Jul 2017

Great advice, but may I also add that when buying an already built home, make sure you do all of the proper inspections. Most importantly pest inspection because people tend to get surprised when they

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IrisJ. 17 Jul 2017

The third point is, in my opinion, the most important one. People have become too inconsiderate and careless when it comes to rented properties. If a landlord wants to protect their property, regular visits...

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cornishalan 10 Jul 2017

Added to the cost of purchasing these village properties are the above average maintenance costs. Particularly where the property is a listed building or requires specialist building skills such as thatching...

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Jo Mullett
Jo Mullett 07 Jul 2017

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NathanG 05 Jul 2017

McDonalds, for example, have been purchasing their real estate on prime locations for years. If something happens to the company they'll have invaluable assets that will be able to save them. We might

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Jonah 04 Jul 2017

Graham: surprised to see you cite the "extra tax liability" as capping out at ?560. It doesn't - the extra tax is exponential, as it is levied on the income (i.e the inflating level of rental income you...

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Dianne Griffen
Dianne Griffen 29 Jun 2017

Be very wary of anyone bringing you deals that they have ?found? and want to ?sell on to you? or ?joint venture? with you on ? you need a proper legal contract for this, involve a RICs surveyor to confirm...

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jason hadzikostas
jason hadzikostas 28 Jun 2017

The most important thing is a budget. Students have to manage their spendings in food, house maintenance, books and many other things. According to me, student Studios are the perfect option for them as...

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