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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Latest Comments

Kelvin Lloyd
Kelvin Lloyd 09 Oct 2017

IT is up, to the Planners. If they will only give permission for bungalows on certain (suitable) sites, they will be built.

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maggie swift
maggie swift 09 Oct 2017

It's just the beginning of the shocking rise.

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maggie swift
maggie swift 09 Oct 2017

I have recently read that the bungalows can provide social housing for elderly residents in London.

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zoe glover
zoe glover 05 Oct 2017

Update! Worst company I have ever dealt with. Undervalued a Cambridge property by over 100k, wont take on any evidence of valuation including a RICS valuation done 3 years ago for the very same value...

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Paul Edwards
Paul Edwards 27 Sep 2017

Its nonsense articles such as this that make it harder to get clients to realise just how difficult the market is out there. When you see Rightmove and there are more 'price reduced' then 'new' most days...

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Tom Allen
Tom Allen 20 Sep 2017

Absolutely agree with you!

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RyanGeo
RyanGeo 18 Sep 2017

A sharp correction would be a less dramatic expression to use. That is already underway in certain sectors in Reading where I practice as Chartered Surveyor

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sean benton
sean benton 01 Sep 2017

Identity theft is a thread for any profession. So,people should stay alarmed. I once take help from a letting agent and came to know that letting agents are taking every precaution to prevent fraudulent...

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Mark N.
Mark N. 30 Aug 2017

We have seen a surge in instructions over August and that should continue into September too.

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Chris
Chris 30 Aug 2017

Unfortunately, all the legislation bears its force on Landlords and ignores, naively, the effect of Rogue Tenants on the ability of landlords to keep houses in repair and offer properties for rent at reasonable...

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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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