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

Oliver Conway
Oliver Conway 18 May 2017

Making a neat inventory is a good idea, but if the seller is not willing to provide it, can the buyer demand it?

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Bertrand
Bertrand 17 May 2017

First step to nationalisation of the private rented sector IMHO. Nanny state poking their noses into things yet again. I object, as a decent landlord, sometimes having to deal with some pretty awful tenants,...

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Izzy
Izzy 16 May 2017

This is such a great a post. I love the detail you've gone into. It's a very useful article for helping those who are looking at deciding which sector they would like to go into! When I first started investing...

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paul burnham
paul burnham 30 Apr 2017

Jeremy Corbyn's pledge that a Labour government would build 500,000 new council houses must electrify the general election campaign. Reliance on markets and the profit motive has brought huge housing-related...

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CommercialTrust
CommercialTrust 28 Apr 2017

Sadiq Khan?s announcement of an online database of landlords and letting agents who have been convicted of housing offences, appears on face value to be a variation of the already implemented Database

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warren
warren 26 Apr 2017

You're very welcome Mary! Glad you enjoyed them :)

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Mary Ward
Mary Ward 26 Apr 2017

Thank you for the wonderful ideas. First impressions can make or break a deal. It's sadly that many homeowners drop the kerb to create an off-street parking space.

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Tony Gimple
Tony Gimple 14 Apr 2017

I'm not at all surprised that so many landlords are still confused about what the tax changes really mean and how it will affect them. In particular, the blind rush to incorporation is leaving landlords...

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MH
MH 13 Apr 2017

You are right that the bank holidays are going to be spoiled in looking for the properties. But people who want to sell their property and looking for the better relocation, they can get benefits of this...

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bnellyb
bnellyb 08 Apr 2017

There will be an exodus of private landlords over the next 5 years as tax changes take effect, private landlords provide an important service to the rental market, why do housing associations and councils...

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Fred Cassman
Fred Cassman 07 Apr 2017

"Make it look like you are at home": often people forget this and share on facebook their location!

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jared townsend
jared townsend 05 Apr 2017

It'll be interesting to see how & if the Government's asset sale regarding mortgages helps

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