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

MBM Homelets
MBM Homelets 23 Mar 2017

Although this is a very positive step, there is little or no guarantee of the standard of workmanship employed by the tenants. We have had experience of a professionally decorated property being ' painted'...

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ajay
ajay 21 Mar 2017

How is the "robust evidence" looking now?

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NathanG
NathanG 20 Mar 2017

I've been watching the series so far and am completely baffled by the cases that were presented. Though, I don't think that we can protect ourselves from every scam possible - it will just make the scammers...

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Landlady14
Landlady14 01 Mar 2017

You would think so Niraj Shah! My experience only proves that there are varying qualitiers of professional in all aspects of property letting. None of the ones I have dealt with, from letting agents to...

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Mark
Mark 01 Mar 2017

Thanks for this article. Hopefully one day everybody's lifestyle will be eco-sustainable.

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Ben Taylor
Ben Taylor 28 Feb 2017

I was convinced that London was the most expensive!

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Alan Read
Alan Read 28 Feb 2017

Australia are leading the way in this I think. The trouble with Britain is we don't get enough sun to make use of solar power.

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James Powell
James Powell 27 Feb 2017

This is a very good news.

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DanHumphreys
DanHumphreys 27 Feb 2017

It sounds like a good idea. Anything to help the younger generation get a foothold.

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Matt
Matt 20 Feb 2017

Is this fake news?

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Matthew Hollywood
Matthew Hollywood 07 Feb 2017

Matthew Hollywood - Director Mishon Mackay Land & New Homes - Brighton The shortage of New Homes is in part effected by the lack of land sales. Land sales are held back because there is a disparity between...

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CommercialTrust
CommercialTrust 30 Jan 2017

Hi Graham, Would be interesting to see the above figure calculated against an investment via a Lt Company /SPV structure and if the investor found themselves pushed in to the higher tax bracket. Mortgage...

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