March 23rd 2020 / BY: Wisteria

How Have Recent Regulatory Changes Affected the Buy-To-Let Property Market?

How Have Recent Regulatory Changes Affected the Buy-To-Let Property Market?

In 2016, landlords in the UK suffered a blow when George Osborne introduced sweeping changes to the buy-to-let property market. Plans to increase stamp duty and scrap tax relief on mortgage interest rates would have serious repercussions for landlords up and down the country. Four years on from Osborne’s bombshell, we’ll take a closer look at how these changes have affected buy-to-let landlords, and what they mean for the market going forward.

What Are the Current Rates of Stamp Duty and How Do They Affect Landlords?

If you buy a property or a piece of land in the UK, you’ll usually have to pay stamp duty land tax (SDLT) on your purchase. The current threshold for residential property in England and Northern Ireland is £125,000. Anything above that and you’ll be liable for stamp duty. Since April 2016, anyone purchasing a buy-to-let property or a second home has been required to pay an extra three percent in SDLT over the normal rate. That’s an additional £9,000 on a £300,000 property.

House Price Standard Rate Buy-To-Let/Second Home Rate
Up to £125,000 0% 3%
£125,001–£250,000 2% 5%
£250,001–£925,000 5% 8%
£925,001–£1.5m 10% 13%
Over £1.5m 12% 15%

The hike in stamp duty has seen landlords’ profits shrink, and in many cases they have simply sold up and quit the market. But, with the right help and guidance there is still money to be made from buy-to-let property. At Wisteria, our specialist property accountants can provide all the advice and support you need to help you get the most out of your investment.

How Have Changes to Mortgage Interest Tax Relief Affected Landlords?

In his Budget speech in 2015, George Osbourne announced major cuts to mortgage tax relief for landlords. The changes came into effect in April 2017, and saw profits from buy-to-let properties dwindle. Under old rules, private landlords were able to deduct finance costs — including mortgage interest and loan fees — from their rental income before calculating their tax liability. This effectively meant they paid tax on their profits rather than their overall turnover. Beginning in April 2017, this system has been gradually phased out, with allowable deductions from property income slashed at a rate of 25% a year. From April, landlords will be unable to deduct any of their mortgage expenses from taxable rental income, and thousands of investors could find themselves out of pocket.
How Have These Regulatory Changes Impacted the Buy-To-Let Property Market?

The new legislation has hit landlords hard, and unsurprisingly the buy-to-let market has suffered as a result. In the immediate aftermath of the changes, landlords up and down the country began selling off their properties and downsizing their portfolios, leading to the worst dip in the market since the financial crisis of 2008. The market continued to shrink, and in March 2019 the number of buy-to-let purchases was down almost 10 percent from the year before. But it’s not all doom and gloom, and in the last 12 months we’ve begun to see the first signs of recovery. New figures show that from April last year, the number of purchases using buy-to-let mortgages has increased dramatically. Indeed, in August 2019, some 6,000 borrowers purchased a rental property with a buy-to-let mortgage — a whopping 25% more than did so in February that same year.

Speak to the Experts

The recent uptick in the buy-to-let market shows that there is still a profit to be made for a shrewd investor. And with the right purchase, you can still enjoy steady returns and long-term capital growth. However, with so much red tape, it’s a good idea to speak to a professional before dipping your toe in the market. Here, at Wisteria, our experienced property accountants can guide you through the process step by step, keeping you abreast of all the latest rules and regulations and helping you maximise your profits. Whether you’re a first-time buyer or an experienced investor looking to expand your portfolio, we can help you get the most out of your investment.