A shadow looms over the buy-to-let market for 2017 because, since April, the Government has been enforcing an extra three per cent stamp duty on all buy-to-let mortgages. Now that the dust has settled, the long term impact of this change will emerge and the state of the market in 2017 will tell us a lot about the impact this has had.
Stamp Duty might well have been the most high-profile of the changes, but it’s far from the only one. Buy-to-let landlords have also been able to claim tax relief on their mortgage interest payments but by 2020 will only be able to claim 20 per cent relief. The combination of the two policy changes means that the up front cost of purchasing a buy-to-let property will rise, and the potential profits will be reduced.
It’s not all bad news though; the guidance so far is to avoid hiking up your rental prices to compensate, as you’ll find your tenants are already struggling with the cost of living. An empty property is, after all, no good to you.
However, there are a few other options out there including switching to a shorter-term fixed rate mortgage with a lower interest rate. The only trouble with this is that short-term mortgages tend to carry more risk and if you’re constantly switching then your mortgage fees can stack up. It’s worth talking to a professional advisor on your situation.
You might also want to see if you can enlist the services of a professional investor who can spot lucrative opportunities for you. The best opportunities will make decent returns, regardless of the rule changes. Jason Harris at First Urban is a seasoned professional in finding lucrative opportunities in the property market. Search out people such as this and see how they can maximise your investment.
One recommendation to avoid falling foul of the new rules is to become a limited company. The Telegraph states that due to the Government cutting corporation tax to 19 per cent in 2017, this offers a big opportunity next year. One way for higher-rate taxpayers (that’s likely to be people with a whole portfolio of buy-to-let properties) to cut their tax bills might be to invest via a company. It’s quite complicated and you will need to do it through a solicitor but the advantages are that all costs can be offset against rental income so eventually you may end up increasing your overall profits.
If this sounds like way too much work, then it may be best to get some of your lower earning properties on the market.
At the end of the day, any investment should focus on the long term returns. Law changes or economic turbulence might well only have a very small effect in the short term. Keep in mind that property prices are rising and many feel that, by 2020, everything could well go back to normal. This means that if you can just strap yourself in for a bumpy ride for the three years, you may come out the other side relatively unscathed with houses with a higher value that attract a strong rental income. In this case, 2017 might well be a case of holding your nerve.