3 June 2016 by Amie Mackay

Recent buy-to-let changes – How could they affect you?

New measures came into force on 1st April 2016 which aim to put a halt to the thriving buy-to-let market in the UK. The idea is to free up housing stock and encourage the building of more affordable homes for first time buyers. The changes include a 3% surcharge on the rate of Stamp Duty Land Tax (SDLT) for investment property, and stricter lending criteria for buy-to-let landlords.

If you are buying an additional home, and not replacing your existing home, then the higher rate of SDLT will apply. This includes if you are buying with a partner and one of you already owns a home, if you already own a property outside of the UK and if you own a holiday home. If you buy a second property to move into, without selling your existing home, then you will need to pay the higher rate of SDLT. You can, however, request a refund if you do sell your first home within 3 years of completing the additional purchase.

The difference in the amount of SDLT payable is quite substantial. For example, a purchase of a freehold property at £500,000 before April 2016 would have attracted £15,000 in SDLT, but now the amount payable, on the purchase of the same house as a second property, will double to £30,000. It is essential that you declare whether you have an existing home on your SDLT return, and that you disclose this to your solicitor, as failure to do so will be deemed fraudulent and penalties will be incurred.

The recent SDLT changes, coupled with the already over-heated housing market, have pushed financial regulators to impose stricter criteria on lenders, which is in turn aimed at helping landlords and other borrowers to withstand the impact of increased mortgage payments. New guidelines are due to come into force, following a consultation ending in July of this year, which will try to ensure that borrowers can afford additional mortgage costs. The hope is to minimize any risk of the property market crashing when interest rates eventually rise.

We are already starting to see lenders, such as the Nationwide Building Society, tighten their conditions on – for example – the amount of rental income that buy-to-let landlords must receive. Landlords now have to prove that their rental income is at least 145% of their monthly mortgage payments, compared to 125% previously. Also, landlords who apply for a new mortgage will now only be able to borrow up to 75% of the property’s value, instead of 80%.

As we start to see the impact of these changes, on the buy-to-let market, here are some of the issues to think about before you commit to buying an investment property:

  • Consider whether you can afford the higher rate of SDLT, if you are buying an additional property; you can calculate the amount of SDLT payable at https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro.
  • Seek financial and tax advice, as there will be implications for your tax and mortgage payments and any return that you may hope to make on your investment.
  • Consider carefully the potential rental market you may be entering and also the type of property that can bring you the return you need.
  • Be aware of what your legal obligations (and the associated costs) will be, as a result of you becoming a landlord i.e. to keep the property in good repair and suitable for renting.

If you are considering buying an additional property, and you have any queries or concerns about how these recent changes may affect you, please contact Amie Mackay on 020 7288 4758 or at amiemackay@boltburdon.co.uk.

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