With housing in short supply and house price growth continuing, the pendulum is swinging further tow
As supply lags demand, there will be upward pressure on capital values and rents, which is good news for investors - at least for those landlords less affected by the raft of changes designed to take the heat out of the housing market.
The 3% addition to marginal stamp duty rates for second homes and buy-to-lets will mean having to put in significantly more equity for reduced returns. It would add £15,000 to the tax bill for purchasing a £500,000 residential property. Assuming you put down a 25% deposit, this would mean putting up 19% more cash. However, when holding for decades, this increase becomes less significant.
A more significant penalty is the removal of mortgage interest tax allowance. This measure will be fully phased in by 2017. Investments owned by higher rate taxpayers, where mortgage interest exceeds 75% of the rent charged, will become loss-making under these changes. Additional tax relief for "wear and tear" will also be substantially reduced.
It will be interesting to see if this proposed measure will actually stick. Although welcomed by housing charities and tenant groups, it's certainly not popular with smaller landlords. Many argue that it discriminates in favor of corporate investors which would be exempt - particularly at a time when many pension funds and property companies have declared a serious intent to invest significantly in the private rented sector. Cherie Blair has picked up the baton. Omnia Strategy (her law firm) has challenged the tax changes, suggesting a breach of human rights.
VIEW FROM THE ROSTRUM
At the moment, interest rates look stable - and current unease across global markets has put off any likelihood of a rate hike this year. Certainly the Bank of England fears that any rate rise would have a more damaging effect on landlords than owner occupiers; the BoE reports that buy-to-let lending was at 14.5% of gross new mortgage lending in Q3 2015, up from 8.8% in Q3 2007.
Inevitably 2016 will see some landlords reconsider their investments and potentially disinvest. This would improve the flow of stock to the auction rooms. Only a mass exodus would contribute to a fall in house prices - and that is not going to happen. Cash-rich investors with nil or low loan to value debt requirements - perhaps swelled in number by those taking cash-free lump sums from their pensions - will pick up the slack. With pension reforms also culling the lifetime allowance from £1.2m to Rim, we could certainly see people moving money around in this way.
Landlords with portfolios of 15 invest- mints or more are expected to be exempt from the 3% hike and are also likely to remain in the room.
Our first catalogue of the year, for our 18 February sale, is now in the market. More than 330 lots will be offered. Compare that with 272 in February 2015 - an uplift of 21% by volume. It is clear from these figures -and also from our discussions with vendors - that a spike in demand is expected as some investors rush to beat the surcharge deadline.
As a result, we'll certainly see a post-April lull as the market adjusts. But while these aggressive measures will never be viewed as welcome, it would be wise for the smaller investor to consider the bigger picture. With demand increasing and significant shortage in supply likely to endure, there's no indication that capital value appreciation in residential property is likely to cease in the medium term. Payment of additional SDLT is inconvenient but, at the present rate of house price inflation, is likely to be negated over months, not years.
With our auction teams having enjoyed a stellar 2015, raising more than 1b gbp in sales, questions have inevitably been asked around the future for property, and residential in particular, but with so many changes afoot - and more to come - the year ahead is a hard one to call.
While it is likely to be both an interesting and uncertain year, the landscape points to a shift in ownerships. And if there's one thing for certain, it's that we in the auction world very much like that.
It is clear from the figures-and discussions with vendors - a spike in demand is expected as some investors rush to beat the surcharge
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Neil Parmer Property Investment Adviser - Professional advice & new business opportunities for Landlords