Accountants KPMG has warned that the upward trend in buy-to-let may reverse in 2016 due to the tax changes being introduced this year and beyond.
The firm has warned that the stamp duty hike for landlords could result in developers struggling to sell new build property while reduced supply of rented property could mean higher rents for tenants.
According to figures from the Council of Mortgage Lenders, the number of buy-to-let loans increased nearly 28% from October 2014 to October 2015, with the value of loans increasing by almost 36% in the same period. But KMPG warns that these trends could reverse this year.
Dermot Callinan, head of private clients at KPMG in the UK, pointed out that the past four years have seen 14 tax changes targeted at residential property and in particular buy-to-let landlords, making the economics of such an investment less and less attractive.
“So far, experience had shown that the majority of individuals have opted to pay the higher taxes than invest differently, and in the short-term, we may well see a rush to invest in rental properties before the additional 3% in stamp duty land tax on buy-to-let and second home properties (above £40,000) comes in from 1 April 2016,” he said, “However, following its implementation and on top of a number of other measures phased in from 2017 onwards such as landlords facing a restriction in their ability to offset mortgage interest, it will be interesting to see whether buy-to-let investors opt to keep property portfolios or sell up ahead of the further changes coming in to force.”
Callinan warned that if large numbers of landlords take the decision to sell leading to a significant amount of second hand stock being put up for sale, this will have an impact on the housing market and could also cause problems for some developers reliant on investors to maintain the current rate of sale.
“Added to this, if fewer buy-to-let properties are available thereby creating a squeeze on the market, there is also the risk that these changes could result in high rental rates as landlords seek to compensate for increased costs,” he said.
“While a number of the tax changes have been highlighted as major revenue raisers for the Government, the thinking behind them is also to deter some from investing property in order to leave more opportunities for owner-occupiers to get onto the housing ladder.
“Whether these changes achieve the Government’s policy aims remains to be seen, but these measures may well dampen demand for the kind of properties that are marketed as buy-to-let investments in the medium to long-term.”
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