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Stamp duty surcharge won’t dampen buy-to-let market - Bank of England

There was enormous appetite among buy-to-let investors to purchase property before the stamp duty surcharge on second homes was introduced on 1 April, as reflected by the unusually buoyant activity witnessed in the first quarter of the year, with both the number of offers and activity in the market rising sharply.  

Having long provided double-digit bumper returns for investors, buy-to-let has been an investment phenomenon which has outperformed all major asset classes over the past couple of years, with total annual returns from buy-to-let properties reaching 12% in 2015 or £21,988 in absolute terms. But various clouds on the horizon have prompted concern that the buy-to-let bonanza may be coming to a very abrupt end.

Many experts believe that changes to stamp duty, tax relief and new lending rules look set to cool demand for buy-to-let investments. But that is not the case, according to the Bank of England.

Although buy-to-let activity in the second quarter will almost certainly be subdued following the tax hike, the Bank anticipates that it will remain robust “over a longer horizon”.

It said there was “a risk” that many landlords “did not fully appreciate the implications” of cuts to the amount of tax relief they can claim on mortgage interest payments from April 2017.

Stamp duty surcharge won’t dampen buy-to-let market - Bank of England

 “That could lead to downside risks to  activity in the sector further out, if it  subsequently led landlords to make a  sharper adjustment to their portfolios,” the  Bank noted in its agents’ summary of  business conditions.

 In spite of the changes, regulators expect  banks to grow their buy-to-let lending  books significantly over the next few years.

  • icon

    So now they're experts in property investment too.

  • Paul Knox

    John, they get to see ALL the data (far more than an individual does). So yes, I'd guess they (the Bank of England) are kinda expects

  • Andrew McCausland

    Section 24 "..could lead to downside risks to activity in the sector further out, if it subsequently led landlords to make a sharper adjustment to their portfolios” is probably a major understatement, although I do agree with the BOE that many landlords are not yet aware of how serious this will be.

    Any landlord who owns property in their own name (rather than through an SPV) and has a mortgage will be put under enormous pressure to sell. If the legislation is implemented as currently planned it is difficult to see how BTL can continue in its current form for many.

    New entrants to the sector know to buy through SPV's but existing landlords have a major problem to contend with. If you are a landlord who:
    a. Owns in personal names
    b. Earns a wage of ~£38k+ from another job
    c. Has a mortgage on the BTL
    you need to get your calculator out. In many of the cases we have examined the only option left for landlords in these cases is to sell up.

    The increase in SDLT was never the problem; nobody wants to pay more tax but the economic and political reasoning behind it were understandable. Section 24 is the killer blow for many landlords.

  • icon

    I'd be grateful for reference to the data/article stating "buy-to-let properties reaching 12% in 2015 or £21,988 in absolute terms."

    Many thanks

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