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Insight & Opinion

Will buying a second property still be attractive for investors?

Author: Gemma

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There has been much debate about how the government’s bid to increase homeownership will affect those buying a second property or buy-to-let investment.

These changes coupled with the EU referendum, and potential Brexit when polls open in June, has forced many people question what will happen to the UK’s ‘property safe haven’ status?

With changes to tax relief and a 3% levy on stamp duty on the horizon, will property still be profitable for investors.

What will affect those buying a second property?

Income tax
From April 2017, the amount of tax relief landlords can claim will be reduced. Currently landlords able to claim up to 45% however, in a move which will be phased in over 4 years, many will see the level drop to 20%.

Those looking to generate a rental income from property may see their profits drop in light of these changes. Industry experts believe that landlords may increase rents to make up for any loss in income.

Stamp duty
Those buying a second property will be hit by a rise in the amount of stamp duty land tax they pay from April 2016.

The government has yet to reveal exactly how the changes will work across the board however, if they do go ahead, rises could look like the following:

BandExisting Residential SDLT RatesNew Additional Property SDLT Rates
£0 – £125k0%3%
£125k – £250k2%5%
£250k – £925k5%8%
£925k – £1.5m10%13%
£1.5m +12%15%

*Transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates.

Source: HMRC

The government’s planned rise in stamp duty tax on second homes and buy-to-let properties has faced much opposition. It is feared that it will have a negative effect on the market, with many people forecasting that landlords will sell up or look elsewhere for property investments.

However, Jerald Solis of Experience Invest does not believe that property investors will be put off in the long-term.

“The increased rate will make it difficult for investors to achieve a higher yield in the short-term. This may initially put some investors off. However, a lot of professional investors and landlords view property as a long-term investment and as a source of a regular, passive income. They may even think of it as an alternative pension. These people will look to recoup the higher initial cash outlay through holding on to their asset.”

EU Referendum

There has been much speculation about how the market will adapt in line with the government’s schemes to boost homeownership. As with any major changes in policies, buyers become more cautious in the run-up to their implementation.

It looks like this will also be the case in the run up to the EU referendum. With the uncertainty of the outcome of the polls looming, investors may tread carefully when investing in the UK.

“Uncertainty is bad in and of itself,” Christine Lagarde, the IMF’s managing director has stated. “No economic player likes uncertainty. They don’t invest, they don’t hire, they don’t make decisions in times of uncertainty.”

However, it is not all doom and gloom. It is thought that any potential slowdown will be a short lived.

“History shows us that the market recovered quickly from this short term ambiguity in 2015 and in fact, home sales have really been building momentum over the past year. The property market is chock-a-block with eager buyers,” Peter Rollings, chief executive officer at Marsh & Parsons.

Are you considering buying a second home or investment property? Join the debate and share your thoughts below.

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