Stamp duty hike could wipe out a year’s income for landlords
The 3% increase in stamp duty for buy-to-let investors could cost landlords the equivalent to 11 months income if they use a mortgage to buy a rental property from April next year.
New calculations show that if the higher tax burden is not factored into the purchase price of a buy-to-let property, it would mean a reduction in gross yield of 0.2%.
That is equivalent to 11 months income for the average landlord, taking into account borrowing costs and based on the average loan to value of 68%.
From April next year, a landlord paying £400,000 for a two-bed property in London will see their stamp duty bill jump from £10,000 to £22,000.
About 60% of property bought by landlords in 2015 is in London, south-east England and the eastern counties.
While landlords in these areas will see the biggest increase in stamp duty, high expectations of future price growth will likely mitigate some of the impact of the new tax.
If property prices grow at the same rate as the last five years, the increase in stamp duty will be offset within 12 months.
On the other hand, landlords in south-west and north-east England will see the highest cost relative to rental income, as the extra tax burden is equivalent to 14 months and 12 months of income, respectively.
Those buying in north-west England will experience the lowest cost relative to rental income, with the extra stamp duty equivalent to eight months of income.
The changes to stamp duty come as the number of homes available to rent shrinks. Levels of stock have decreased 5% year on year and it is likely that the growing imbalance between supply and demand will continue to support rent increases.
For more information, click on the link below: