Buy to Let in 2016 - The Pension Planner

Buy to Let in 2016

Published on June 9, 2016 by Andrew

Can “Buy to Let” still make a return worth having?

The buy-to-let marketplace seen considerable changes in 2016, possibly the most significant is the rise in stamp duty on any property you possess apart from your main home. What this implies for anyone contemplating investing their cash in buy to let property is that it might not provide the same type of solid investment that property has typically been.

The rise in stamp duty will mean that any buy-to-let property currently gets a 3% surcharge; a substantial increment from the prior rate. E.g.., within the previous system, had you been purchasing property for £200k, you’d pay nothing on the initial £125k and 2% on the £75k, producing a bill of £1.5k. Today, 3% is charged on the 1st £125k & 5% on the next £75k, which leaves a much larger bill of £7,500. This fundamentally means the wait to receive these funds back and produce an appropriate return through rental payments considerably longer.

The long term opportunities for the monetary health of buy-to-let don’t look a whole lot better. From 2017, new limitations are going to be introduced on the level of mortgage interest that may be offset from rental payments. It’s an intricate system that many predict will change lucrative buy-to-lets into loss-making assets in about 70% of places, and this could force many landlords either to raise rents substantially or place their properties for sale. There is also cuts regarding the ‘wear and tear’ allowances, which permit costs for repairs and maintenance to be offset from income, making the ability to attain profit even tougher for landlords.

Additionally, there are plans via the Bank of England for increased constraints on who’ll be permitted to have a buy-to-let mortgage. This would mean a broader reflection on a landlord’s financial circumstance, such as scrutiny of their incomings and outgoings, rather than just the rental earnings of the property which the current system looks at.

Inevitably, if you are planning to get in the buy-to-let marketplace soon, the best way to avoid getting hit by these alterations is to be sure that your investments are not exclusively in property. A diverse portfolio that doesn’t depend exclusively on placing your cash in bricks and mortar will mean that, even if the property market doesn’t go your way, you’ll still have several other sound investments.

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