Buy to Let – Rest In Peace?

Is buy-to-let dead and buried? Could the Stamp Duty Land Tax (SDLT) on purchases of additional residential properties above £40,000 be the final nail in the coffin for ‘buy-to-letters’? This measure, compounded by the changes to tax legislation impacting landlords, dealt another blow for the already challenged sector.

Let’s take a look at the evidence. According to the Council of Mortgage Lenders, in the first few months of the year, there was a distinct boost in housing market activity. Attributed in part to a flurry of transactions prior to the changes to SDLT, the value of buy-to-let loans reached £7.1bn in March – up by 142% on the figure for March the previous year.

The changes to SDLT (also affecting Land and Buildings Transaction Tax in Scotland) meant that a landlord buying a property for £200,000 prior to 1 April 2016 would have paid £1,500. After the change, the charge has risen to £7,500 for the same property purchase, hence the Q1 boom.

With the sector coming under increasing pressure, the Bank of England’s regulatory arm, the Prudential Regulation Authority, also released a consultation paper in April on the buyto-let mortgage market. The main recommendation being for stronger affordability tests and income verification for borrowers.

Another blow

Landlords who were previously able to claim mortgage interest relief at the 40% or 45% rate, will now find this relief restricted to 20% after April 2017. Landlords with buy-to-let mortgages will also no longer be able to deduct costs such as mortgage interest or loans taken out to improve the property, or fees. Instead, after April 2017, they will only receive a basic rate