Tag: April 2016 Stamp Duty Changes

12th April 2016

5%+ Rental Yield After Adding the Stamp Duty Surcharge ?

With the additional 3% Stamp Duty surcharge for second property purchases now set in stone, a number of property investors have been concerned about the effect on rental yields.

As we’ve argued previously, however, the Stamp Duty hike imposed by the Chancellor on the 1st April, has to be considered in the grand scheme of an overall property investment strategy – see https://wordpress.com/post/thecrawleypropertyblog.com/2740.  Most of the landlords that we know aim to keep their properties for the long term i.e. 10 years plus. This length of time is usually sufficient to “ride-out” the inevitable peaks and troughs associated with property prices. As one wag pointed out to me recently, however, it’s not the peaks that concern him……it’s more the troughs ! Point taken !

So, has the recent Stamp Duty surcharge torn the heart out of buy-to-let ?

From our perspective the answer to this question is currently no. Investment property is for the long haul, not just for Christmas – first mention of the C-word this year !  The 3% additional upfront purchase cost for buy-to-let investors is therefore more of an irritant than a game changer. Of course there are other tax changes that the Chancellor intends to phase in over the next few years, so advice from a qualified tax specialist is probably in order.

However, by way of an example, let’s take a look at a 2 bedroom flat in Southgate West, Crawley, that has just been advertised on Rightmove by estate agents Taylor Robinson. The asking price range is £210000 to £220000. Although the apartment block appears somewhat dated, from the internal photos the property looks to have been refurbished & maintained to a very high standard indeed. Here’s the Rightmove link for a closer look http://www.rightmove.co.uk/property-for-sale/property-53773372.html

Although the asking price for this flat is somewhat higher than similar properties that have sold recently, both the internal condition and seasonal effects of Spring on house prices have probably persuaded the vendors to try for as much as they can get – and why not !

Notwithstanding the higher price, 2 bedroom flats like the one we’re considering here rent for around £925 to £950 pcm. If, as a property investor you decided to add the additional Stamp Duty surcharge onto the purchase price to calculate your rental yield, you would get an effective asking price range from £216300 to £226600. Based on the rental values we’ve quoted, your gross rental yields would now effectively be around 4.9% to 5.3%. These yields are still slightly higher than the UK average at around 4.8%, as quoted for February 2016 by the Your Move and Reeds Rains Buy-to-Let Index – http://www.lslps.co.uk/news/house-price-index. Of course, if you can offset the Stamp Duty surcharge against any Capital Gain when you eventually sell, so much the better !

So there you go – it’s still possible to achieve 5% gross rental yields on Crawley investment properties, even if you add the Stamp Duty surcharge on to the asking price !

If you’re considering investing in property in or around the Crawley area and would like some advice on what & where to buy, please give us a call on 01293 515588. Our advice is free  and we’d love to chat “property” with you ! Alternatively, you can also e-mail us on crawley@northwooduk.com.

The opinions expressed in this article are those of the author only and not of Northwood. If you are considering investing in property, please make sure that you seek appropriate professional advice.

 

 

 

 

 

 

 

15th March 2016

Impact of the April 2016 Stamp Duty Rise:

We’re sure that everyone is now fully aware that Stamp Duty Land Tax (SDLT) is going to increase by 3% on all of the tax bands for additional properties purchased after 1st April 2016. In case you’re not sure of the Stamp Duty rates we’ve reproduced them in the table below.

Table 1: Stamp Duty Bands & Rates

Mar 16 - Stamp Duty Bands

If you are a property investor and are not well underway with your next property purchase by now, it is almost certainly too late to complete by the end of this month !

So, have you missed the Buy-to-Let boat ?

To answer this question, let’s look at the facts.

Consider, for example, a typical Crawley investment property, such as a modern 2 bed flat close to Three Bridges station. Currently these types of properties are being advertised for around the £235k mark.

What Stamp Duty would be paid by an investor if a property like this was purchased before or after 1st April 2016 ?

The Stamp Duty payable is shown in Table 2 and, as you can see, the total due from 1st April is a whopping £9250! Put another way, the Government is imposing a SDLT surcharge of  £7050 !  No wonder property investors have been trying to complete their purchases before April !

Table 2: Example Stamp Duty payable before & after April 2016

Mar 16 - Stamp Duty example

*Assuming second property purchase

 

However, let’s put some perspective on the Stamp Duty surcharge.

Although we know that property prices can go up as well as down, the average long term trend in prices has been upwards for a very long time.Last year, for example, average prices paid for properties sold in Crawley increased year on year by 10.8%, as we reported in last months’ Crawley Property Update (e-mail crawley@northwooduk.com and request your copy !)

A 3% increase on the Stamp Duty rate for 2nd property purchases would therefore have been easily “gobbled-up” in last years’ average property price rise.

The Stamp Duty surcharge appears even less significant when compared with average price increases in Crawley, over the last 15 years or so. According to the Land Registry, the average price paid for property in Crawley is now some 135% higher than it was in the year 2000.

Putting the Stamp Duty Rise into Context

The Chancellors additional 3% Stamp Duty increase from April 2016 is not particularly welcome for buy-to-let investors. However, we feel that when property price rises over the medium to long term are factored in, it is not something that should deter those determined to invest in the property market.

Of course, it should be stated that investing in the right property and in the right location, is perhaps even more important than it has ever been. If you’re in any doubt about what property to invest in, make sure you talk to a local property expert.

Last, but not least, it has been reported that the Government is currently proposing that the Stamp Duty surcharge can be offset against any capital gain when the property is sold. However, we can’t guarantee that ministers won’t change their minds at some point in the future, perhaps when we’re not looking !

The opinions expressed in this article are those of the author only and not of Northwood. If you are considering investing in property, please make sure that you seek appropriate professional advice.