Buy to Let Taxes VS Brexit
What has caused the property market in the UK to get so tough?
- Is it the uncertainty of Brexit or,
- buy to let tax changes
Let's run through the above and ask why the market conditions could be impacted by either point.
1) Brexit's impact on the property market
Uncertainty is one of those things that effects everything, including how much we might spend on a house, or whether we actual consider buying a property until there is more certainty in the market. Taking a step back and looking at the impact of Brexit on property prices in the past 2 years, I cannot personally see a huge change in the market due to this uncertainty. Although I cannot deny there has been some impact on property prices, looking though my database of buyer's and from conversations with property buyer's since the Brexit referendum in June 2016, I'm certain we have not lost a single sale due to Brexit and may have only had a handful of buyer's actually say they were waiting out the final deal.
Could Brexit cause buyer's to stay in rental accommodation, or at home rent free. Yes of course, but if someone needs to move, would they rather get on the ladder now or sign up to another tenancy agreement to potentially give away £15-£20,000 in rent over the coming year. Looking at this, most sensible buyer's will understand that this yearly rent is actually the equivalent of prices dropping a further 10%.
2) Buy to let tax changes 2019
So what happens when the government increases stamp duty by 3% for investors and in doing so, curbs the majority of accidental landlords overnight & eliminates most landlords from the market? I think the answer is 'a price correction'!
I'm sure most estate agents can agree that we saw huge influxes of landlords during 2013-2015, as well as a large amount of homeowners that decided to keep their first property and remortgage a 2nd deposit for their next move.
So, 2017, 2018 & 2019, where are these buyers?
Well due to the additional 3% stamp duty penalty most landlords have taken a step back and will only buy a property if there are obvious gains to be made, eliminating a large portion of buyer's that were sweeping up every apartment that entered the market. On top of this, accidental landlords are struggling to afford the additional 3% stamp duty and they are now needing to sell their properties, putting more small houses and apartments on the market.
How does this effect prices?
Well that supply and demand issue we kept hearing about in 2015 when prices were increasing daily has suddenly vanished!
As there are now limited buyer's purchasing apartments as well as "accidental landlords" that need to sell, we now have a supply issue at the entry point of the market causing a price correction.
But that's not all.
The government has also changed the way landlords are taxed on rental income. How, well you can no longer claim full relief on your mortgage expenses, meaning landlords with a mortgage will be taxed similarly to landlords that own their property in cash. This will see landlords being pushed into higher rate tax brackets and effectively see a loss in profits.
Verdict:
Although Brexit is having some impact on house prices, I think the main reason the market is getting tougher does come down to tax changes. By penalising such a large amount of buyer's for owning more than one property, you can't expect the market to continue growing at the pace it was. Of course Brexit is something that investors also want to steer clear of, I think affordability and the challenge of getting good yields from property investment is really where the market has been impacted the most. Fortunately I'm sure this is only a price correction and I'm quite confident we have seen the worst of it. In my opinion the market has gained traction in 2019 and it seems there could be a positive swing in houses sales.