With the upcoming stamp duty hikes for buy-to-let properties just around the corner, there’s a palpable sense of anticipation amongst professionals as to how the market will react come April 1st. I have come across various articles recently forecasting a mass market exit and even the “death” of the buy-to-let mortgage altogether, and I can’t help but feel that the majority of these predictions have been greatly exaggerated by the media. For the wider buy-to-let sector, lending volumes will undoubtedly – if only temporarily – slow, but I don’t expect the tax increase to have anywhere near the same affect on the bridging market.
The brunt of the stamp duty change is more likely to be felt by the consumer buy-to-let area of the market rather than professional landlords and specialist investors, which tend to make up the majority of bridging loan clientele. New and inexperienced investors, perhaps looking to purchase their first buy-to-let property for future capital growth, may have to reconsider their finance strategies in order to accommodate the changes, but I doubt the increase is significant enough to deter potential market entrants.
As for the top end of the market, landlords and property professionals have had good time to prepare for the tax hikes, and I expect most have already adapted their business models to offset the additional costs. Whether this translates to a rise in rental prices is yet to be seen, but from the conversations we’ve had with our own clients, although the surcharge is clearly unwelcome, it poses minimal risk to bridging volumes.
For investors with particularly large portfolios, buying through a special purpose vehicle could offer a way of avoiding the tax rises. As a means of encouraging investment in large-scale housing, companies with more than 15 residential properties may be exempt from the increase. Although this will only apply to the very top end of the market, it may well contribute towards the growing number of investors setting up limited companies in order to avoid the cap on mortgage interest relief.
Predictions of panic in the market have certainly not come to fruition. The surge in landlords looking to complete before the new tax regime comes into place is a logical decision for professionals with investments already in the pipeline, rather than a case of “panic buying”. This being said, activity in the market around buy to let hasn’t felt as chaotic as we have been led to expect. We may well see a further increase over the coming weeks and even if this does result in a market bubble and slump either side of April, I envisage the impact to be short-lived.
In terms of the long-term affect on the market, it’s worth keeping in mind the government’s reasoning behind its housing policy. If the surcharge achieves its goal of slowing house price growth and creating a more level playing field for owner-occupiers, it should create a more competitive market place, which could open up a number of opportunities for clients, in particular bridging developers.
The buy-to-let sector proved its mettle in the face of numerous threats to market growth last year, and I suspect the increase in stamp duty tax is the first – and certainly not the last – challenge we are set to face this year. For the bridging sector in particular, the increase is certainly more of a molehill than a mountain to overcome and I wouldn’t be surprised if bridging volumes show little fluctuation in its wake. Bridging clients generally remain some of the most experienced and sophisticated investors, and I have no doubt that the majority have already adapted and readjusted to what is effectively a new cost of entry to the market.
By Lucy Hodge, Director, Vantage Finance