London landlords are facing a tough time in 2016 and beyond. Recent government policies have singled out the buy to let industry for a major shake up.
For example, a stamp duty increase of three per cent came into play on the first of April. Landlords will pay the prevailing stamp duty rates plus the additional three per cent. London landlords stand to be the most affected as average property prices in the capital are the highest in the country. In addition, there appears to be a trend amongst local authorities to introduce license fees. For example, the London borough of Walthamstow charge landlords £500 for the privilege of obtaining a license to let a property. The sale of landlord properties is now taxed at a higher capital gains tax rate than other assets and mortgage interest relief is being phased out over the next four years. These are all significant changes and yet there is still more to come.
More concerns for London Landlords
In a recent move, the Bank of England has indicated that the conditions associated with buy-to-let mortgages will be tightened. This will affect both borrowers and those landlords looking to purchase a new rental property. This change is a direct result from a four-month investigation performed by the Prudential Regulation Authority. It is said that there are two primary reasons behind this move. First, the banks are concerned that the funds “pumped” into this sector could be dramatically affected by a rise in borrowing costs. Secondly, some feel that the standards for landlords have been relaxed. There are also concerns about a future property crash. Some of the conditions which could soon become realities are:
- Tougher lending terms.
- A limit on the number of buy-to-let mortgages each lender can offer.
- The need to set aside more capital for loans.
So, it is clear that there are some very real all landlords and perhaps more so for London landlords. Although rock-bottom interest rates have created buying frenzies in some circles, all that glitters may not be gold. Chancellor Osborne points out that with such low rates, those with money in the bank are enjoying few returns. If all goes as expected, Osborne may give the Bank of England increased control over buy-to-let properties later this year.
The Bottom Line for Landlords
The main issue is that while these changes could provide property markets with extra stability, landlords could suffer. In other words, they may not have access to capital necessary to purchase a buy-to-let property. With tougher lending terms, it is also likely that loan interest rates could be higher while payment options more limited. Without access to such capital, could we see the buy-to-let market shrink? Perhaps more concerning, higher rental prices are more than likely to become a reality.
The issue becomes the ability to secure a quick property sale for those who may be looking to pump money back into buy-to-let schemes. Molae Properties can help. By providing quick access to liquid capital and through a streamlined buying process, landlords could find themselves in a much better position.
It still remains to be seen whether these market conditions become a reality. We are also not sure when they will be put into place. Still, there appears to be storm clouds on the buy-to-let horizon.