Another 'Flipping' George Osborne Blow For Sunderland Investors?

Yesterday's Autumn Statement announcement of 3% stamp duty being applied to BTL properties from April 2016 followed the recent trend of George Osborne giving Landlords and Investors a kicking, in what is clearly becoming evident as a deliberate government policy to force Landlords with small portfolios out of the industry and make way for large institutional investors to fill the vacuum...

Look at the various Landlord and Investor forums on the Internet and there's lots of panic-mongers claiming that the world is about to end as a result of this, however on closer inspection it's clearly not good news for Investors but it may not be quite as bad as first appears...if you take a long term view

The stamp duty does not apply to BTL properties valued at under £40,000 but for those valued at £40,000 to £125,000 the 3% duty applies, with higher values for higher properties (that really won't affect Sunderland investors much!)

There's still a degree of vagueness about the details of the announcement but it would appear that 'Professional Landlords', which seems to be those with over 15 properties, would not have this Stamp Duty applied!

Properties valued at £125,000 to £250,000 will have the additional 3% applied on top of the standard 2% stamp duty applied to all properties within this band, making 5% stamp duty payable in total

Looking at this from a Sunderland perspective, most investors buying to keep and rent out will be buying under the £125,000 threshold (unless they are buying HMO's)

Most Sunderland BTL properties are priced in the range of £60k - £90k so taking the average of £75,000 that will generate a £2,250 Stamp Duty bill

That's £2,250 onto the price you'll pay and therefore £2,250 from the profits you can make (unless you pass it on)

Looking at this from a short term perspective it will cause a 7.9% Gross Yield (based on buying at £75k and renting out at £495pcm) to fall to 7.7%

That's still a good investment compared to many other forms of investment and I'd argue you'd not notice the 0.2% difference, especially in the long term

Take the long term view and amortise that £2,250 across the average length of time a BTL property is held (let's say 10 years for sake of argument but it could be double that) and that's £225 a year or less than £20 a month

You'd pay a much higher amount for properties over the £125,000 threshold but given most in Sunderland at that price bracket are likely to be HMO's the return from such properties will be so much greater that it will minimise the impact to again barely-noticeable levels over the long term

It will certainly make things interesting for those looking to buy Below Market Value properties especially for those searching for properties with a market value of around £50,000 - £60,000 

I imagine there'll be a lot of £39,999 BMV offers being made in the future and joking aside it may have more of a negative impact on those distressed sellers with low value properties than it does to the potential buyers

Infact, this could have a positive impact on areas such as Sunderland where it is possible to invest in a decent property for less than the £125,000 threshold where stamp duty steps up to 5% in total

It will be interesting to see if there is a stampede for investors looking to buy before this is applied in April 2016...which could make an interesting start to the year!

I do think that it could have more of a negative impact on those looking to Buy to Sell ('Flip') properties in Sunderland

I say this as clearly the stamp duty won't be able to be absorbed over the long term and as suggested on an earlier post (Why Are There So Few 'Flipping' Good Property Deals In Sunderland?) it may be necessary to initially pay more for a larger property to Flip to enable sufficient value to be added to make it worthwhile - your standard £60k - £90k Buy to Lets aren't likely to increase in value enough in the short term to make profitable Flip, you need to hold onto them to get a return

This may mean that those Flipping in Sunderland have to factor in the 5% stamp duty applied to over £125k properties when buying

Given most Flips would be sold to owner-occupiers rather than investors (and therefore they wouldn't be paying the 'extra' stamp duty) it could just be that the added cost is applied to the selling price

There's a question over how this would be policed and it may be that they will require mortgage lenders or solicitors to share information on BTL mortgages taken out so it may be that this additional Stamp Duty could be avoided if the property was purchased in cash or using Joint Venture finance avoiding the need for a BTL mortgage? There's also the consideration that using Bridging Finance may avoid this but the cost is usually higher - given the announcement was only made yesterday these are very much 'off the top of my head' thoughts!

As it stands selling costs (including Stamp Duty) can be offset against Capital Gains Tax when a property is sold so whilst the Stamp Duty will need to be paid out in the first instance it can be claimed back...but I'm not particularly hopeful that given the way things are heading this loophole won't eventually be closed off!

Don't forget that there's likely to be more scrutiny by the Bank Of England on BTL and lending restrictions are on the way - I certainly wouldn't suggest this is likely to be the last anti small Landlord activity in the near future but I have faith that more often than not markets change and adapt to cope with such change and for every loser as a result of these changes there are likely to be an equal amount of people who benefit

If you'd like to have a chat about the impact of this change or any further policies that may affect property investment in Sunderland feel free to give me a call on 0191 567 8577 or email neil.whitfield@belvoirlettings.com