“Major changes to stamp duty and mortgage lending for buy-to-let investors”
This week two significant changes have been introduced that will directly impact buy-to-let investors:
• The Bank of England signalled its intention to restrict mortgage lending criteria for buy-to-let investors.
• The new 3% stamp duty surcharge on all second homes and buy-to-let property purchases comes into effect on Friday 1st April.
If you’re a landlord looking to grow your portfolio or a home-owner looking to buy an additional property, this is what the changes will mean for you:
REDUCING BUY-TO-LET MORTGAGE LENDING BY UP TO 20%
The Bank of England’s Prudential Regulation Authority (PRA) has announced it will act to prevent a bubble in the private rental market fuelled by investment from smaller landlords, who it said may be susceptible to falling into arrears if interest rates start to rise. It says lenders must apply new tests to check:
-All the costs a landlord might have to pay when renting out a property;
-any tax liability associated with the property;
-a landlord’s personal tax liabilities, essential expenditure and living costs;
-a landlord’s additional income where it is used to support borrowing. This must be verified;
-how much cash borrowers have to cover their interest payments in the scenario that interest rates rise to 5.5 per cent for a five-year period.
The PRA said that the new restrictions on mortgage lending for buy-to-let investors should ultimately see buy to let mortgage approvals fall by between 10 and 20 per cent by 2019, but pointed out 75% of mortgage providers already apply these criteria when making lending decisions.
If you wish to discuss your buy-to-let borrowing requirements, please contacts Springtide Capital independent mortgage brokers, who may be able to offer an exclusive finance arrangement at competitive rates. Contact Springtide on 020 3040 4400 or email firstname.lastname@example.org
ADDITIONAL 3% STAMP DUTY ON BUY-TO-LET AND SECOND HOME PURCHASES
From Friday, an extra 3% stamp duty will apply across on all additional homes purchases completing from 1st April 2016 onwards. Unless the home being purchased is replacing an existing main residence that will be sold within 36 months, the extra 3% will be payable without exemption.
The new rate of stamp duty across all bands on second or buy-to-let purchases from 1st April 2016 will be as follows:
Purchase Price (£) Rate
£0 - £40,000 0%
£40,001 - £125,000 3%
£125,001 - £250,000 5%
£250,001 - £925,000 8%
£925,001 - £1.5m 13%
Over £1.5m 15%
To find out what your new stamp duty liability will be from 1st April 2016 you can download our free stamp duty app for Apple devices by clicking here, or you can use our free online calculator at www.chestertons.com/research-and-insight/research/stamp-duty-calculator-tool
The only exception to the new 3% surcharge is for what the Government describes as “significant investors in the property market”, utilising existing multiple dwellings relief and the ability to pay the non-residential rates when purchasing six or more properties in the same transaction. The HMRC definition and examples can be found here. A more detailed guidance note – updated since the 2016 Budget – is available here.
HAVE YOUR SAY
Please take a moment to tell us what you think of these two major changes that will affect the buy-to-let market from 1st April onwards, by completing a very short survey here.
CHESTERTONS LANDLORDS’ BREAKFAST BRIEFING
Join us at the Royal Academy of Arts in Piccadilly between 8am and 10am on Thursday 12 May to hear about the latest economic and political factors affecting the private rented sector from experts including the Chief Executive of the National Landlords’ Association and the Chief Political Correspondent of the Financial Times. Breakfast will be served and there will be a chance to view the In the Age of Giorgione exhibition afterwards. Tickets are limited so please register your interest.