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How the Budget 2016 affects property investors

With the Stamp Duty surcharge coming into effect today, we look back at the key points from the Budget 2016 affecting the UK property market.

  • The planned stamp duty surcharge on purchases of additional property, to include those who buy more than 15 properties. Previously if you owned more than 15 properties you were exempt from the surcharge.
  • An 3% surcharge will be applied to residential stamp duty rates on all purchases of property not intended as the buyer’s main residence, from today, 1st April 2016.
    stampduty
  • The threshold at which people pay 40% tax will rise from £42,385 to £45,000 in April 2017 and personal allowance up to £11,500.
  • 0.5% rise in insurance premium tax.
  • Commercial stamp duty
    0% rate on purchases up to £150,000,
    2% on next £100,000 and
    5% top rate above £250,000.
    New 2% rate for high-value leases with net present value above £5m

Other issues to consider from previous budgets

  • Withdrawal of interest relief

Under current rules, taxable profits are reduced by interest on money borrowed for the purposes of the letting business.  Phased in over a four year period starting with the 2017/18 tax year, UK taxpayers will no longer be able to deduct interest in calculating taxable rental profits.  Instead, landlords will obtain a reduction in tax equal to basic rate tax on any interest borrowed.

The changes will be introduced gradually, so that the amount of interest which is deducted from rental profits is 75% from 6 April 2017, 50% from 6 April 2018, 25% from 6 April 2019 and 100% from 2020/21.

On the same dates, a reduction in tax will be given for the interest which has been disallowed.  The tax reducer is the basic rate tax (currently 20%) multiplied by the disallowed interest.  In practice the tax reducer will be 20% of 25% of interest for 2017/18, 20% of 50% of interest for 2018/19, 20% of 75% of interest for 2019/20 and 20% of the whole interest from 2020/21.

By 2020/21, a landlord who is a higher rate taxpayer will effectively only receive basic rate tax relief on mortgage interest payments.

Conclusion

Overall the positives for the Budget 2016 are a few; higher income tax thresholds and allowances and lower corporation tax.

The negatives are greater with the surcharges on Stamp Duty, higher insurance, and removal of interest relief.

The impact of new investors is much higher with the increases upfront Stamp Duty expense, and for those who are heavily mortgaged on their buy to let investments.

However it will take some time to effect rents and house prices, these may balance some of the additional costs for buy to let and property investors.

With interest rates still so low, property investment still out weighs leaving your money in the bank.

 

Sources:

LRS Forum

Coman & Co

Stamp Duty

Stamp Duty changes: #AS2014

#SDLT (Stamp Duty Land Tax) has been totally reformed in the Autumn Statement by George Osbourne. First time buyers gain, and buyers of property over £937,500 lose out.

98% of people who will be paying Stamp Duty will pay less

Under the new rules Stamp Duty will follow a scale similar to income tax, with thresholds where the rate is due proportionally.

New Stamp Duty

What is the impact on First Time Buyers or regular home owners?

First time buyers will benefit. Under the new rules first time buyers will pay on average £400 less. The average price paid for a first home is £210,000. Under the old system the rate was 1% on the whole amount therefore £2,100. However under the new system only amount above £125,00 so ££85,000 is taxed at 2% totaling £1,700.

What is the impact on Property Developers?

For property developers the new is not so good. With so many sites coming in over the £1m mark, property developers will be hit hard. In Particular those in London and the South East where even the smallest sites come in over the £937,500 threshold from which point the effective rate is higher under the new system.

SDLT Autumn Statement

The critics are calling this move George Osbourne’s own engineering of the Mansion Tax. However this will definitely help smaller, less affluent families and most of all first time buyers. The upper end rates are really quite high and will impact small developers more, who operate on a smaller scale and rarely get other subsidies like the larger ones.

It must be noted that these rates and changes do not affect commercial property, therefore many developments may not be harmed that much.

Will this reduce or increase the net proceeds to the treasury?

In conclusion, this is a positive move by the Chancellor, it just waits to be seen how this translates for first time buyers and conversely with property developers in reality.

budget buying a property

Hidden costs of buying a property

Cost of buying a property go well beyond the deposit required

Many new buyers often make the miscalculation that the money they have saved up, is the amount they should budget for buying a property or putting down a deposit. There are many other costs that arise that new buyers should be aware of. Here are just a few examples.

Legal costs of buying a property

Legals fees are a must, remember you get what you pay for. Use a reputed conveyancing firm. Depending on the complexity of your deal typical costs could vary from £500 to £1000. In some cases you can get the lender to contribute to some of these costs, however beware that they do not cover this by charging else where.

Stamp Duty costs of buying a property

Considering very few property purchases are below the £125,000 threshold most people will have to pay stamp duty. This is a tax an is payable on completion, therefore must be budgeted into your calculations.

Purchase price of property Rate of SDLT
(percentage of the total purchase price)
£0 – £125,000 0%
£125,001 – £250,000 1%
£250,001 – £500,000 3%
£500,001 – £1 million 4%
Over £1 million – £2 million 5%
Over £2 million 7%

Source: https://www.gov.uk/stamp-duty-land-tax-rates

Check out this easy stamp duty calculator.

Survey costs of buying a property

Surveys can typically cost £400 to £800. This must be paid regardless if the purchase goes through, so do your own research before instructing a survey. Make sure the value stands up and the purchase is not too risky for the lender. Sometimes the lender covers the cost of the survey or adds it to the mortgage.

Valuation fees when buying a property

Mortgage lenders will charge a valuation fee, that can vary from £300 to £500. They sometimes cover the cost or give you the option to add it to the mortgage amount. Look at the fine print and get clarification.

Mortgage arrangement fees

Lenders have become smart and crafty. Often as the interest offered on a mortgage goes down, the arrangement fees go up. In reality this is a pointless fee but they do charge it. It can be over £1000 in some cases.

Moving costs & repairs

Moving costs if you are hiring help can run into over £1000 for a single day. Calculate how much you have to move and plan the move well.

When you view your property before completion check things thoroughly, the last thing you want is a boiler failing, the roof collapsing as soon as you move in.

How can PropVestment help?

budget buying a propertyWe can provide you with a walk through of purchasing a property and put you in touch with our preferred and vetted financial advisers, solicitors, and moving team. Contact us today for a no obligation chat.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net
UK Property - Budget 2014

#Budget2014 – impact on UK property market

Chancellor George Osborne today showcased the UK Budget for 2014. The main question is how will it impact the UK property market and effect you, the investor. Points of interest are Stamp Duty, Help to Buy, new housing, savings and taxes.

 

Stamp Duty

Stamp Duty Budget 2014Nothing much changes for the average private homeowner, or small time landlord. The big announcement and change comes to close a loophole that many foreign investors used to avoid stamp duty by buying their properties through company ownership. Now there is a 15% stamp duty on purchases over £500,000. This will severely target foreign owned properties in particular in London and South East.

THOUGHTS – Will foreign investors now just flood the UK commercial property market? So is it a good time to get in now and sell in the near future?

Help to Buy

The equity loan scheme known as Help to Buy has been extended on new homes until 2020, with the aim to fill the shortfall in housing and encourage lending from banks and building societies.

In reality this will mean that the construction industry will be boosted until 2020 at the expense of young buyers, who end up buying an inflated prices, and find themselves in a lot of debt. This will keep pressures on house prices up until 2020 too. For the investor it means, get on the property ladder today or expand your portfolio, and if you want an exit do it before 2020. It also means new builds that are eligible for the scheme will be considerably higher priced than old builds, however this will drag the prices of old builds along too.

No mention of any extension to Help to Buy 2, the scheme that was available for non new builds up to £600k.

Housing supply

Ebbsfleet Garden City – 15,000 new homes to be built near the Ebbsfleet international rail terminal, to create a commuting hub. As PropVestment advised a few years ago Ebbsfleet was an investment hot spot and it will only increase more now. With great transport links it will become a thriving part of Kent. However we think the area will now be priced in.

Brent Cross and Barking Riverside in London will also receive new developments and improvements to help aid the capitals housing problems.
UPDATE – There will be 11,000 new homes in Barking Riverside and up to 10,000 in Brent Cross. The regeneration of the infamous Grahame Park estate near Brent Cross will also be brought forward. 

Right to build – New scheme to help people build their own homes. £1.5m allocated, that is pittance really, how many can be supported through this? Although it does sound like an interesting concept.

The chancellor’s target is 200,000 new homes to be built, however many critic suggest that this is still not enough and the housing supply deficit will keep growing. This means by simple economics demand will continue to out strip supply and prices will keep on rising.

Savings & Taxes

A few points are that the zero rate and 40p rate thresholds will rise, increasing affordability. ISA thresholds are increased to £15,000 per person and there are a few other measures to encourage savings. This could have impacts either way, one way is that it will encourage savings so people will be able to build up deposits for buying a property. On the counter if they have saved into ISAs that they do not want to break, it could mean that people will be more reluctant to invest into property. It will depend on person to person.

How will #Budget2014 impact the PropVestor?

UK Property - Budget 2014For the traditional investor it is a fairly positive budget and it will help discourage corporates and foreign investors with the Stamp duty ruling. This will leave more opportunities for private UK based investors.

Help to Buy is contentious but it will keep pressures on house prices until the end of the decade.

PropVestment’s top tip

Get on the property ladder today, do not wait until tomorrow

First time buyer FAQs: What sort of costs involved in buying a property

This is a complex question but the easiest way to get a decent estimate is to go via the purchasing process. There are many hidden costs that a first time buyer may not be aware of.

£0 Sourcing Fee
£0 Mortgage Arrangement fees (if there are then usually added to loan)
£2000 Stamp duty ( 1% of example £200k property)
£1000 Legal & Search fees
£2000 Refurb
£5000 Total

First Time Buyer Costs

More Details:

Sourcing Fee

Most agents do not charge a property sourcing fee, well not the high street lenders. If it is a private deal or from a specialist they may ask for a fee however in these cases they should justify their charges by the extent of savings made. If this is a case and you are getting a better deal than the market you do not need to budget this as the saving will balance the fee and more.

Mortgage Arrangement fees

These typically vary from lender and even with lenders depending on the products. Sometimes the better the interest rate or higher LTV the higher the arrangement fee. In many circumstances the fee balances out savings in the fixed term.
However these are almost always added on to the loan amount so will not impact your immediate cash flow.
Occasionally the lender may ask to pay a surveyors fee

Stamp Duty

As of 24th March 2012 the stamp duty holiday is over for first time buyers. For property up to the value of £250,000 (most first time buyers will fall into this bracket) the stamp duty is 1%. Stamp duty is payable up on completion and will need to be sent via your solicitor.

Legal & Search Fees

You will need to keep aside about £1000, usually sent prior to your solicitor before they will carry out any work for you. The searches are for your benefit and will uncover potential problems in the property or surrounding area. Some of the fees go to the solicitor for their time and some for expenses such as telegraphic transfer fees for transferring funds in and out of their client accounts. Remember the cheapest solicitor is not always the best, go with a reputed individual that works efficiently and spots errors in documentation.

Refurbishment

Typically this will vary vastly with every property but going along the lines that the property is in a livable condition, it is usual that the very least you may want to give all the walls a coat and put in the basic furniture to make it live-able to your standard or into a rent-able condition.

First time buyer CONCLUSION

There are many hidden or non obvious costs, do your research, ask the right questions to the right people, and most importantly do not over commit.

See our article on Mortgage advice for first time buyer