2015 was a successful year for the buy-to-let mortgage market. There has been a marked improvement in the marketplace with new lenders entering and a significant increase in the number of products for landlord clients to choose from. This has resulted in increased competition and better rates.

However, it hasn’t all been such encouraging news as the Government announced two new levies affecting buy-to-let investors. The first blow to landlords is the reduction in the level of tax relief available to them being phased in from 2017. Under the new scheme landlords will no longer be able to deduct mortgage interest from their rental income before calculating how much tax they owe, but will instead get a tax credit equivalent to 20 per cent basic tax rate on the amount. This could significantly impact the profits that landlords make on their buy-to-let investments and some could even end up operating at a loss.

However, these tax changes do not affect limited companies, so 2016 could see a rise in the number of landlords looking to hold their properties in a Special Purpose Vehicle. Our advice at Oakfield is speak to your accountants early and put a plan of action together, as always these things will take longer than anticipated.

The second blow to landlords is the additional 3 per cent stamp duty on buy-to-let properties which will come into effect in April 2016. This new buy-to-let surcharge will certainly make prospective landlords think hard before investing in rental property, especially amateur landlords who are considering just one or two buy-to-let investments as a supplement to their pension plans. The returns may not be attractive enough anymore.

As a result of this change to stamp duty, it is expected that there could be a flurry of buy-to-let purchases during the first quarter of 2016 as landlords look to secure new properties before the increased charge comes into play. Landlords looking to make buy-to-let purchases in the early part of 2016 should be aware of the impending changes and make sure to get their applications in earlier enough so that they complete before April.

Generally speaking, I am expecting 2016 to be another good year for buy-to-let with healthy competition between lenders and a large number of products in the marketplace.

Neil Newstead, FARLA MNAEA
CEO – Oakfield Estate Agents