Almost all of you will have heard about the changes set to cause a ruckus in the Buy-to-Let market. There are two main changes; one which has already happened and the other which is to happen on 1st April 2016.
The government reformed the way that stamp duty was paid on residential property in December 2014 from a ‘slab’ to ‘slice’ structure, reducing the amount of stamp duty most buyers had a pay. Instead of paying a stamp duty on the entire property price, with the new system the home buyer only pays the relevant rate of tax on the property price for each tax band, for example on the first £125,000 you’d pay 0%, on the next £125,000 you’d pay 2% and so on until you reach the price of their property. The table below shows the thresholds and the tax that will be paid in each.
The second change which is to come into effect next month is the extra stamp duty charge for second home buyers and property investors. The change will up the amount of stamp duty to be paid by 3% on each tax band. This is set to rock the sector and it is as yet unknown the exact changes that it will have on Buy-to-Let investment trends; the most likely impact is that it will put-off investors and Buy-to-Let purchases will decline.
| Value of Property | Standard Stamp Duty | April 2016 second home/buy-to-let rate |
| Up to £125,000 | 0% | 3% (Starting threshold of £40,000, up to £125,000) |
| £125,000 – £250,000 | 2% | 5% |
| £250,001 – £925,000 | 5% | 8% |
| £925,001 – £1.5m | 10% | 13% |
| Over £1.5m | 12% | 15% |
The Rise of Student Property
There are around 5 million Buy-to-Let properties in the UK and the relatively niche area of student accommodation isn’t going to overtake this any time soon. However, what student property offers is a cheaper alternative to your regular Buy-to-Let investment. Although it essentially falls under the same umbrella, investing in student accommodation may be a smarter way to use your money.
Even though student property is a niche area with Buy-to-Let, the area is expanding. There are around 2.3 million university students in the UK with a record 592,290 applying via UCAS before the January deadline in 2015. This number surpassed the previous record set by 10,000, which was set in 2011 just before the tuition fee increases came in.
Why Invest?
The attractive thing about investing in student property is that they are often cheaper to buy, meaning they fall within the lower stamp duty tax bands but return high rental yields. With the number of applications to universities increasing the market is only going to expand.
There are now developers building purpose-built student accommodation who are offering attractive packages to investors, such as guaranteed rental returns for a set number of years. Furthermore, such investments can be very hands-off but still return you an income as they are run by a management company. This means you put your money in, but the management company find tenants, deal with the issues and sorts out maintenance.
With the mainstream Buy-to-Let market set to be destabilised, guaranteed rental returns via student properties could be a welcome ‘insurance’ policy.
Instructing Gorvins
If you are thinking about investing in a freehold Buy-to-Let property, our deadline for instruction to get completed before the rise in stamp duty is Monday 7th March 2016. Instruct us before this date and you can buy a new property at the current, cheaper rates.
Give us a call on 0161 930 5151 to find out more information and to get a quote for your conveyancing.