Can The Buy-To-Let market Survive The Tectonic Shifts It Is Experiencing?

9th May 2016

Buy-to-let (BTL) landlords must feel as though someone has pulled the rug from underneath them recently as two quite substantial changes in the marketplace – one already introduced, the other announced for introduction next year (2017) – will certainly have impacted on their profit margins and profit potential, and in some cases, their ability to continue to own their BTL properties.

Announced in August 2015 by the Chancellor and set live as of 1st April 2016 (though this is no April Fool’s joke), was an additional 3% Stamp Duty levied on all second property and BTL purchases. So, on top of the standard 2, 5, 10 and 12% stamp duty, you have to pay this new tax – even for properties under £125,000 which previously were exempt from stamp duty altogether.

So new stamp duty rates for BTL landlords will be as follows:

Purchase Price Stamp Duty BTL Landlord Rates
£0 – £125,000 0% 3%
£125,001 – £250,000 2% 5%
£250,001 – £925,000 5% 8%
£925,001 – £1.5 million 10% 13%
£1,5 million + 12% 15%


In practical terms, if you wish to buy a £350,000 property as a BTL landlord you’ll have previously paid £17,500 in stamp duty – now you’ll have to pay an additional £10,500 on top of that. It’s not surprising then that there was a noticeable rush on BTL purchases looking to complete by 1st April – a leap of 22% in the number of home loans issued to prospective private landlords in January alone, according to the Council of Mortgage Lenders.

A little useful titbit of information is that should you buy a second home and have to pay this new 3% additional tax, if you sell your original home within 36 months you can apply for a full refund.

The other major change that will significantly affect BTL landlords is the slashing of the tax relief they are entitled to, announced in the recent Budget. Essentially, up until recently, BTL landlords have been able to claim tax relief on their mortgage interest payments at their margin rate of tax – 20% for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for top-rate taxpayers. Changes to be phased in between 6th April 2017 and 2020 will see all BTL landlords only able to claim tax relief at a fixed rate of 20%. So the bigger and better your property portfolio, the harder this will hit you.

This alone has the potential to turn a profitable BTL strategy into one that barely scrapes by, but with the new 3% Stamp Duty increase for BTL landlords, and suggestions that the Bank of England is considering making it even more difficult for investors to get mortgage loans in the first place, much has changed in the buy-to-let landscape.

Some landlords will no longer invest in property, seeing it as a more risky prospect – others will be forced to increase their rents to cover some of the new costs involved, which will of course make it more uncomfortable for tenants. And some landlords may even have to sell their portfolios as these changes will make continued ownership of them untenable.

Will the buy-to-let market survive? The answer is likely to be ‘yes’, but in a far more subdued form. Recent years have seen a great deal of investment from domestic and overseas investors in the UK property market, increasing demand and values. This has made it even more difficult for first-time buyers to afford to get on that all-important first rung of the property ladder. With the new tax limitations, the buy-to-let market will slow and prices should level out a little. For estate agents, change is often a good thing, and whether it’s increased rents or the sale of investor portfolios that the future holds, it’s important to be ready for the fallout resulting from these tax changes.

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