Property Investors and Landlords alike have seen gradually rising flat prices in Bournemouth throughout 2017, driven by low supply levels and low interest rates.
Here we look ahead to what 2018 may have in store.
1. Supply begins to increase as Buy To Let tax relief on mortgages is removed.
The removal of tax relief on Buy To Let Mortgages for higher rate tax payers has started to come into effect from this current tax year (17/18).
While not everyone will be affected, we are expecting to see some exits in the marketplace as profit margins are reduced, and in some cases, wiped out entirely.
The good news is that if you’re a serial Buy To Let landlord in Bournemouth with steady yields, we have seen fewer inexperienced investors entering the market, deterred by the increased stamp duty surcharge, leaving the market dominated by serious players.
Get ahead of your tax return for next January, we’ve included a helpful example of how this will be phased for the coming tax years.
|Tax year||% Finance cost deductible from rental income||
% basic rate tax reduction
2017 to 2018
2018 to 2019
2019 to 2020
|2020 to 2121||0%||
For example, if a higher-rate payer currently sees £10,000 income a year and has mortgage interest payments of £9,000, the resulting tax bill on the difference will currently be just £400. By 2020, that bill will rise to £2,200.
For those whose mortgage interest is 75% or more of their rental income – or 68% for additional-rate payers – their profit will be absorbed by their tax bill. The loss in tax relief is also likely to push around 440,000 lower-rate taxpayers into a higher tax band, according to the National Landlords Association (NLA).
2. …And other deductible benefits have been removed.
The removal of wear-and-tear relief last year is now fully in effect. Landlords can now claim only actual costs spent on repairs, rather than a blanket 10% reduction for wear and tear.
This is across the market, and so will be affecting all landlords, irrespective of your tax band.
With this significant and increasing change to taxation we are likely to see a higher proportion of mortgaged buy to let investments come to the market over the next few years increasing supply.
3. First Time Buyer Demand will increase
If you’re considering selling your property, this is great news – particularly for owners of flats that make perfect starter homes.
According to from Hometrack, first-time buyers will overtake existing homeowners to become the largest buyer group this year, accounting for a 35% share of all sales.
The change to the stamp duty threshold for first time buyers below £300,000 also means that the savings first time buyers will have been working towards now gets them more for their money, and they will be entering the market more quickly than they may have planned to.
4. …So those with “First Time Buyer Friendly” properties will make a decision to sell their property, soon.
The Government predicts that the stamp duty changes will help up to 95% of first time buyers in England, Wales and Northern Ireland and up to 80% in London.
The new relief has been introduced from November 22nd 2017. We expect first time buyer activity to increase significantly in January 2018 and throughout Q1.
We expect that landlords who own flats and smaller properties, ideal for starter homes will feel the impact of the Buy To Let taxation changes, and decide to list their properties close to April 2018 to minimise their tax liability for tax year 2018/2019.
MUVA’s Top Tip For Investors in 2018
Back in 2016 Bournemouth saw a spike in flat sales sparked by the stamp duty changes for second property owners – the 3% surcharge on second property purchases. As Bournemouth has a consistently high rental demand and high rental yields, property investors rushed to invest. Will this recent history repeat itself?
As a seller the key to selling your property quickly and for the best price is getting in quick to hit the demand surge before other landlords/homeowners have the same idea and the market is flooded with supply.
Ready to make the next move? Book a free valuation on your property today.