Unique Stamp Duty Savings:

 

'Buy-to-let broker Mortgages For Business' saw a whopping 4,000 plus visits to its website within hours of Rishi Sunak's unveiling his stamp duty cuts on July 8th 2020. 

 

Online portal Zoopla also recorded a 15% increase in new property investors, while online estate agent, Strike saw an up tick of 10-15% per cent in buy-to-let mortgage enquiries int the north of England. 

 

When Chancellor Sunak announced the change to the threshold at which landlords must pay stamp duty, landlords were quick to react even though an additional 3% surcharge was applied, a fee that in the long run would mean a Landlord only need pay £9000 on a £300,000 house instead of £15.

 

 

Bounce back loans are now being taken out by many Landlords keen to cash in on the stamp duty gold rush. However most banks refuse to lend this way now requesting proof of the source of the deposit instead. Many brokers now say investors hide their funds by putting the loan directly into their companies accounts and withdrawing it as a director's loan.

 

Scotland increased the threshold at which you to pay land and buildings transaction tax (the same as our stamp duty) from £145,000 to £250,000. Theses temporary changes apply to second-home owners and buy-to-let who will also have to pay the additional home tax, which in 4 Scotland is set at 4%. 

 

Wales on the other hand has removed the tax for a property purchase of £250,000 or less. Second-property owners and landlords will not benefit from the temporary tax cut.

 

 

 

Mortgage deals on steroids:

 

The more specialised lender has now launched a new suite of mortgage products aimed at Landlords. 'Landbay' beefed up its maximum loan on offer from £1 million to £1.5million recently and reduced its deposit requirments. Lindsay said it expects 'savvy landlords to exploit the low-interest-rate environment and stamp duty holiday to the full'. 

 

 

The Hampshire Trust Bank pumped up its maximum loan size, while Foundation Home Loans reduced its rates. However High Street banks such as TMW, Barclays and Santander have been more subdued in their response to the tax break. 

 

Let the bidding wars begin:

 

As there’s a current shortage of homes on the property market, we’re seeing a surge in bidding wars. According to Zoopla, buyer demand returned quickly once the housing market reopened in May, although sellers have ventured out with care due to predictions that house prices could soon bottom out. Landlord Vishal Vyas buys properties for rent in the North East, where house rates are lower.

 

He says he has seen an increase in demand for cheap properties in need of renovation, igniting strong rivalry between landlords. 

 

  

Locations where rent is rising:

 

The North West of the UK is now the strongest rental market in the nation, according to estate agent Hamptons International. Rents rose to a whopping 5.2 % in June year on year, and there’s a 12 tenant to 1 property ratio indicating the strength of demand right now. 

 

Inner London, however, has seen a 7.4 per cent decline year on year in rents due to fewer international tenants, and families escaping the capital during the recent pandemic. 

 

According to Zoopla’s analysis of June rents, Scotland sees the highest return on a buy-to-let investment in the areas of East and North Ayrshire. A two-bedroom property can be bought for £70,000 and the average monthly rent is £450, offering a yield of 7.71 per cent. 

 

Inverclyde and Glasgow offer a return of 7.67 per cent and 7.6 per cent with two-bedroom properties costing around £74,500 and £125,000 respectively.

 

 

How to save cash on your tax bill:

 

The more experienced investor is exploiting the stamp duty cut to move properties they already own into a limited company. In a recent tightening of property investment in 2016, an additional 3% of stamp duty tax was charged on second home purchasing and buy-to-lets. Landlords were also prevented from subtracting interest on their mortgage from their profits in order to lower their tax bill. 

 

However, those who hold properties in a limited company are still able to benefit from the tax break. Additionally the Landlord will pay a corporation tax at 19% as opposed to income tax at 20 % for basic-rate taxpayers and 40 per cent for higher-rate ones. 

 

It’s also easier to modify ownership of a property within a company than one held privately. This may shield you from stamp duty, capital gains tax or inheritance tax liability. If you own investment properties in your name, you are allowed to transfer them into a limited company. However as this is classed (in a technical sense) selling and re-buying, you will be liable for a capital gains tax and stamp duty. 

 

This stamp duty hiatus could save thousands for landlords. Transferring a £500,000 buy-to-let into a limited company would now set you back at £15,000 in stamp duty rather than £30,000. 

 

Mortgage rates on limited company deals are more costly than ordinary buy-to-lets, and remember to factor in legal and accountancy of around £1,000 on top. However you’re on a lower income, the tax changes may not be worthwhile.

 

 

 

Why not give Let to Buy a go?

 

Investors in wealthy areas are now looking to smarter mortgage arrangements to save thousands in the current stamp duty break. Bob Singh, of West London broker Chess Mortgages, says one in four enquiries he has received have been from homeowners looking to transfer their existing property into a limited company to rent out and then buy somewhere new to live. 

 

Using a let-to-buy deal can in the long run release enough capital to purchase a new property to live in, and remember there’ll be no capital gains tax to pay when selling your original home as will not be classed as an investment property by the HMRC. 

 

Additionally, your limited company only forks out the 3% stamp duty surcharge on the deal itself.  Mr Singh says: 'The main benefit of this type of transaction is not being in a chain when you come to buy your new home. You have raised money for your deposit by remortgaging your previous home so you can move quickly to snap up a property in this competitive market.’

 

 

 

Looming Unemployment:

 

In the current climate many tenants have been put in a bad financial position because of the Coronavirus. Approximately 1.7 million renters in April said they expected to not have a job with three months, according to charity Shelter. 

 

Citizens Advice reported a 330% additional visits to its website page titled 'dealing with rent arrears’. Because of this lenders, naturally, have to be assured Landlords can maintain mortgage payments if a tenant fails to maintain their rental obligations.

 

The recent government ban on evictions, bought in at the beginning of the pandemic in order to shield tenants from having no where to live has now ended which means landlords are now forced to pick settle the bill.

 

Pre-pandemic the banks were making lending decisions based on how much capital the property itself would bring in, whereas now it’s the Landlords bank account and financial earning being scrutinised.

 

Certain lenders are requesting Landlords to prove they have a financial reserve in case they have to pick up on missed rent and some banks are now turning down Landlords who during the pandemic may of accepted mortgage holidays and bounce back loans.  

 

Whilst the recent boom in buy-to-let has attracted a flurry of investment, experts warn there’s a time limit hovering overhead. Steve Olejnik says: 'Landlords will rush to buy homes before the stamp duty holiday ends in March next year, after which I think there will be a natural drop in activity. 

 

‘The UK is bracing itself for a slowdown in the economy, so I think it will be 2022 before the market rebounds again, assuming the taxman has no more nasty surprises.

 

'It may never be the golden goose it once was, when amateur investors made easy money, but for the professional landlord, buy-to-let is still a profitable venture.'