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Buy or Rent? What’s the Best Option since the Stamp Duty Changes as of 2016?

Thu 14 Jan 2016

 

Whether to buy or rent a property can be one of the biggest and most significant decisions that you can make. Here in the UK we place a great emphasis on the pride of home ownership, but life is not always so simple as to make the choice an easy one.

If you are a single person living alone, then it can be difficult to look at purchasing as a serious option. Most people think about buying property as something that is the exclusive arena of couples and families.

However, this is not always the case, and some recent announcements in regards to government policy will impact buyers and renters in different ways. So, before you make a decision as to whether you want to make the leap to buying a property or stay renting, you should make yourself aware of them.

Luckily for you, we have summarised the changes that have been announced and compacted them into this one handy post. Read on then and hopefully this information will assist you in deciding whether buying or renting a property is the best option for you in 2016.

Stamp Duty Changes

From April of this year, there will be a 3% surcharge on each stamp duty band for buy-to-let landlords and those buying second homes. It is estimated that this new charge will have gathered around an extra £1bn for the treasury in the next five years. However, the move could (and is likely to) have far reaching consequences.

The changes mean that (for example) the 2% stamp duty on a property worth between £125,000 and £250,000 will increase to 5%. With the average buy-to-let mortgage sitting at around £184,000, this increase will mean that landlords will need to come up with an extra £5,520, once the changes are implemented in April.

If you are a commercial property investor with 15 properties or more under your belt, you will be exempt from the new charges, but this will not help people just getting started in the world of landlording.

 

(Image source: BBC)

Not only are buy-to-let investors going to have to deal with the increase in stamp duty, but also in capital gains tax. They will get a lower rate of tax relief on their mortgage payments (due to be introduced in 2017), and also have to pay all capital gains tax within 30 days of selling a property, instead of at the end of the tax year, which is the present allowance.

You may be thinking that this doesn’t affect you as the tenant – but if you expect that your landlord is just going to soak up these extra charges, then you may need to think again.

A far more probable scenario is that these costs are going to be passed on to tenants, and it is thought that at the end of the next five years rent could have increased by as much as 25% – i.e. 5% each year – making it very possible that rent increases could soon outpace house prices.

Up to £60m of the money raised from the surcharge is going to help home buyers, Particularly in those areas of the country (such as Cornwall) popular with second home ownership – a practice that can cause a huge discrepancy between wages and cost of living

Boosts to Home Ownership

Just as government policy looks set to cause massive problems to tenants and landlords alike, other changes promise to offer a hand up for those looking to take the first tentative steps onto the property ladder.

Downing Street has announced that it will be looking to use public land to build 200,000 properties for first time buyers under the age of 40, that will be sold at below the market rate.

The government also wants to encourage local councils to give land with planning permission to people who want to build their own homes in a drive to double the number of bespoke houses in the UK. The proposed regeneration of the railway system is also expected to contribute towards freeing up enough public land for 150,000 homes.

The council house Right to Buy scheme, introduced some years ago, allows council tenants to purchase their home from the government at a heavily discounted rate (up to 70%). The scheme shall now be extended to include those who rent from housing associations, giving another 1.3 million people the opportunity to own their own home.

On top of all of this, inheritance tax on properties below £1m will end.

So, there are some extra points to consider when thinking about whether to buy or rent your next home. Please let us know what the changes to the Housing Bill will mean for you and your plans?

Are they enough to enable you to finally look at buying your own home, or are you going to have to grin and bear the hit to your wallet for those rent increases?