How will Osborne’s tax measures affect the BTL market?

Since the Chancellor’s announced measures to curb the buy-to-let in the Summer Budget, there has been a flurry of debate – will this be the death of the BTL market, or just a slow down? 

Will it force landlords to sell, as they see their profits eroded by the new taxation changes?

If only we had a crystal ball! So, what is the answer to the big question - how will these measures affect landlords?

I believe it will hit the smaller landlords the most – those with several properties. Most landlords have just one or two properties and tend to be individuals with well paying jobs (lawyers, doctors etc), who are not buying for income purposes. 

The tax hike here will be unwelcome, but it won’t be the end of the world for them. 

Professional investors will be hit harder, but many of these invest through limited companies and also have different business strategies, than just buy and hold (for example managing other landlords’ properties or renovation and selling).

Again the tax changes here will be unwelcome, but probably won’t be a game changer for them.

The group that will be hit the hardest are those that have several properties (5-10) and have leveraged up massively to do so. This group is a bit of a sitting duck. They usually have a normal job, but will not be in the same category of wealth as the other groups of investor I mentioned above. 

Some of these aspirational investors will see their cashflow decimated and as this is already finely balanced, this could result in forced sales.

Luckily, however, the Chancellor is giving us a lot of forward notice about these changes, so any investor will have time to sell up in a nice orderly manner. 

I don’t see the measures as having any major effect on the market, but it will probably change the type of investor in the market. Those who previously had a bit money and wanted to leverage up, will find that the sums don’t really stack up when the Chancellor's changes are rolled out.

The Chancellor has been very open about why these changes were brought in. He thinks that property investors have a big advantage over homeowners, due to their ability to offset interest payments against their tax bill. He’s on record for stating that this is unfair. 

Obviously, he’s a Chancellor and he’s always looking at any way he can increase tax intake, while decreasing unnecessary spending. Unfortunately, this is one area that was ripe for picking. Landlords and investors have enjoyed a lot of wealth increase due to their various property strategies and tax exemptions.

The Chancellor clearly thought that it was time to take some of it back. I’m not sure if it was a political motive, but I rather suspect it was a pure economical one. It may free up a few homes away from investors and to first time buyers, but this is primarily a tax grab.

*This article was written by Peter Armistead, director of Armistead Property