Is Osborne’s 3% stamp duty surcharge the final nail in the coffin for buy-to-let in Glasgow?

In this weeks Autumn statement, George Osborne hit buy-to-let investors in England and Wales again with a stamp duty tax hike. From April all buy-to-let purchases and 2nd homes will have to fork out an extra 3% in stamp duty. The initial response from the newspapers and the commentators was that this was another nail in the coffin for Buy-to-let investors.

David Cox, managing director of the Association of Residential Letting Agent (ARLA) commented: “The news in today’s Autumn Statement that the Chancellor will increase stamp duty tax on buy-to-let (BTL) properties by 3% in April 2016 is catastrophic news for the private rental sector, ...Increasing tax for landlords will increase rents and reduce property standards for tenants.”

The first thing to say is that at the moment this change does not affect Scotland - stamp duty in Scotland is controlled by the Scottish Parliament. So investors in Scotland will have to wait until next month’s Scottish budget to see whether Mr Swinney follows suit and applies the changes north of the Border.

Faisal Choudhry, Scottish research director with estate agent Savills, said: "I don't think John Swinney should have a knee jerk reaction to replicate this in Scotland. The buy to let market is not as hot in Scotland as it is in London and parts of England."

This potential tax hike follows other recent bad news for buy-to-let investors

• The scaling back from 2017 of mortgage tax and some other reliefs for landlords announced in the July budget;

• Concerns from Mr Carney, the Governor of the Bank of England, in September that the rapid growth in buy-to-let lending could destabilise the whole UK property market; and

• The Scottish Parliaments proposed Private Housing (Tenancies) Bill published in October that seeks to increase tenant rights through removing the “no fault” ground for repossession and in areas of “Rent pressure” limit rent increases to CPI plus 1%.

So is this the end to buy-to-let for Glasgow investors?

If it is applied in Scotland, it obviously makes the case for investment less advantageous than it has been until now. However, I don’t think it fundamentally changes the attractiveness of investing in Glasgow property as a long term investment.
 

• Firstly, the impact in Glasgow will be less than say in London and the South of England. The average property price of a flat in Glasgow is around £125,000 (and you can buy for a lot less), so an extra 3% would add £2,400 to the purchase price*.
• Whilst new housebuilding is picking up, and the Chancellor has promised an extra 400,000 new homes over the next five years, the demand for new housing will still outstrip the supply, which will support current house prices.
• And the increased subsidies for “help to buy” will only add to demand and hence house prices.
• The trend to people renting more, the so called “Generation rent”, is a socio-economic trend, which I do not see reversing anytime soon. Around 1 in every 6 households in Glasgow is privately rented, which is more than double where it was 10 years ago.

In fact, I think the most likely impact of all the changes will be that they will deter many new landlords and encourage some existing landlords to sell up and leave the sector. This will reduce the supply of rental properties and actually lead to higher rents as tenants chase fewer properties.

So, investors willing to take a long-term view, should not be put off by these changes, in my opinion. There are good deals out there, like this 1 bedroom flat I cited in Govanhill last week for £55,000 and offering a rental yield of over 8%.

Those who have bought in the last twelve to eighteen months have reaped the benefit from buying in Glasgow, because the city offers a combination of reasonable house prices and growing rents. Property values have risen by 7.1% in the last 12 months in Glasgow, whilst average rents are up 4.4%.

The key to property investing is buying the right property in the right location. If you are considering investing in a residential or commercial property in Glasgow, at Douglas Dickson we are always happy to give you our unbiased opinion. Likewise, if you want to take the hassle from finding the deals yourself, we offer a property sourcing service – click here to find out more.

To discuss anything you have seen in this blog or simply to arrange a convenient time to meet for a chat about the Glasgow property market, please call me on 0141 221 1827 or drop me an email on derek.livingstone@douglasdickson.co.uk.





 

* We have to wait for the full details of how the stamp duty will be applied, though it is my current understanding that the first £40,000 will be exempt.