With the stamp duty changes on second homes looming large and the adjustments to interest rate relief – now more than ever it is sensible to ask the question should I sell up now take my profits and re invest in other sectors? Or, should I try and get as many buy to let properties before the proposed stamp duty changes come into force.
The additional stamp duty levy of 3% on second homes, coming into force from April, is designed to raise more money for the treasury (estimates suggest as much as one billion pounds by 2021) and to slow down the drastic price rises in London to try and assist generation rent get onto the housing ladder.
Only time will tell how this plays out but in my opinion it will undoubtedly raise more money for the treasury but will fail miserably to help first time buyers get onto the ladder.
We, as a nation understand property and in London we know that the right properties will always rent well and rise in value. While many understand the stock market it`s not for everyone and with the current volatility investors globally and nationally view London property as a safe place to invest and something that you can see, touch, design, build and add value to by improving.
So why do I feel the new duty will fail? Serial buy to let investors who traditionally bought more expensive properties will continue to invest but will move into the market for cheaper property.
Property investors are ultimately lead by capital gain, yields or a combination of the two. Many have a preference to the area or property types they know best but if entry costs alter so dramatically, its logical for other areas to be explored be it a different location or cheaper properties in their preferred location.
The majority of vendors we deal with are most interested in achieving the best possible price with the minimum fuss for their property. If they are presented with two similar offers one being a first time buyer and the other being an established investor in most cases they will favour the investor. After all, they have been there done it and got the t shirt, the purchase is less emotive thus less likely to fall on stony ground.
What will the impact of the interest rate relief for second homes be on the market? This is perhaps the most contentious policy in property since the proposed mansion tax. Many feel it`s wholly unfair that taxes should be paid on a legitimate cost to a business while others feel `that the rich second home owners should be taxed`. Whatever your thoughts it is something that needs to be carefully considered. These changes are being phased in from 2017 and even then on a sliding scale to give investors time to adjust until tax year commencing 2020.
Cherie Blair is leading a challenge to the European Court of human rights to have this policy thrown out. Only time will tell if she is successful but it`s a bizarre turn of events, the wife of a former Labour Prime minister challenging a conservative policy that is so popular with Labour supporters. It could leave both the Conservatives and Labour party with bloody noses.
So should you stick with what you have or twist and either buy more or sell up? Opinion on this is divided. Many of you are scrambling to buy now to save on the stamp duty, a fact not lost on a number of vendors. The effect of this is that many more instructions compared to recent years have flooded the market in the winter months. A considerable number of our clients are telling me that they plan to `keep their powder dry` and see what the fallout of the changes is and to see if there are savings to be had due to the market perhaps running hot in the scramble to save on stamp duty.
My advice when investing is to stick to the cheaper properties in the best area you can afford. Small properties in Central London will always experience strong tenant demand and should be the best performers in terms of quick capital appreciation as more investors move into this bracket driving up prices.
My tip for good capital gain and a stable rental return is to look to north Bloomsbury and the Kings Cross area. This is an area that relative to its neighbours is far more affordable, has substantial rental demand due to its proximity to the West End /City the universities and plentiful squares.
The improvements made in Kings Cross St Pancras for Euro Star and HS1 drastically changed the area forever and demand and values have significantly increased. The recent Government sale of 67 acres of the land behind Kings Cross to AustralianSuper for an eight million square foot mixed use development and the ongoing looming prospect of HS2 will mean further changes are afoot. I believe firmly that the changes in the area will acerbate so much so that I have put my money where my mouth is and am delighted to announce that we are opening our second office at 65 Judd Street in April of this year to service this growing demand.
As ever if you would like to discuss any aspects of your portfolio please do feel free to give me a call.