An alternative to buy-to-let investment properties?
At the start of April 2016 the latest Government reform came into play with the intention of cooling the buy-to-let market, being an additional 3% payable on stamp duty (SDLT) charges. The increase also affects those buying a second home or a holiday home however it is the buy-to-let market that it is anticipated will be affected most. For instance SDLT will increase on a buy-to-let property being purchased for £280,000 by £7,500 to £10,000 and on a property being purchased for £500,000 by £15,000 to £30,000.
In addition to the above the rules that allow landlords to deduct interest mortgage against their tax liability are being revised. From 2017 landlords will no longer be able to claim higher rate tax relief with the effect being brought in gradually until 2020 when only basic tax relief will be available, resulting in higher rate taxpayers receiving only half the relief they currently get.
Finally the Bank of England has recently announced new rules aimed at making it more difficult for buy-to-let landlords to obtain lending.
So what is the alternative? Of course the Stock Markets may appeal but if you want to stay within the property sector you may wish to consider investing in commercial property, where SDLT rates remain unchanged. Although rents for some sectors, particularly the high street, continue to be slow the office market in many locations remains buoyant with increasing rents and high levels of occupancy.
One of the simplest ways to invest in commercial property is at one of the many auctions held throughout the year at various locations. There are many benefits of buying a property for auction, including the following:
Exchange of contracts is effected when the auctioneer’s hammer falls and completion is usually set for 20 working days thereafter. Both parties have the certainty of knowing they are bound into the contract immediately.
You may be able to pick up a bargain. Provided the bidding reaches the reserve price (a figure that only the auctioneer and the seller will know and not to be confused with the guide price referred to) the highest bidder will be successful even if this is below the market value. However also be aware that bidders’ enthusiasm in the auction room may push the price to unrealistic levels, so always approach a property with a maximum bid in mind and don’t exceed this.
All the information you require should be available in the auction pack, obtainable in advance from the auctioneer. This will include the legal title, any tenancy information and payment history, local search, planning permissions and the VAT status of the property. Well prepared packs will also contain replies to Commercial Property Standard Enquiries, which are the standard enquiries raised by solicitors when buying a commercial property and contain lots of relevant information. If you have any additional requests the seller’s solicitor’s details are provided so specific enquiries can be made. It’s essential that you get your solicitor to review the auction pack before the auction as if you don’t but your bid for the property is successful then you are contracted to buy the property even though it may have a problem with the title.
So venturing into the commercial property market may be a way of circumventing the increasing efforts by the Government to cool the buy-to-let market, and an auction may be a way of stepping into that sector. As with all property transactions an experienced solicitor should be consulted in plenty of time before the auction to advise on the contents of the auction pack. If funding will be required this too should be arranged in advance because if your bid is successful then you are contractually bound to complete and so will lose your deposit if you cannot get together balance of funds needed to complete. Although short term lending may be available the rates are generally much higher than standard lending and will negate any benefits of avoiding the high SDLT rates now being imposed on buy-to-let landlords.
For more information, please contact Rachael Spalton, Partner and Head of our Commercial Property team.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.