# Why UK Buy-to-Let remains very much alive
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2018-04-16
Category: LIFESTYLE
Category URL: https://financedigest.com/category/lifestyle
Meta Title: UK Buy-to-Let Market 2018: Impact of Tax & Mortgage
Meta Description: Discover how the recent tax and mortgage relief changes have affected UK landlords and the buy-to-let market. Insights from SurrendenInvest's John Parker.
URL: https://financedigest.com/why-uk-buy-to-let-remains-very-much-alivehtml

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Property investment specialist [SurrendenInvest](https://r20.rs6.net/tn.jsp?f=001Dc_vd7XpqQNijXzUfofwkNh9BYlm3kb5l2M7CBBY0YEu5LaSS3NHP9a_zRx1SytOGwnAdgz3ks3pVhRixqK3QIal1hzzdRmzOv4WVKRZLqmt5H3MZQstUnxh52xDGh4VK0_0NwIKQ543SPK--BpDcw3OQz0UO7eYW80UMNpZrQFm1RI5e0E2KA==&c=nk-8_iHtr1X4vVgeM4QF1mxEXFISeT_YfDaZCWjJuXW14Dud8iz4pQ==&ch=LP65l54oHwlV-E3T_zndfdQfkCz8mEJLTsFBFxAoJPIHQPXo1gd6EA==)‘s **Business Development Director, John Parker** shares his views on the UK buy-to-let market in 2018:

![John Parker](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/john-parker-1736842834599-compressed.jpg)

John Parker

**_John, a year since the government’s tax and mortgage relief changes came into effect, what impact have they had on UK landlords who placed leverage on their property investments?_**

The tax changes are still relatively new so we’re still to see exactly what effect it will have on UK landlords and the buy-to-let market in the mid to long term. [Key dynamics](https://www.financedigest.com/truck-mounted-concrete-mixer-market-size-top-key-players-latest-trends-regional-insights-and-global-industry-dynamics-by-2022.html "Truck Mounted Concrete Mixer Market Size, Top Key Players, Latest Trends, Regional Insights and Global Industry Dynamics By 2022") such as undersupply and rising rental returns across many part of the country remain very strong any added tax expense becomes less of a factor with a long-term strategy. We’re yet to see any fall out of real merit from the more traditional investor who may have one or two properties beside their own residential home and think the brunt of the changes will be felt more keenly by the [portfolio](https://www.financedigest.com/investors-reorient-portfolios-amid-macroeconomic-challenges.html "Investors reorient portfolios amid macroeconomic challenges") investor who has 4 or more properties.

**_In practice, what exactly changed a year ago?_**

Well, firstly the tax changes; [buy-to-let investors](https://www.financedigest.com/why-are-investors-checking-out-of-uk-buy-to-let-and-checking-in-to-hotel-investment.html "WHY ARE INVESTORS CHECKING OUT OF UK BUY-TO-LET AND CHECKING IN TO HOTEL INVESTMENT?") began losing the ability to offset mortgage interest from their profits before calculating their tax liability. In 2017, landlords could offset only 75% of their mortgage [interest against their profits](https://www.financedigest.com/abn-amros-q3-profit-jumps-as-interest-income-recovers.html "ABN Amro’s Q3 profit jumps as interest income recovers"), falling to 50% this year, 25% in 2019 and eventually to zero in 2020.

This was followed with a stamp duty surcharge of 3% which was introduced on any second property for domestic and overseas buyers. Buying a second home for £200,000 previously cost £1,500 in Stamp Duty, now this is £7,500.

Then, the ‘wear and tear [allowance’ came to an end so we can’t offset as much against our tax](https://www.financedigest.com/guidance-for-transfer-of-nil-rate-inheritance-tax-allowance.html "Guidance for transfer of nil-rate Inheritance Tax allowance ") bills

Finally investors owning four or more properties became classed as portfolio investors, meaning they needed to provide their [mortgage](https://www.financedigest.com/things-mortgage-lender-takes-into-account-when-processing-an-application.html "Things Mortgage Lender Takes Into Account When Processing an Application") lender with much more detailed information as lenders began to look at total income against borrowing across all properties to ensure affordability of loans. New stress tests on buy-to-let mortgages were also introduced where monthly income typically [needed to cover 125% of mortgage repayments based on interest rates](https://www.financedigest.com/ecb-needs-to-keep-interest-rates-sustainably-high-to-combat-inflation-lagarde.html "ECB needs to keep interest rates ‘sustainably high’ to combat inflation – Lagarde") hitting 5.5%.

![Hadrian's Tower, Newcastle](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/hadrians-tower-1736842834578-compressed.jpg)

Hadrian’s Tower, Newcastle

**How does the UK [buy-to-let landscape look to landlords today](https://www.financedigest.com/a-brief-look-at-the-buy-to-let-market-as-it-stands-today.html "A Brief Look at the Buy-to-Let Market as it Stands Today"), are there still opportunities?**

There is still a very healthy demand for buy-to-let properties and in many [cases](https://www.financedigest.com/demand-from-retail-food-and-beverages-sector-to-account-for-over-70-of-refrigerated-display-cases-sales-study.html "Demand from Retail Food and Beverages Sector to Account for over 70% of Refrigerated Display Cases Sales: Study") demand continues to increase due to a severe lack of supply and because of people’s changing requirements, for example, the ageing population in city centres.

The supply of rental properties fell by 8% from December 2017 to January 2018, while [demand grew according to statistics](https://www.financedigest.com/pharmaceutical-contract-sales-outsourcing-market-statistics-demand-and-forecasts-to-2031-examined-in-new-research-report.html "Pharmaceutical Contract Sales Outsourcing Market Statistics, Demand and Forecasts to 2031 Examined in New Research Report") from ARLA.

**_What about the impact of the stamp duty hike?_**

As has been widely reported, the changes to stamp duty have been more keenly felt in prime central London and the affluent suburbs. Buyers are now paying a standard 5% duty for anything above £250,000 (up to £925,000) which equates to an eye popping 8% when including any additional 3% surcharge for a second [home or buy-to-let property](https://www.financedigest.com/simplifying-home-insurance-through-property-characteristics-data.html "Simplifying home insurance through property characteristics data").

On the flipside the stamp duty threshold has been increased to £300,000 for first time home owners, which has helped the low to mid-end of the London property market [counter](https://www.financedigest.com/innovation-to-augment-the-flavors-into-over-the-counter-otc-pharmaceuticals-market.html "Innovation to augment the Flavors Into Over The Counter OTC Pharmaceuticals Market") the harsh market conditions.

The stamp duty changes have not been felt outside of London as badly as typically property [prices are lower](https://www.financedigest.com/eu-countries-consider-lower-gas-price-cap-documents.html "EU countries consider lower gas price cap – documents") and the 3% surcharge for a second property is an easier pill to swallow. Added to that significantly [stronger rental demand and yields](https://www.financedigest.com/german-bond-yields-at-new-highs-after-stronger-than-expected-pmis.html "German bond yields at new highs after stronger-than-expected PMIs") help compensate for any added closing costs. Indeed, in some ways the changes have had a positive effect in secondary cities such as Manchester & Birmingham as money continues to leave London in search of better value & [lower costs](https://www.financedigest.com/companies-cost-inflation-is-slowing-but-shoppers-may-wait-for-lower-prices.html "Companies’ cost inflation is slowing but shoppers may wait for lower prices")

![Middlewood Plaza, Manchester](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/middlewood-plaza-1736842834591-compressed.jpg)

Middlewood Plaza, Manchester

**Can landlords do anything to offset the** [higher stamp duty costs?](https://www.financedigest.com/uk-pub-operator-wetherspoons-loss-narrows-despite-higher-costs.html "UK pub operator Wetherspoon’s loss narrows despite higher costs")

The stamp duty surcharge of 3% can often be used as a [negotiating tool when dealing](https://www.financedigest.com/s-africa-negotiates-deal-with-eu-to-clear-citrus-blockage-at-ports.html "S.Africa negotiates deal with EU to clear citrus blockage at ports") with developers and vendors, especially in the short term. However, taking a healthy long term view with your investment is the best way to position the added expense as everything is relative and over 5-10 years these added costs [become somewhat obsolete when filtered into the rental & capital returns on the property](https://www.financedigest.com/property-letting-could-become-a-legal-minefield.html "PROPERTY LETTING COULD BECOME A LEGAL MINEFIELD")

**Any tips on how** [potential buy-to-let landlords can ensure they’re making a good investment?](https://www.financedigest.com/technical-textiles-market-2021-2031-potential-growth-attractive-valuation-make-it-is-a-long-term-investment.html "Technical Textiles Market (2021–2031)| Potential growth, attractive valuation make it is a long-term investment")

If [investors buy](https://www.financedigest.com/credit-agricole-and-caceis-to-buy-rbc-investor-services-europe-unit.html "Credit Agricole and CACEIS to buy RBC Investor Services’ Europe unit") in the right areas where rental yields are on the increase year-on-year, this will help mitigate negative tax changes on buy-to-lets. For example, [recent research](https://www.financedigest.com/recent-research-in-vitro-toxicology-testing-market-to-witness-steady-growth-at-5-6-cagr-by-2017-to-2022.html "Recent Research: In Vitro Toxicology Testing Market To Witness Steady Growth At 5.6% CAGR By 2017 to 2022") by UK Finance / Savills put Liverpool at the top of the UKs when it came to average rental yields (April 2018).

With a stagnant prime central London [market coupled together with weakening yields across the capital and indeed south-east region](https://www.financedigest.com/animal-feed-additives-market-regional-industry-segmentation-analysis-by-production-consumption-revenue-and-growth-rate-by-2031.html "Animal Feed Additives Market Regional Industry Segmentation, Analysis by Production, Consumption, Revenue and Growth Rate by 2031") as a whole, we at Surrenden Invest are seeing a huge influx of both private and institutional money into key UK secondary markets such as Birmingham, Liverpool, Manchester and interestingly this year, Newcastle to find value.

![The Tannery, Liverpool](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/the-tannery-1736842834608-compressed.jpg)

The Tannery, Liverpool

**_What should new investors consider when launching their portfolio?_**

The key difference is that buy-to-let investors need to factor in higher deposits as the [mortgage products](https://www.financedigest.com/how-can-i-qualify-for-more-on-a-mortgage-product.html "How Can I Qualify for More on a Mortgage Product?") are not as flexible, creative or highly geared as they once were. This should account for a better-balanced portfolio [moving forward and ensuring greater resilience](https://www.financedigest.com/resilience-how-a-glory-file-helps-traveltech-founder-julie-grieve-move-onwards-and-upwards.html "Resilience: How a ‘glory file’ helps traveltech founder Julie Grieve move onwards and upwards") in the face of any potential downturn.


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