April 2016 saw a hike in UK stamp duty that will seriously impact second home purchasers in the UK. With more tax amendments on the horizon, industry specialists like Merryn Somerset Webb at the Spectator are saying that “buy to let investing (in the UK) just became a very, very bad idea”.
There was an interesting article in the Spectator magazine recently discussing the UK buy to let property market. According to it’s author Merryn Somerset Webb, who is also editor in chief at Money Week, “it’s tough to understand exactly what it is that makes (purchasing a buy to let in the UK) so very popular”. She points out that “14.5% of mortgage lending in the third quarter of last year has been to buy to let investors”. But this may not continue to be the case.
Over the past year George Osborne announced two key tax amendments set to severely impact UK property investors.
The first came into play this month. Purchasers of second homes in the UK, for any reason, now face an additional 3% stamp duty. As the Spectator pointed out, in February a £300,000 purchase would have a had a stamp duty charge of £5,000. This has now increased by a whopping 180% to £14,000 – more than enough to put investors off the UK market and set them off on a search overseas.
The second will be enforced by 2020. It will significantly change the current tax relief system for buy to let investors. According to Merryn, as it stands the majority of buy to let investors are generally satisfied as long as they remain cash-flow neutral. They are happy when a buy to let property ran simply. When it worked like this – the purchaser fronts the deposit on the property. Tenants are then shipped in to pay off the mortgage via their rent. The investor then owns the property 20 or so years later essentially having paid nothing but the initial deposit for the home. Merryn says capital gains and yields are not of paramount importance here. That, “as long as the net rent covers the mortgage each month, your’ll win in the end”.
But now, thanks to George Osborne, the situation and the maths will change. Currently running costs of up to 10% of the rental income, as well as majority of mortgage interest on a buy to let property, can be offset against the income. By 2020 this is will no longer stand. Investors will not be able to offset interest directly against income but instead receive a tax credit of 20% of their mortgage costs to offset against income tax. So what does that mean? It means 20% tax payers with UK property investments can easily turn into 40% tax payers according to Merryn – now you get the picture! Polls are saying Osborne’s moves will simply push rents up – that the tenants will front the costs, not the landlords. The National Landlords Association are expecting to see up to half a million buy to let properties suddenly hit the market once the new rules are introduced. Others are suggesting property investors will start to look further afield saying the investment savvy, if they haven’t already done so, will seek out the real buy to let opportunities abroad.
“I’ve said it many times – a buy to let property in Turkey makes sense”, believes Suleyman Akbay of Oceanwide Properties.
“House prices in Turkey are significantly cheaper than the UK. I look at our books at the moment and we have ready to run buy to let properties, often coming fully furnished with rental histories, starting for as little as £44,950. When you consider that coastal resorts like Kalkan, Hisaronu, Ovacik and Calis attract premiums, buy to let properties in Turkey do make sense. They can easily pay for themselves and often make a tidy little sum on top providing they are purchased sensibly and at a good price. Hopefully these new tax announcements will encourage investors to consider a buy to let property in Turkey.”
Considering a buy to let property in Turkey? If so, please get in touch with Oceanwide Properties. We have a wide selection of coastal villas and apartments on offer. To see our portfolio, please refer to our website. To sign up and receive our posts as they are published, please enter your details in the box on the right.