The nature of Loss: What can Buy-to-let Investors expect in 2016?

UK Prime Minister David Cameron can scarcely recall a worse week in politics, with thousands calling for his resignation of mishandling of his involvement in the Panama tax scandal. While Cameron appears to have done nothing wrong from a legal perspective, his involvement with the scandal has come at the worst possible time for him and his party as a whole.

The Issue of Buy-to-let Investment: What can Investors expect?

After all, Cameron and Chancellor George Osborne have already come under-fire after a number of controversial decisions, most notably the tax changes to the prosperous buy-to-let market. While this has been a key economic engine in the UK during the last three years, it has also contributed to a chronic housing shortage and spiralling price points that are increasing at a disproportionate rate to earnings. This is an issue that the government has been to negate, especially as it remains committed to empowering citizens and first-time buyers.

The initial response to this has been to implement more stringent buy-to-let regulations, including tax and stamp duty reforms that will impact on the impact on the ROI of a typical real estate investment. From this month, private sector landlords will be required to pay a noticeably higher stamp duty (3%) when purchasing buy-to-let homes, while next April will see the introduction of a reduced tax allowance which will wreak havoc among entry level real estate investments.

The Short and long-term Fallout

Almost immediately we have seen a rise in the number of private sector evictions as landlords look to leave the market and offload their depreciating asset. There has even been a rise in the number of buy-to-let properties sold to specialist, quick house buying firms such as, with landlords happy to sacrifice approximately 20% of the value in their homes to secure a quick transaction.

This trend is set to continue for the foreseeable future, creating havoc in the market and triggering huge instability.

In the longer term, we can at least expect the market to settle as investors develop a greater understanding of how the new legislation will impact on their returns. This may help to assuage the current level of anger among investors, who feel as though they have been betrayed by a government that has manipulated a private sector marketplace to the detriment of thousands. Above all else, the new reforms will undermine the rental market and reduce the options of aspiring buyers who are unable to get their feet on the ladder.

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