Budget Change & High Rental Yields to boost Prices

HAMISH_MCTAVISH

House prices look set to be boosted by a multi-billion pound new stream of buy-to-let investment by institutions, including Britain’s biggest insurer, prompted by a little-noticed clause in the Budget.

While a good deal of attention focussed on just £250m of new loans, which Chancellor George Osborne said might help 10,000 first time buyers, less attention was paid to reform of Stamp Duty for bulk buyers of residential property. That may sound dull but just wait till you see the figures.

Tax bills for institutional investors and other buy to let landlords could be cut by 80pc if the Budget proposals pass into law. Anyone buying a property portfolio of – for example – 100 homes worth an average of £200,000 each after April 6 would currently face a Stamp Duty charge of £1m or 5pc of the £20m deal value.

However, Mr Osborne has proposed changing the way this tax is calculated so that the rate applied is based on the average value of the properties – not their bulk or total value. So, in the example above, because the average price paid is £200,000 the rate of Duty is just 1pc and so the total tax bill falls to £200,000.

James Moss, a director of buying agent Curzon Investment Property, said: “This will be a big boost to the private rented sector as it will enable pension funds to buy homes in bulk without unfair spikes in Stamp Duty.”

You can say that again. While the first time buyers’ Budget initiative is a drop in the ocean, whichever way you look at it, insurance companies and other institutional investors have vast sums under management. Any increase in their allocation to residential property could have a substantial effect on house prices.

Aviva, Britain’s biggest insurer, confirmed that it is considering setting up a £1bn residential property fund to take advantage of the new taxbreak and others are likely to follow suit. While some analysis suggests property remains overpriced, the facts remain that rental yields have held up despite the credit crunch – and shares have suffered a dismal decade. No wonder bricks and mortar remain attractive for many individual and institutional investors.

Ian Fletcher, a director of the British Property Federation, said: “This tax change will remove a major barrier to large scale investment in residential property by institutions such as pension funds, many of whom have up to £1bn to invest in the sector.”

But any buyer of more than one property stands to benefit from the reforms, which look set to boost buy-to-let investment as well as institutional interest. David Salusbury, chairman of the National Landlords Association, said: “The concessions on bulk purchases will encourage landlords to invest more in residential property, thus providing much needed housing in the private rented sector.
“The government has listened to concerns about the disproportionate level of stamp duty paid by landlords seeking to expand their portfolios in response to increasing demand for affordable accommodation in the private-rented sector.”

Against all that, it can be argued that this is a thoroughly anti-social development. Many young people feel they have been priced out of home ownership partly as a result of the growth in buy-to-let investment by individual landlords. Anything which encourages that – let alone increasing institutional investment in this sector – is undesirable from their point of view.

Whatever you make of that, there can be no doubt that the age of first time buyers is rising rapidly and owner occupation is falling. One explanation may be that landlords – individual and institutional – are buying many of the ‘entry level’ properties that first time buyers used to seek but can no longer afford.

Now it seems the Budget may accelerate that trend.

http://blogs.telegraph.co.uk/finance/ianmcowie/100009899/hidden-boost-for-house-prices-in-the-budget/

Interesting article.

Can't say I'm surprised though.....

As has been mentioned on here many times, mortgage restrictions can never prevent HPI, they can only delay it until rising yields attract investment capital.

And here we are..... Rising yields (and a nice little tax break) look set to attract the big players with many Billions of pounds to compete against FTB-s.

Law of unintended consequences for those who celebrated the demise of FTB lending.....

1984ReturnsForReal_2

spam....................

geneer

HAMISH_MCTAVISH wrote: »

http://blogs.telegraph.co.uk/finance/ianmcowie/100009899/hidden-boost-for-house-prices-in-the-budget/

Interesting article.

Can't say I'm surprised though.....

As has been mentioned on here many times, mortgage restrictions can never prevent HPI, they can only delay it until rising yields attract investment capital.

And here we are..... Rising yields (and a nice little tax break) look set to attract the big players with many Billions of pounds to compete against FTB-s.

Law of unintended consequences for those who celebrated the demise of FTB lending.....

Can't see a problem with the rental sector increasing.
Someone needs to pick up the burden now its clear that there's going to be a lot let competition in the housing market.

Inintented consequence?
Nah, more like a rather obvious consequence.

Generali

TBH I'd much rather rent a house from a large company with an image to consider and a compliance department to made sure they kept the right side of the law than rent one from a woman that wanted to kick me out (physically) because I insisted on a gas safety certificate.

geneer

Generali wrote: »

TBH I'd much rather rent a house from a large company with an image to consider and a compliance department to made sure they kept the right side of the law than rent one from a woman that wanted to kick me out (physically) because I insisted on a gas safety certificate.

Given that they're no longer handing out BTL mortgages to anyone who can provide a thumb print, its very likely you will get your wish.

B_Blank

And the economic competence of the person who wrote this article? Not alot.

The impartiality of the person who wrote this article? Very low

This is basically junk.

Generali

geneer wrote: »

Given that they're no longer handing out BTL mortgages to anyone who can provide a thumb print, its very likely you will get your wish.

Only if I move back to the UK!

System

B_Blank wrote: »

And the economic competence of the person who wrote this article? Not alot.

The impartiality of the person who wrote this article? Very low

This is basically junk.

Why do you think this? Elaborate for us

julieq

It's inevitable really that if we return to a situation of tight credit controls, the market for housing will tend to shift towards rental, and will be operated by large corporate investors - pension funds or specialist landlords who are financing outside mortgages. That is de facto creating the two tier society with a property owning elite and the everyone else renting or leasing. In that scenario you see ownership levels dropping back to trend prior to deregulation, and FTBs being essentially squeezed out as we understand them at present.

Which oddly enough seems to be what is happening.

What is interesting is the idea that you can return to one trend - ratio of prices to salary - without reverting to another - historic rate of owner occupation. No real sense in that.

I don't think mortgages will be restricted for much longer, and I don't think we're headed back to the 1870s. But there's certainly the potential for that to happen and the supply/demand numbers only point one way, which is increasing costs for housing, unless we build more.

FATBALLZ

Is that bullsh1t I smell or desperation?

julieq

FATBALLZ wrote: »

Is that bullsh1t I smell or desperation?

Highly cogent argument, well done. Do you want to expand at all and explain why you think as you do?

No, thought not.