Landlords have now faced two tax hikes in four months. The latest raid — an increase in stamp duty announced in the Autumn Statement last week — will add an extra £7,500 to the typical fees of buying a £250,000 home.
Coupled with the cut in tax relief that richer landlords can claim, revealed in this summer’s Budget, this fresh attack is likely to deter many from putting their pensions into buy-to-let.
Until now, property has been viewed as a cash cow by investors. And it’s not hard to see why. Over the past 25 years, the average house price has risen from £68,823 to £202,689 — an increase of 295 per cent.
But the FTSE All Share has also grown at an average of 9.6 per cent a year over the past 30 years.
So, if you’ve got £50,000 worth of savings to spare and want to get an income and some growth, which is better? To make a fair comparison, you need to look at all the costs and all the taxes.
HOW THE COSTS STACK UP FOR BUY-TO-LET
For both our buy-to-let and share investments, we’re going to assume that you start with £50,000, which you’ve saved up in an Isa.
That’s enough for the one-off deposit for your property, or as the lump sum for your shares or funds.
Your £50,000 is a 25 per cent deposit on a £200,000 property. For this loan size, you can get a five-year fixed-rate mortgage at 3.59 per cent with specialist lender Accord.
Buy-to-let mortgages are usually interest-only. This means you make monthly interest payments on the debt and then repay the full amount at the end of the mortgage term — usually by selling the property. It also means your payments each month are lower.
According to figures from mortgage broker London & Country, with this deal the interest payments would be £449 a month over 25 years — a total of £5,385 a year.
You’re also going to need to pay mortgage fees, which are usually added to the total of your loan — in this case, £2,625.
Then there is the dreaded stamp duty. Last week, the Chancellor announced that from April 1 buyers of buy-to-let or second homes would pay 3 per cent more than ordinary buyers.
So that means they pay 3 per cent on the first £125,000, instead of nothing. From the bit of the property worth between £125,001 and £250,000, they pay 5 per cent tax instead of 2 per cent.
So under the new regime the stamp duty bill on buying a £200,000 home will be £7,500.
Source: ThisIsMoney.co.uk, 2015, Full Article Here