If you’re planning on buying a second property this year, then help is at hand thanks to Spectator Money. Stamp duty costs, mortgage tax relief changes and the possible impact of Brexit are just a few things to consider when buying a second home, a holiday home or a buy-to-let in 2017.
Price versus Value
‘Location, location, location’. This age-old saying still speaks volumes. When searching for a property, you’ll benefit in the long run if you do your homework at the outset. Infrastructural changes have a direct knock-on effect with property prices, as does the weather and local amenities, such as roads, schools and shops. If you can search out areas that have plans to undergo development and renovations, you could find a property that will hold high future value.
Buying a second property through equity or a buy-to-let mortgage
There are two main ways you could buy a second property in 2017: through equity or a buy-to-let mortgage. You can remortgage your first property and with the equity released put down the deposit needed for a second property or, if you have enough, buy it outright. However, if you’re taking out an additional mortgage on a second home you need to prove to the mortgage provider you can afford repayments on two mortgages.
If you plan on renting out the property you will need a buy-to-let mortgage. To qualify for this type of mortgage you will typically require a minimum deposit of 25-40 per cent (or more) to access the best deals available.
When buying a second property, there is an additional 3 per cent charge to the standard rate of Stamp Duty Land Tax (SDLT) which works out as follows:
** 3 per cent on the first £125,000
** 5 per cent on the portion between £125,000 to £250,000
** 8 per cent on the portion between £250,000 to £925,000
** 13 per cent on the portion between £925,000 to £1.5 million
** 15 per cent on anything over £1.5 million
There have been many calls, including those from nationwide estate agent Haart and former Chancellor Nigel Lawson, for the current Chancellor Philip Hammond to cut or even completely reverse this controversial SDLT charge, introduced back in April 2016. However, for the moment you still need to factor this charge into your budget for the coming year.
Loss of mortgage interest tax relief, phased in from April 2017
The one significant change we know about for 2017 is the phasing in of new tax relief rules for landlords. Currently, landlords can deduct the cost of certain items from their rental income including estate agent fees, repairs and mortgage interest.
After April 2017, landlords will still be able to deduct these expenses but higher rate taxpayers will only be able to deduct part of their mortgage interest rate costs from their rental profits. Although most landlords won’t be affected (basic rate tax-paying landlords earning less than £40,000 for example), it’s worth taking note of this now.
The Brexit Factor
If you’re planning to purchase a buy-to-let in 2017, you also need to factor in the potential Brexit effect. Remember that future possible restrictions on migration to the UK may mean less demand for rental properties and, as such, less opportunity to charge sufficient rents to cover costs.
New Build or Resale
When it comes to the type of property, you have a choice of a new build home or an existing property. Both have upsides and downsides.
With a new build you have no moving chain to worry about and a clean slate allowing you to add your own character to the property. They are also highly likely to be energy efficient and have modern appliances and materials.
An existing property also has positives to consider such as the charm of the building, an established neighbourhood, as well as more wiggle room to negotiate on price compared to a new build.
Buying a second property takes careful planning. The steps outlined above should be researched thoroughly, leaving enough time to allow you to arrive at a carefully calculated decision. This way, you will be more likely to get the best reward for your investment.
Keith Osborne is Editor of WhatHouse?