Stamp-duty changes drive interest in buy-to-let but many don’t understand tax pitfalls

11 February 2015

  • 21% of property owners now more likely to invest in B2L following stamp-duty changes
  • 50% of buy-to-let landlords don’t fully understand the income tax implications of their buy-to-let property
  • Scotland’s buy-to-let market bounces back after independence referendum
  • Almost 50% of British homeowners who aren’t yet buy-to-let landlords want to become one

The third buy-to-let market index commissioned by Bank of Ireland UK has found that the chancellor’s stamp duty changes are having a dramatic impact on the buy-to-let market in London and Scotland. Almost a third of property owners in both regions are now more likely to invest in buy-to-let.

The announcement has had a significant impact, particularly on the likely behavior of new entrants to the buy-to-let market, as opposed to those who are already buy-to-let landlords. 39% of such homeowners are now more likely to buy a buy-to-let property in the next 12 months, compared to just 12% of existing landlords.

Bank of Ireland UK, through its partner the Post Office, is a provider of buy-to-let mortgages. This, the third wave of the buy-to-let index, gives an indicator of the future health of the British buy-to-let market each quarter.

While the next year may see a boom in the buy-to-let market, the report highlighted the potential tax pitfalls facing landlords. A surprising 50% of buy-to-let landlords don’t fully understand the income tax implications of their buy-to-let property. This is also true for more than a third of “accidental” buy-to-let landlords who do not understand the inheritance tax implications of properties bequeathed to them.

The research also indicates that retirees are set to flood into investment property market following implementation of annuity rule changes in April. The research found that 41% of pensioners will take a lump sum to buy a property or to pay off their mortgage on retirement.

Scores in excess of 50 out of 100 indicate a positive outlook for the UK’s buy-to-let market. The results of the third edition of the Index revealed a positive view of the market, despite being down slightly at 59.6 in December, despite being 60.8 in September.

Greater London’s index score has maintained its place as the highest in the country, at 69.6.

The Index in the first wave of research was lowest in the North of England at 51.7, some 17.5 points lower than its value in London, but Scotland indexed much higher during the third wave at 57.6 as the uncertainty around the independence referendum subsided.

Mark Howell, Commercial Director, Bank of Ireland UK Mortgages said: “With the third wave of the buy-to-let index, we’re really beginning to establish a platform of data that gives us insight about what consumers think about the buy-to-let market.

“As we also identified in our last wave of research, a knowledge gap around the tax implications of buy-to let continues to exist. It is interesting to see that this is particularly profound with regards to inheritance tax; a situation many accidentallandlords find themselves in after inheriting a property.

“We’ve seen over the past few waves how influential government announcements can be on investors’ ambitions for property; with stamp duty changes drastically improving confidence and likelihood of investment in buy-to-let property, and pensions annuity changes empowering retirees to take lump sums to buy property to fund their later life.”

Note to Editors:

  1. Survey of 400 British property owners between 5-16 December 2014
    • 200 private landlords (small landlords only, those with under 10 properties in their portfolio)
    • 200 homeowners  (who either own their own home outright or are buying it on a mortgage)
  2. The B2L Market Index is formed by aggregating and averaging four index scores, each of which is measured on a scale of 0 to 100:
  1. MAI Mortgage Affordability Index (how affordable overall are your current mortgage payments, for all your UK properties taken together- from 0 = not at all easily affordable to 100 = very easily affordable).
  2. PPI Property Prices Index (belief that property prices in this region will rise faster than inflation in next 12 months-  from 0 = not at all likely to 100 = very likely)
  3. RVI Rental Values Index (belief that rents for private property in this region will rise faster than  inflation in next 12 months- from 0 = not at all likely to 100 = very likely)
  4. NPI New Purchase Index (likelihood of buying another UK property on a mortgage or outright over next 12 months, to rent it out – from 0 = not at all likely to 100 = very likely)
Buy-to-Let Market Index June 2014 September 2014 December 2014
Mortgage Affordability Index (MAI) 76.4 81.8 81.6
Property Prices Index (PPI) 65.5 66.4 62.7
Rental Values Index (RVI) 62.5 63.6 63.9
New Purchase Index (NPI) 30.3 31.5 30.4