From Friday (April 1st), the government brought in a new tax for buy-to-let landlords that sees any investment in stock subject to a three per cent levy on top of Stamp Duty tax. It is a move that has been widely criticised since it was announced last November, but how will it really affect the sector in the long run? Will 2016's rental sector survive the change in taxation, and how can landlords change tact to make this a reality?
We take a look at what's happened so far and how the market will need to adapt in the coming months to make sure it survives what is sure to be a trying time for the market.
One of the biggest problems facing the sector at the moment thanks to the new charge is a lack of stock, which could mean the buoyant market failing to meet the ever rising demand. With more than 4.6 million rental homes already in place across the nation and the volume of homeowners falling all the time, it's clear that there's a real need for more homes coming to market in the private rented sector, but this is something that there has been a fear over, with many landlords voicing their concerns about the increased price of investing after the levy comes in and saying they may even look to sell rather than buy in 2016.
So will the sector manage to overcome this? It appears so, with many landlords who would have invested simply moving their intentions up to try to beat the deadline. This has meant that many who would have spent later in the year to add stock to the market have purchased homes early in order to make sure they get in before prices rise. This should help to protect the sector against the predicted drop in stock, and make sure it has the ability to still meet demand for the year as a whole.
Another big fear that has come about as a result of the tax has been around costs. There were worries that the cost of investing rising would mean landlords having to pass the increases down to tenants. Unfortunately, the experts seem convinced that this will be the case, with ARLA, among others, reporting that rents are likely to climb in the coming months.
The good news is that this shouldn't stifle the market too much. The rental market has such an underlying strength at present that it should, in theory, be able to withstand a change such as this. Demand has never been higher, and tenants are used to having to pay a little bit more to secure their home, so a slight jump in rental prices to help landlords meet the increased costs of the new tax coming in should not adversely affect the market too much.
Of course, it remains to be seen whether or not the market can survive the change in taxation, but the underlying strength of the rental market means there is a good chance we could see it come out relatively unscathed from this sizeable shift in taxation.