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Two consultations landlords need to know about

Two consultations landlords need to know about

Posted on 2016-01-29

Keeping on top of new legislation and staying up to date with wider changes to the Private Rented Sector (PRS) are important aspects of being a landlord.

There has recently been news of two consultations concerning the rental market – both of which could affect landlords in the months to come.

The first is the Government's “buy-to-let mortgage consultation”, which explores the idea of giving the Bank of England (BoE) more powers to regulate the market.

The second concerns the “stamp duty changes” put forward in last November's Spending Review.

Here is some must-know information on both to keep you equipped and up to speed:

Buy-to-let mortgage market consultation

What is it?

Just before Christmas, the Government launched its own consultation into buy-to-let mortgage lending.

It has been widely reported that this exercise will result in the Bank of England's Financial Policy Committee being given powers to regulate the market and bring buy-to-let lending in line with household lending.

In anticipation of this sort of action, a number of lenders have already made their buy-to-let lending criteria stricter.

The idea behind making lending stricter and handing powers to the BoE is to make it easier to 'cool' the buy-to-let market if needed.

However, in response to the Government's announcement, the Council of Mortgage Lenders (CML) claimed that the market won't need 'cooling' in the next few years as increased stamp duty and cutting of tax incentives will bring around a natural dip.

Who is involved?

The Government, Bank of England, Financial Policy Committee, Landlords

What is the timescale?

December 17 2015 – March 11 2016

What could it mean for you?

This issue came about recently when BoE Governor Mark Carney expressed concern over the buy-to-let market and the volatile implications of a mass sell-off of properties made by landlords.

If the consultation deems that powers should be handed to the Financial Policy Committee, the sums lent to landlords in the future are likely to be limited. Loan-to-Value rates and whether monthly rents cover mortgage payments are aspects of the process which are likely to be tightened.

Should these changes take place later in the year, accidental landlords and those not looking to grow their portfolio are unlikely to be affected. It is, however, those looking to purchase additional properties and take on new buy-to-let mortgages who are likely to feel the effects of these changes.

What next?

The Government is asking for responses until March 11 – which gives interested parties enough time to put their thoughts across. It is thought that new powers will be handed to the Financial Policy Committee after the consultation – but no prospective dates have yet been put forward.

Further reading:

Consultation on Financial Policy Committee powers of direction in the buy-to-let market

Bank of England Financial Stability Report 2015

Stamp duty surcharge consultation

What is it?

This consultation is asking for responses to the Government's 3% stamp duty surcharge announced in the Autumn Statement. It is proposed that from April 1, purchasers of second homes or buy-to-let properties will have to pay an additional 3% in stamp duty.

The policy is designed to give a helping hand to first-time buyers and increase home ownership levels in the UK. The consultation document – which was released on December 28 – is requesting responses from interested parties, including landlords and investors, to give answers to a number of questions and opinions on several aspects of the new rules.

Some of the main issues discussed in the paper are how the rules will apply in cases of joint ownership or when parents buy a property for their children, as well as how the new tax will be applied in cases of multiple property purchases and whether large scale investors will be granted any relief.

Who is involved?

The Government, Landlords, Letting Agents, Industry Bodies, Property Professionals

What is the timescale?

December 28 2015 – February 1 2016

What could it mean for you?

Well, if the proposals go through to the desired time schedule, it will become more costly for landlords to expand their portfolios from April.

For example, under the current system a buy-to-let purchaser would pay a stamp duty bill of £3,750 on a property worth £275,000. From April, the stamp duty payment will be increased to £12,000. And on a property worth £450,000 the purchaser will pay £26,000 from April 1, instead of £12,500 at the moment.

It has been widely reported that the prospect of the increased stamp duty payments has encouraged many investors to purchase property in the first few months of this year, causing a surge in market activity.

One thing the consultation does confirm is that the higher rates will apply on all transactions which complete on or after April 1. However, if contracts were exchanged before the new rates were proposed on November 25 2015 and the transaction doesn't complete until April 1 or beyond, then the higher rates do not apply.

What next?

The closing date for responses is February 1 – these will then be reviewed by the Government. It is then expected that the final stamp duty proposals will be announced by the Chancellor in the next Budget on March 16, with the new system coming into force on April 1 as planned.

Further reading:

Consultation on higher rates of Stamp Duty Land Tax

How Will The 3% Stamp Duty Surcharge Affect Let to Buy?

NLA Autumn Statement Briefing

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