We explore whether it is still economically viable to invest in property since the stamp duty increase, and what sort of properties you can invest in to minimise the effect of the increase or completely bypass it altogether.
The Impact of the Increase in Stamp Duty
The cost of an investment property in Birmingham is £168,062.00 which means you’d typically have to pay £5903 in stamp duty costs.
The Increase in Stamp Duty Has Contributed to House Price Slump property insights
One of the main issues that the increase has caused, has been the increased cost in acquiring new property, which has subsequently caused a slump in house price inflation. Whilst this now means it is a good time for potential investors to consider purchasing additional properties, those who already own property will probably be disappointed with the growth in the market. In particular, property prices in London are most affected by the increase simply because house price are generally more expensive so the stamp duty levied on the properties is proportionately higher. This means that either demand may go down due to the high prices, or property prices may decrease to make up for the increase in stamp duty. In fact, Halifax’s April 2016 House Price Index announced negative growth in terms of house prices, as month on month April 2016 saw average house prices fall by 0.8%, which it attributed to a lack of confidence in the wider economy.
The Increase in Stamp Duty Fails to Dampen Landlords’ Spirits
The increase seems not to have deterred landlords, as the number of landlords has risen to 1.75 million. This has mainly been due to the increase in lending and cheaper mortgages, as access to funds is one of the main drivers in the property market. Another factor that has contributed to the increase in landlords has been the superior yields, far outstripping interest investors make on their money saved elsewhere.
Another positive is that according to Halifax’s May 2016 House Price Index, house prices are resuming an upward trend, with month-on-month growth of 0.6%. This suggests that the British public still very much has an appetite for property, and is welcome news to existing property investors.
Strategies to Avoid Stamp Duty or Minimise its Effect
Although the increase may make some investors think twice about investing in property, it needn’t have to. There are plenty of ways property investors can work around the stamp duty increase or minimise its effect.
Purchase Property in a Company Name
Stamp duty land tax can be avoided by purchasing property in a company name using a business mortgage. This also allows for interest payments to be tax deductible, exponentially increasing your return on investment because mortgages can be granted up to seventy-five per cent of the value of the property which amounts to a lot of interest.