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The media has made a big song and dance since the Chancellor George Osborne announced that tax relief on buy-to-let mortgage interest payments would be reduced from April 2017 and that buy-to-let properties (and second homes) would incur an extra 3% stamp duty.

Changes should not be a surprise in any investment market, but, what do these changes really mean and is property still the preferential investment?

Simple facts are great to look at when ascertaining the bottom line as an investor.

Firstly 3% additional stamp duty how does this affect property investment?

3% stamp duty brings the costs of acquiring up but the returns are hardly influenced at all over a medium to long term investment period.

Property statistics show the average return on cash invested over 5-15 years to be a whopping 41.5% p.a., excluding rental profit after mortgage and costs.

For example history* shows that the average house price rise p.a. is 8.1%, so 3% stamp duty cost can be recovered in an average 6 months of market growth







From today

Average property value






Stamp Duty

(1% of total)

(1% of total)

(2% over 125k)

(2% from 125k to 250k)

(3% up to 125k then 5% to 250k)






Acquisition costs






Typical BTL LTV






Typical mortgage interest rate






Interest only monthly payment






Cash needed

to invest inc. deposit






5 year est. ROCI






10 year est. ROCI






15 year est. ROCI







Rental excess/income has not been included in the Return On Cash Invested.

The average ROCI on the table is 41.5% p.a.

Does 3% stamp duty make a significant difference? Yes to the acquisition cost but not to the returns over time.

Tax is another area of peaked interest due to the changes being brought in regarding tax relief on buy-to-let mortgage interest payments.

What does the loss of tax relief mean?

If you’re new to buy-to-let, you might not appreciate what this is. Up to now, people buying to let have been able to claim tax relief on their mortgage interest payments at their marginal rate of tax. This means that a basic rate taxpayer would get 20% tax relief, but those at a higher rate would receive 40% relief, while top-rate taxpayers could claim 45%.

What’s changing?

When the changes come in April next year, tax relief will be a flat rate of 20%. Landlords who pay basic rate tax would see no change, but those on higher incomes will find themselves losing much more in mortgage interest payments.

Example Net Yield Calculation

An indication we have seen is from The Nationwide Building Society published recently estimated figures of how a typical landlord’s profits might be hit. Someone with a £150,000 buy-to-let mortgage on a property worth £200,000, with a monthly rent of £800, would currently have a net profit of around £2,160 a year. Under the new system, the net profit would be £960.

The Property Investment Overview:

1. There will always be demand for renting

  • Today a fifth of households rent from private landlords, according to Respublica. This could be because of rising house prices and a lack of affordability or just because people want flexibility.
  • Tenant demand remained high in the last quarter of 2015, according to Kent Reliance.
  • Landlords survey said that 43% indicated that demand was either ‘growing’ or ‘booming’, up 3 per cent on the previous quarter.
  • Additional Landlord costs and demand will see rentals grow and yields increase.

2. Record-low mortgage rates

  • Mortgages in both the residential and buy-to-let sector have fallen to record levels, helped by the historically low Bank of England base rate of interest.
  • Landlords are also benefiting from increased choice of home loans as with no signs of interest rates rising in the near future there are plenty of competitive deals to snap up. There are now more than 1,000 buy-to-let mortgages on the market, up from just over 800 a year ago and 486 in 2012, according to Moneyfacts. CML policy changes have and continue to make the lending safer and safer for the consumer.

3. Great yields are still stable

  • You can calculate rental yield by calculating the annual rent received as a percentage of the purchase price.
  • For example, a property delivering £10,000 worth of rent that costs £200,000 has a 5% yield.
  • Gross rental yields are expected to remain at the same level as 2015 over 2016, giving an average figure of 6.4%

4. Portfolio, Tax and Estate Planning

  • Structuring your portfolio in a more tax efficient way could be arranged after gaining advice from a qualified tax planner.
  • For example, we have seen investors using LTD companies for a corporate strategy and trusts
  • Higher rate tax payers will be seeking advice and will look to become more tax efficient with the changes over the next few years.

The outlook when considering the major influencing factors is still very attractive for most property investment styles. The ‘flipping’ or buying to sell for profit strategy is not as appealing or profitable with the additional 3% charge so picking your deals will become the key to maintaining the strategy. Long term BTL is hardly influenced and the rental prices are already rising to compensate investors with additional yield income. Interest rates look to be remaining at the exceptionally low levels they are for some time yet. Mortgage lending criteria is being adjusted to keep investors and banks safe in their investment. First time buyers are seeing more lending come to the market with terms like 100% LTV that will keep the market active.

Till the volume of new build accommodation being brought to the market outweighs the demand prices will continue to rise. The smart investor will look for a strategy that fits their personal needs. Often this will require yields levels that can only be gained by buying under market value. To get the best strategy and property opportunity you should discuss your investment aspirations and goals with Earnest Knight today.

CALL Earnest Knight NOW 0208 6109 472 or email

An informed investor is a successful investor!

For the current research results and the best choice of property investments, as selected by property buyers, in the UK market do not hesitate to contact your Earnest Knight Consultant today

Information is free and can only be of benefit to you

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* Nationwide house price data recorded since 1952


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