scottfraser Blog: The Changing Buy to Let Market

scottfraser Blog: The Changing Buy to Let Market

March 01, 2017

There is no hiding from the fact that the buy to let market is changing. In this article we will look at recent changes and assess the extent of their likely impact on Oxfordshire’s resilient property market.



The uncertainty created by the 2016 European Referendum and subsequent lack of clarity in Brexit policy has had some degree of impact in the sales market. Local house price growth has slowed slightly with some buyers using Brexit as a negotiating tool. Oxford has proven history as a safe property market with good schools and improving Rail links to London ensuring the market remains firmly underpinned by high owner occupier demand. London and other inflated or inferior markets prices are showing signs of prices faltering however we anticipate that Oxfordshire house prices, supported by high buyer demand and an acute shortage of housing, will continue to hold firm.


2016 saw the Government turn their attention to Landlord taxation. With a 3% stamp duty sur charge introduced for second homes buy to let acquisition costs have increased. Investors are however quick to adapt and this has not deterred new landlords from acquiring. It will however inspire attempts by some landlords to recoup additional initial expenditure by driving rents higher. Oxford’s plentiful supply of professional, academic and medical tenants come with handsome rental budgets and it is therefore likely that rents will continue to rise. We forecast an average 3 pc rental growth in 2017.

The degree of tax relief currently available to Landlords against mortgage costs is also being reduced over a three year scheme starting April 2017. Heavily leveraged high income earners with large portfolios will be most affected by the changes however we predict local casualties will be few and far between. The majority of Oxfordshire landlords own small numbers of properties and where borrowings do exist these tend to be modest. The former 10% annual wear and tear tax allowance has also now been replaced with a revised relief where the actual costs of furniture and appliance replacement can be offset and is likely to prevail as a fairer and more consistent way of calculating relief. As demand for furnished properties continues to rise sensible landlords are likely to use the benefits of tax relief in providing additional furnishings and enhance rental premiums.

Buy to Let Lending

Buy to Let lenders are also adapting to a changing market and are starting to require higher levels of rent relative to mortgage costs. In most cases lenders will require borrowers to receive 125 pc of mortgage costs in rental income with an additional 5 – 5.5 pc interest rate ‘stress test’ factored into the new consideration. This is likely to force landlords to be more creative in their borrowing enhancing further the importance of a good mortgage broker. Re mortgaging an unencumbered principal residence can offer the opportunity for much lower rates of borrowing and Let to Buy mortgages are also now available to landlords looking to retain a former home as a buy to let investment.

Incorporating Buy to Let ownership

A growing trend amongst new landlords is the incorporation of buy to let property ownership. The benefit of transferring personally owned buy to let property into a limited company tends to be outweighed by the associated costs however landlords purchasing new buy to let property are benefitting from sound tax advice and forming limited company holding structures. The finance restrictions on borrowing costs are not applicable to UK and non UK resident companies and with corporation tax currently payable at 20 pc, and likely to reduce further, this structure will appeal to many new investors.

Commercial opportunities

Commercial property investment (generally shops and offices) is also proving an increasingly attractive proposition. The sector has performed well in recent years and there are tax advantages to holding commercial property within Self Invested Personal Pension Plans (SIPPS) from which residential ownership is prohibited. SIPPs offer a good envelope for inheritance tax liability with other advantages being zero tax on income and future gains. Additional benefits of commercial property investment include higher rental yields at between 8 – 10 pc, longer term tenancies and a limited landlord responsibilities for repairs and refurbishment.

Scottfraser’s circle of life – Purchase, retention and disposal

Over the coming years as the Brexit story continues to unfold we anticipate that local house prices will remain relatively static. With consistent tenant demand rental void periods should remain minimal and in the absence of safe and profitable investment alternatives buy to let is well positioned to prevail. There is likely to be a shift in interest towards commercial opportunities, a reduction in the frequency of buy to let borrowing and an increasing number of landlords using incorporation to limit tax exposure. We also expect new landlords financing investments to seek higher returns, probably leading more landlords to invest in Houses in Multiple Occupation or studio, one and two bedroom apartments within Oxfordshire’s market towns where rental returns tend to highest.

We do not foresee these changes having any significant bearing on Oxfordshire’s bullet proof property market. Oxfordshire landlords tend to invest both sensibly and for the long haul and within a sought after county offering gross BTL yields of up to 7% combined with a proven track history of capital growth (av 5% uplift in 2016) the viable opportunities for profitable buy to let investment will continue to draw in property investors.

scottfraser offers a one stop shop property service through from Property Acquisition, Refurbishment, Furnishing, Lettings, Property Management and Sales. Our local knowledge, investment expertise and Property Management prowess supports Oxfordshire’s most successful property investors. For sound, honest and expert advice on investing in Oxfordshire and to find out how we work harder to maximise your investment’s profitability please call your local branch.


Author | John Gebbels, Associate Director | 01865 760055

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