Cullen Property, Edinburgh's leading property investment, lettings and management specialist explains why it is confident that the Edinburgh Private Rented Sector will remain viable in spite of taxation rules on the purchase and mortgage relief on buy-to-let properties.
Scotland, UK and global background
Chancellor George Osborne’s announcement in his Autumn Statement that second home purchases in England, Wales and Northern Ireland will be subject to a minimum 3% supplement from April 2016 has led to a flurry of buying and selling activity across much of the UK.
In December 2015 Scotland’s Finance Secretary, John Swinney followed suit, announcing a Land and Buildings Transaction Tax (LBTT) rate of 3% on the whole purchase price of buy-to-let properties over £40,000. This is in addition to the overall LBTT supplement on any property bought in Scotland.
Mr Osborne and Mr Swinney’s 3% LBTT decisions come on top of Mr. Osborne’s declaration in the Summer Budget that no UK investment owners will be able to claim more than 20% relief on mortgage interest, pushing at the coffers of higher rate taxpayers.
Some people think that the new policies and taxations are being rolled out to push Private Rented Sector (PRS) investment down a corporate route, rather than the individual private landlord route. The tax rules will make it more attractive to investors to hold their residential property assets within a company so that they can deduct mortgage interest payments as a business expense and pay 20% Corporation Tax on any profits. This makes it easier for the UK Government to monitor the whole sector more easily.
The recent news that Legal and General are investing £600m in 300,000 ‘homes to rent’ signifies a large corporate move into the market too.
Ongoing stock market volatility, most notably recently in China and Japan, and the depressed oil price may also encourage many investors to seek a safe – and profitable - haven in hard assets such as property, especially investors with large cash reserves who will be less affected by mortgage interest relief changes.
On the ground
At Cullen Property, we are confident that in spite of short-term fluctuations these changes cause, Edinburgh’s investment market will remain viable and that anyone buying correctly priced investments now will see their outlay justified in the long term.
RICS has indicated a flurry of buying and selling activity with different motivations: some investors are keen to get into or increase their foothold in the market before the April deadline, while other, existing, investors are capitalising on the opportunity to sell their properties to these new buyers.
Taxation and the global economy are not the only factors at play, however. In Edinburgh, as in many other places, the short supply of and high demand for good quality rented accommodation means that affordability remains an issue. Many tenants have decided to rent rather than to buy, if only for the time being, and they can select from the properties available within their affordable price-range. Whether the Scottish and UK Government’s rules will force rents up remains to be seen; it comes down to what investors and the market can afford.
What does this mean for private investment in Edinburgh?
Edinburgh is high on the list of UK locations for safe and solid property investment as London is increasingly seen as having an overheated market.
Because of Edinburgh’s distinct limited property supply and high tenancy demand profile, Cullen Property are confident that in spite of, and even as a result of, these changes, Edinburgh will provide more opportunities for investors. Some smaller investors are likely to leave the market but things should level out by the end of 2016.
If you are looking to invest Edinburgh property, please call Cullen Property on 0131 221 1818 or e. firstname.lastname@example.org TW: @culleninvestors