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BTL Budget Special

Buy-to-let budget special

Landlords waited with bated breath this week as the ‘unfortunate’ Chancellor, Alistair Darling rose to deliver his second budget since taking over at the helm from the Prime Minister, Gordon Brown.

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In many ways the Chancellor could not succeed. He has inherited a ‘nightmare’ set of accounts from his predecessor ‘Prudence’ and has little scope to manoeuvre.

The Chancellor has promised a raft of spending on targeted ‘tokenistic’ schemes, which may be laudable, but are not going to make any discernable difference to anybody other than grab a few headlines.

Housing boost

There was a much heralded fillip for the housing industry with a £500 million fund to help finance the housing industry as it struggles with the big contraction in lending. Latest figures show that housing completions this year are likely to fall to 70,000 well below long-term average rates of nearly 200,000 and below the target rate of 230,000 if the Government are going to reach their target of 3 million new homes by 2020.

The Government also plans to extend the stamp duty ‘holiday’ on houses under £175,000. This was introduced originally as a temporary step to stimulate the ailing market and was then extended to September. The Chancellor has now announced that the scheme will run on until the end of the year. Many estate agents welcomed the move. But others in London pointed out that £175,000 would do little to help landlords in central London where even low end properties start at £250,000 -300,000.

Missed opportunity

Many commentators in the property world were heralding the Budget as a missed opportunity. One widely flagged area was an expected change to the stamp duty for bulk purchases, which meant that institutions pay stamp duty at the highest rate of 4% where they purchase buy-to-let property, which if bought individually would not attract any stamp duty.

Peter Cosmetatos, director for finance and investment at the British Property Federation, said: “This is a very disappointing Budget for the Property Industry. This was a Budget of missed opportunities from a Government that seems to have lost its way.”

Chris Horne Editor of landlord website Property Hawk comments:

“This budget delivered nothing for landlords. We were disappointed that there were no specific measures announced to ease the financial pressure that many private sector landlords are feeling at this difficult time.”

Worrying long-term problem

Landlords who believe that the wider travails of the budget and economy will have little effect on them are misguided. One of the most illuminating comments about the Budget was from Jon Moulton the founder and managing partner of private equity form Alchemy. He was famous for trying to rescue MG Rover with a realistic plan before the politicians intervened. He is not running for office and has more money than you & I can shake a stick at so he doesn’t need to impress anybody. He tells it as it is. His diagnosis of the long term health of the UK economy on Radio 4’s Today programme was poor.

He anticipates an L shaped recession, with in 4 years time a debt of 100% of GDP of which the Government will have to pay 4-5% interest on. This will take 10-20 years to pay off.

What we have is a generation of politicians who promised you can have it all, new shiny hospitals, more schools, cast iron pensions for some, and low taxes that have been exposed.

Most landlords know about managing long term debt and that it doesn’t go away quickly. The pain for landlords will be an economy that grows less quickly, putting a drag on incomes and house prices for many years to come.

Thanks Darling, Gordon and Tony we love you too.

HAWKEYE – a unique perspective on property investing

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