10 towns most affected by the new buy-to-let tax
When George Osborne, the Chancellor, announced the new buy-to-let tax, he suggested it would affect only high-earning landlords. In fact, it is wealthy landlords who can afford to buy properties without a mortgage who will not be affected. Those who will pay more tax under the new rules will be landlords who put down small deposits when they bought their properties. From 2017, landlords’ ability to deduct the cost of their mortgage from the rent received will start to be withdrawn, pushing some basic-rate taxpayers into the higher bracket and forcing them to pay 40pc tax on the whole rental income.
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But landlords in some parts of the country will be worse off than others, especially in towns with a low rental yield – the ratio between rental income and property value. Data from peer-to-peer lender LendInvest shows which towns have the lowest rental yields and where landlords could therefore expect to be hit hardest by the new tax.
1. West London: 2.6pc rental yield
Buy-to-let sales have soared in some parts of the capital in the last year. However, property prices even in the cheap parts of London are rising faster than rents, pushing yields down. West London is bottom of the table in terms of rental yield.
2. Watford: 3pc rental yield
In August, online estate agent eMoov.co.uk found that properties close to Watford tube station were the most in demand, thanks to their affordability. Being on the outskirts of London means lower house prices, but the latest data suggests that rents are also lower, resulting in low yields.
3. Slough: 3.1pc rental yield
There have been suggestions that Slough could be the new property hot spot when the Crossrail is built in 2019, allowing passengers to travel to central London swiftly and without changes. This could push both prices and rents higher. Current yields are low.
4. St Albans: 3.1pc rental yield
Last year, St Albans was revealed as a millionaire’s playground when a surprising £217m worth of sales worth £1m or more were completed. High prices have contributed to lacklustre yields for buy-to-let investors.
5. Shrewsbury: 3.2pc rental yield
While research from Savills, the estate agency, suggests that private schools in Shrewsbury have given house prices a boost, they seem not to have had the same effect on rents. The result is low yields.
6. Reading: 3.2pc rental yield
Reading is another rather unlikely property hotspot. However, while it might be attractive for commuters, buy-to-let landlords have to suffer low rental yields.
7. East Central London: 3.3pc rental yield
With huge interest in central London from overseas property buyers, it’s no surprise that prices in this part of the capital are high. But rental income just can’t keep up, pushing yields into the bottom 10.
8. Hereford: 3.3pc rental yield
Hereford has proved an attractive place for countryside lovers to move to, but jobs are relatively thin on the ground, which perhaps contributes to low rents and yields.
9. South West London: 3.3pc rental yield
Savills predicts that south western boroughs that are further away from the centre, such as Hounslow, could see a 19.4pc increase in house prices over the next five years. Unless rents rise even more quickly, yields will remain low.
10. Hemel Hempstead: 3.3pc rental yield
It may be only 70 years old, but Hemel Hempstead’s property market has been described as “flourishing”. But rents remain too low to deliver a strong yield.