The Government’s new Stamp Duty charges have had a knock on effect on the UK buy-to-let market, increasing the cost of investing in new property. However, in this newly tough market, student accommodation remains a great investment.
The Government’s new Stamp Duty laws came into effect this month and buyers can expect to pay an extra 3% on top of the old Stamp Duty levels. The new charges work on a sliding scale depending on the value of the property. Generally, this means that the closer to London you get, the higher the charge will be, barring one or two expensive outposts in other parts of the country.
As house prices continue to rise across the UK, more and more houses will become subject to the new charges. The latest data from Rightmove suggests that the rush to beat the April 1st deadline and avoid the new tax has led to average property prices in the UK increasing by 1.3%.
The new tax bands are as follows:
The new rates apply to everyone buying a second property within the UK and are added on top of the previous Stamp Duty charges – this applies whether the second property is being bought for personal reasons, such as a holiday home, or if it is bought for buy-to-let purposes. If you wish to avoid the charge, by having your money reimbursed, then you must sell your second property within 36 months. However, for the vast majority of buy-to-let landlords, this is not part of the plan and the additional 3% surcharge will become just another cost of doing business.
It is in this climate that student accommodation, already one of the strongest asset classes in the UK, may receive yet another boost.
The vast majority of student accommodation costs less than £125,000 and therefore falls within the lowest tax bracket. The new 3% fee still applies to student property but the low starting price combined with the high yields associated with this type of investment significantly lessen the impact. Research from Urban.co.uk suggests that student accommodation, especially in the North of England, offers the best return to investors. The top ten cities are as follows:
1. Leeds / Manchester (6%)
2. Sheffield (5.3%)
3. Plymouth (5%)
4. Canterbury (4.7%)
5. Birmingham (4.2%)
6. Oxford (4.1%)
7. Bristol (3.6%)
8. Brighton (3.4%)
9. Guildford (3.1%)
10. Exeter (2.9%)
(Projected rental yields are in brackets)
Cities such as Manchester, Leeds and Sheffield are offering consistent returns even taking into account the new 3% surcharge.
The lower purchase prices combined with the high demand and low available stock mean that student accommodation comes with higher than average yields. The nature of student accommodation ensures that there are low void periods and a good supply of student tenants looking for modern, luxury accommodation during their university years. Even taking into account the new Stamp Duty charges, student accommodation remains a fantastic bet for investors!