Thursday, May 20, 2010
House Price Crash, here we come. Panic selling underway.
Guardian: Buy-to-let landlords rush to sell before capital gains tax rise
The Guardian reports a huge increase in estate agent enquiries from buy to let landlords who what to sell their properties before the CGT rise takes place.
Posted by jonb @ 09:45 AM (2595 views) Add Comment
30 Comments
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1. britishblue said...
Thatchers removal of dual mortgage interest relief in 88 was a baby compared to this one. Sit back an wait for the ride down.
2. mark wadsworth said...
Oh, if only it were true...
3. mrflibble said...
You have to laugh. At the end of the day CGT is a tax on profits, if you have made profits then the tax man deserves his share (to now pay for Labours mistakes). Hopefully BTL will become the gift that keeps on giving...
4. drewster said...
What nonsense. CGT was only cut to 18% a few years ago, it can't be having such a big impact.
5. jack c said...
We know this is rubbish as all BTL 'investors' are in it for the long term..........
6. maddison said...
To be fair it was the CGT reduction that did stop alot of BTlers from selling their portfolios. I predict that that BTLers will be hit hard. However interest rates will remain low. For the tories high interest rates are an absolute No No. Rents will still be strong so professional landlords will still be in a good position CGT is only payable on the actual sale and professional landlords never sell....
7. house said...
@4, Drewster you beat me to it. I was going to make the same comment. Perhaps the panic is on because that there are no prospects in the immediate future for prices to go up. I think this is just the media trying to change the course of action. How sad.
I do not think there would be any rush by BTL to sell unless they are expecting prices to fall.
8. Cool_hand said...
"The proposed tax changes would hit buy-to-let landlords selling any property other than their own home. Under the changes, the sale of a £200,000 property originally bought for £100,000, with a 40% tax bill, would net its owner £160,000, for example. If the owner were to sell now, he or she would net £182,000."
I think the journalist got this completely wrong.
9. uncle tom said...
It will deter people from coming into the market, but those who are already well in will probably sit tight and hope that the tax is eventually reduced.
Increased CGT on investment property would have a big impact if inflation takes off -
Consider an investor who buys a BTL for £100k. Ten years later, inflation has halved the value of money, but his investment has not seen any real increase in value; so the property is now worth £200k. On selling he has to pay 40% tax on the difference betwen purchase price and sale price, so he has to stump up £40k, even though he has not made a real profit.
Even if inflation is more modest, it still demands a significant increase in rental expectations, if a BTL is to be viable..
Latecomers to the BTL game, who have little or no profit to show; would be well advised to quit.
10. Maddison said...
Latecomers with little or no profit will have no tax to pay. So if interest rates remain low and rents high it is offering a reasonable return. providing they are not mortgaged to the hilt. Every other investment looks very volatile so scary It is also likely that allowances will be increased for the little people... Never underestimate the value of a sustainable income in these uncertain time. Rises in interest rates will have all the amateur BTLers running for cover!
11. icarus said...
If you read the article you'll see there's no 'deluge' and that most enquiries are just - enquiries. Not many properties actually put on the market as a result of the CGT rise according to the quoted EAs.
The old 40% top rate (prior to April 2008, I think) was accompanied by indexation relief (capital gain deflated by an inflation index) and taper relief (the longer you owned the asset the less tax you paid). So, in answer to drewster's point @4, it could be that CGT on private property sales has effectively been well below 40% in most cases for quite some time. Anyone know about relief/exemptions under the new system?
12. mark wadsworth said...
Icarus: "The old 40% top rate (prior to April 2008, I think) was accompanied by indexation relief (capital gain deflated by an inflation index) and taper relief (the longer you owned the asset the less tax you paid)."
Nope. Indexation for individuals was stopped in 1998 and replaced with taper relief, which ran for exactly 10 years. Either way, the effective rate of tax on capital gains was usually derisory, even before they scrapped taper relief and introduced the 18% rate.
Heck knows what the new system will be.
13. mark said...
a friend of mine has 6 buy to lets, he has owned them for around 20 years, renting to as he calls them scum, he says often he loses money on the repairs, he was in it just for the long term gain, he putting all 6 on the market, he says he wants to cash in his gains while he can...
Also a second point worth noting he rented to DSS, he said they have suddenly cut what they will pay for the rent.. he is down around 50 quid a week on what they used to pay.
he thinks for all the hassle and costs it is no longer worth it
14. icarus said...
@ MW 10 - The indexation relief ran from 1982 and finished in 1998, as you say. But I thought that for people who owned properties since before 1998 and sold in, say, 2007 the indexation prior to 1998 was still used to deflate gains up to that year.
15. mark wadsworth said...
Icarus, true, you got indexation up to 1998, i.e. you banked it, so after then you got cost plus indexation up to April 1998 and for complete years after April 1998 (plus a bonus year for assets held 18/3/98 minus the first two years for non-business.) the fraction of the gain charged to tax was reduced.
16. gone-to-colombia said...
I monitor new properties in a large part of the UK every day, in recent weeks a lot more have been coming on to the market.
17. uncle tom said...
Taper relief knocks a big hole in the potential tax take from CGT and it is also quite complicated. I'm not banking on it remaining, or if it does remain, being anything like as generous.
It is one of those things that fails the BBC's 'Janet and John' test - if it's too complicated to explain to a ten year old, then it's too complicated to report on, which in turn makes it an easy prey for the chancellor..
18. gone-to-colombia said...
This is starting to look as if the new government is trying to bring on the HPC.
CTG, HIP, and what next. They must know that a crash is going to happen, why not get it out of the way early in a new parliament?
Any thoughts on this out there?
19. tom101 said...
gone-to-colombia@16, Where in particular are noticing more properties coming on to the market?
20. mark wadsworth said...
@ GTC, that is the big question - will they
a) "do a John Major" and get the HPC over with ASAP, and gamble on prices bottoming out and starting to pick up again soonest, hence winning the next election on the back of the Home-Owner-Ist vote - but this entails the risk of being booted out in five years by the angry Home-Owner-Ists, who will look back on Labour as The Golden Years, or
b) will they just pander to their natural clientele, the Home-Owner-Ists and try and keep bubble inflated?
21. gone-to-colombia said...
@Tom101
Lincolnshire, Somerset, Devon, Mid Wales, Cumbria, and Shropshire.
To a lesser degree I also check - Dover, Harwich, Barmouth area, Plymouth, and West Wales.
22. need-a-crash said...
@GTC @markwadsworth
I simply don't think there's time to get the HPC over with before the next election in 5yrs. The memory of it will still be there in the minds of all the 'home-owner-ists'. Obviously I'd like them to try though.
Best option for the govt would be to maintain nominal prices by hiking inflation...Hmmmm...
23. montesquieu said...
Nonsense article, even with a rushed sale, who is going to complete before June 22?
Suspect the impact of this will be minimal in the short-term.
Long-term, the sensible BTLers (and there are a few) are looking a yield not capital growth - though they won't want to be stung by futher price falls so will be staying out of the market for now. Interesting thoughts above though on impact of inflation - but I suspect equally it's not a feature in most people's thinking (£100k profit is £100k for free in most people's estimation even if they then have to pay tax on it).
24. growler said...
GTC/MW
- cuts coming
- inflation not giving up
- unemployment not likely to fall anytime soon
- interest rates not gogin any lower
- banks worried about new taxes
- private sector on pay freeze
- public sector slowly wakign up
meaning it has to be a question of time. Best get it done now has to be serendipity for the D&N
25. sirmungo said...
@22 need-a-crash
Agreed. Govt will inflate away the problem of over-priced housing and over leveraged home owners/investors. The question is, how do us layman contrarian wannabe home owners get around that? WITHOUT speculating on gold!!!!!!!
26. Phil S said...
If a property rises in value by say 50% but so does the cost of living by the same amount then there is no gain in real terms.
If CGT returns to a 40% rate then its only fair that indexation/taper relief is reintroduced.
27. p. doff said...
Sirmungo. You could buy a couple of NS & I fixed term bonds (3 year and 5 year) which currently return RPI inflation + 1%, TAX FREE. That covers £30K. You could get a couple more in your wifes name therefore £60K. Maybe small potatoes for some, but every little helps. If inflation rockets you're quids in - but if we get deflation you're stuffed as you'll lose interest if you take your money out.
28. Vord said...
p. doff - depends how they measure inflation - if they start including falling house prices as they plan you'll surely get a rate way less than real inflation. Great way to hide the inflation we need to pay off our debts.
29. sureseam said...
p. doff (at) 26:
Inflation linked bonds reduce the pain of rising interest rates but they don't remove it. The reason being that it is in every governments interest to ensure that inflation is under reported; and tweak by tweak that is what happens.
An American called Chris Martenson (PhD) talks at great length about how inflation rate calculations have been progressively tweaked over many years. Insight into this also comes from John Williams of shadowstats.com who recalculates many government stats without the tweaks.
At times I quietly dream that we had an equivalent shadowstats web site for this country.... it would cut the crap on much of the government spin.
30. Positivo said...
Ive just looked at Rightmove to see what is available in Cornwall for under 100K. I look everyday and usually see about 2 pages or less every 24hrs. Today there are 7 pages, doesnt that tell us something?? Cornwall full of second homes, seems people are keen to sell all of a sudden.