Buy to let

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This time next year we will all be BTL millionaires!
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The majority of buy to let investors start off with one property then with the rise in house prices they have withdrawn equity from the property for as much as the bank will allow them. This withdrawn equity (also known by the term MEW) then goes to putting down the minimum deposit for the next property. Any rental income is then also ploughed back into the pot for the deposit on yet another property. Most buy to let landlords do not have repayment mortgages but instead just pay the bare minimum Interest only mortgages so that they can free up as much capital as possible to expand their empire. To minimise the amount of capital required they BTL landlords typically have mortgages with high loan to valuations thus, in the event of falling house prices, putting them at risk of negative equity.

Now the problem with this strategy is that while they may say that they own 25 houses, in reality it's the banks that own the properties and the buy to let investors has a tiny amount of equity in each property but relies on the house price inflation to erode away the debt.

Buy to Let landlords have gained over First Time Buyers due to significant tax breaks e.g. a BTL landlord can claim tax relief on the interest they are charged on the mortgage - this is why BTL landlords typically have interest only mortgages. This has enabled the BTL to price the FTB out of the market. However, BTL have to pay Capital Gains Tax on any profit(!) they make when they sell the property.

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