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westlondon

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  1. Much of the HPI we have experienced is exactly because the UK economy via London is in turn exposed to many other economies - the Chinese and oil-producer economies. When you host an international city its economy is going to mirror that of other international cities; Dubai, Singapore, Hong Kong, New York. I do not see what else explains how house prices can rise when average wages do not. The rise in prices must be in consequence of rising bids, either because credit is cheap or because sterling is.
  2. BTL developed much earlier than that. People who couldn't sell in the early 90s because of negative equity let their houses out instead, and rented themselves. Most mortgage lenders at that time let you do this for some period - mine allowed 2 x 2 years, others allowed more. When the period was up, they offered you a landlord mortgage (mine did, anyway - Halifax). Why not? Secured loan, rent exceeded the mortgage cost because tenants were still afraid of negative equity. Nice safe business for them, which they developed into their BTL books. AIUI they remain keen to offer low-geared landlords more money. When the accidental landlord had accumulated enough deposit to buy again, they found their let was in profit. So they left it in situ, ignored their negative equity in that property, and bought again. And in some cases, again and again and again.
  3. Indeed. They found out what happens when an underpinning assumption gets proven invalid. The thing is, though, that like a lot of homeowners in the early 1990s, they could be technically bankrupt but just about able to trade. If their ownership costs are £5000 a year, but they can also let for £5000 a year - or close enough to it that they can cover any shortfall - then it doesn't matter from one week to the next what the value of the house is.
  4. This. Check what your agreement says about landlord's responsibilities but this totally looks like his job to me. If it were me I would send him estimates for the work of an extraction and redecoration and say you're going to proceed deduct the cost plus 5% management fee from the next month's rent. As has been noted, all he can do is give you notice which he won't because he'll then have to spend the money anyway.
  5. What have Edinburgh property prices done meanwhile? Presumably the cost of ownership has fallen too? If a house in Edinburgh was £100,000 in 1998 and the interest rate was 7%, and it's now worth £250,000 and the interest rate (still on £100,000) is 3%, most landlords are probably even happier than their tenants.
  6. No, he doesn't. You cannot increase the mortgage, spend the equity you take out, and charge the extra interest off to tax. What you can do is extract equity and then use that to buy another property or fund another business. Incidentally, the games hinted at above, where you put property into a company, don't work. The company has to buy the property off the individual at its current market value, and pay stamp duty on that value to register the change of title. This costs large sums of hard cash. As the individual selling the property is also the one capitalising the company to effect the buy, all this does is involve you in paying stamp duty all over again without a real change of ownership. (It is also incidentally why flat owners who own a share of the freehold never bother to extend their original 99-year leases - there's a small but non-trivial Land Registry cost but no material benefit at all). The other issue with company structures is that, for all the blather you hear about dodging tax via dividends, the company first pays corporation tax on its profits and you then pay tax on the dividends. Getting the money out of companies is thus pretty costly, and not really worth the hassle unless you're looking at substantial sums. When I was self-employed and had a company, my accountants' advice was not to take the piss out of HMRC by claiming to have been paid no salary all year and taken it all as dividends. They had me pay myself about 3/4 of my previous salary, and take the rest as dividends. HMRC can and do challenge people on the grounds that your "dividends" were constructively salary and thus PAYE-able and NI-able. It was all barely worth the hassle.
  7. The BTL payoff comes over the longer term. Very roughly, rents are about the same as what the mortgage interest payments would be, had the owner bought the place today, with a conjectural 100% mortgage*. Hence rents vary over time roughly in line with the formula market value x interest rates plus a bit of margin, and are initially less than a repayment mortgage would cost per month. If you had bought a £100,000 house 25 years ago, it would now be worth £400,000. So its average value has been £250,000, and that's what rent would have been based on. Interest rates have averaged about 7% over that same time, so the average rent has been 7% of £250,000 - call it £18,000 a year. If the house had been bought with a 100% interest-only mortgage, the interest cost would have been about the same as the rent initially. But throughout the whole 25-year term, it's only ever been paid on the original mortgage sum. So it would have averaged £7,000 a year. By now, the owner is paying maybe £3,000 a year in mortgage interest, but the rent is £12,000 a year. Meanwhile, he now has a £400,000 asset with only a £100,000 mortgage owing on it. So in fact no rational landlord should ever pay off the mortgage. If he does so, the whole gross rent of £12,000 becomes subject to tax. If he leaves the mortgage in place, however, he is taxed on only the net rent, after mortgage repayments. So he's taxed on £9,000 a year, rather than £12,000. Put another way, if he's paying the 40% marginal rate (which, if he could afford a £100k house 25 years ago, he nowadays probably is), his net letting income if he paid the mortgage off would be £7,200 (60% of £12,000). If he does not, it would be £5,400. The true cost of the mortgage is thus just £1,800 a year, or less than half a percent. To be really well placed, what a rational landlord should do is extend the mortgage to £300,000; put the extra £200,000 down as 50% deposit on another £400,000 house; fund the rest with a further mortgage; then let this one out for £12,000 a year, too. On a gross basis, he would then have £24,000 coming in as rent, offset by £15,000 of mortgage payments. This leaves him with exactly the same net income of £9,000 a year, and exactly the same equity (or "inflation" as I would call it) of £300,000. But he has doubled his exposure to property appreciation (good) and halved his exposure to voids and non-paying tenants (good). The above is no doubt what a lot of landlords have done. It explains how someone who hadn't even a deposit in 1989 can now own £800,000 of houses without ever having had to fund them, bar a few quid in the initial years. It is economically completely rational to keep leveraging in this way, because if you don't, you pay more tax as rents rise. Of course, the risk you face is that interest rates rise but asset prices don't, in which case your costs go up faster than your income and you also can't sell. On a big enough scale, you're bankrupt. But only if rates rise. Asset price volatility doesn't much affect your day-to-day cash position. And that, with apologies for the length, is why there are BTL landlords. * There is obviously a lot of regional and sectoral variation in this, typically either risk-related or demand-related. Inner London rents are relatively lower than student housing in Durham because there's more supply in London and because the demand is from very well-paid foreigners who can easily afford the rent on a million quid flat. So they get a discount versus what can be charged to eight skint students occupying one room each and who represent a credit risk.
  8. My wider point is that at the moment banks are risk averse and have no special interest in offering mortgage finance at attractive rates. They can demand low LTVs and load up a huge ultra-low-risk margin relative to their own cost. To lend at 3% against a base of 2.5 is far nicer business than lending at 10 while borrowing at 7.5. Same spread, enormously higher margin. In the late 80s, they had to absorb a lot of the interest rate increases from 6 to 15%. It was all very well base rates going up to 15%, but nobody would borrow at 17.5. So they loaned at 15.1 and whatnot. I can see the same thing happening again. Base rates up, mortgage rates down. Politically very popular too.
  9. What does your letting agreement say about the landlord's responsibilities? It might be argued that keeping it clean and tidy is supposedly yours. I have rented places before where it was my responsibility to mastic around the bath. Supposedly this was because if it were the landlord's I'd have to let him in to inspect and do it. If the room is inadequately ventilated, mould buildup like this is inevitable.Opening the window isn't going to do a lot because there is no circulation out of the window. The only real solution to this is to have an extractor fitted that is operated by the light switch and that runs for 20 or 30 mins after the light is switched off. I have had mould problems in a previous windowless bathroom that were only sorted by fitting the most powerful extractor fan I could find that fitted the space. I presume as there's a window that your bathroom has an outside wall? If so I would get an electrician in to fit one to make the problem go away, and then deduct whatever he charges from the rent presenting the receipt in evidence. Make a note or better yet film on your phone the smoke alarm thing. As has been noted, if you do nothing and let the mould pile up your risk the charge that you didn't give him the opportunity to do more about it and therefore it's partly your fault that it got as bad as it did.
  10. The trouble with or indeed the attraction of London is that the average wage in the City is probably about £60,000 a year. A couple on those salaries can raise a mortgage of £480,000 without much difficulty. Add in a deposit in the form of a few years' bonuses and they can get to £600k total buying fund without a problem. This represents little long term risk because salaries will rise nicely The dump in E-whatever it was probably went to a singleton with a bigger deposit than that.
  11. This - margin reduction by lenders on their loans - strikes me as quite a likely middle term outcome for residential lending too. Base rates will probably increase by 2016, but it doesn't follow IMO that retail mortgage rates must go up too. At the moment, the Bank rate is 0.5% and you can borrow at that plus 2.5% (i.e. a 500% markup for the bank) without even trying. If we see base rates go to 1.5%, it seems plausible to me that mortgage rates could go down, as banks try to find people prepared to take on secured debt in a climate of rising base rates. There is plenty of room in banks' landing margins to allow them to do this. In 1998 - 1990 there were plenty of lenders who did not pass on 15% base rates to their customers, presumably because they feared bankrupting them and thus, er, not having any customers. I suspect the next marketwide move in mortgage rates will be down, even there is a base rate move up.
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