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Found 15 results

  1. Here's what I think - A goodbye to all that buy-to-let And good riddance too. Sell now, sell everything.
  2. There's a new post on Property118 that once again points to Ireland as a possible case study for the potential impacts of Clause 24 (h/t Bland Unsight for flagging on the BTL Regrouping thread) which I'm quite pleased about because it gives me a good excuse to highlight an interesting paper from the Central Bank of Ireland that was recently referenced in both HM Treasury's December 2015 Open Consultation: Financial Policy Committee powers of direction in the buy-to-let market and The Financial Policy Committee's tools over the buy-to-let mortgage market - Impact Assessment, produced jointly with the Bank of England, in October 2015. First, though, I'm going to run through a few points from the Property118 thread in relation to the Irish PRS: The most obvious thing to mention, of course, is that the legislation in Ireland, while at certain points similar in some respects, is not identical to Clause 24. While Clause 24 ultimately disallows finance costs as a deductible expense it does allow "all financing costs incurred by a landlord [to] be given as a basic rate tax reduction" (HM Revenue & Customs, Policy Paper: Restricting finance cost relief for individual landlords, July 2015). Clause 24 is therefore significantly less onerous than Ireland's full removal of deductibility and all tax reliefs on landlords' finance costs (barring certain restricted exemptions) between 1998 and 2002, and potentially much more akin to the limited reduction in tax breaks for landlords' finance costs (achieved simply by limiting deductibility to 75% of the interest on the loan) that has been in effect in Ireland since 2009: Irish Tax & Customs Tax & Duty Manuals - Section 16 Part 04-08-06 (PDF, 116 KB) - Deductibility of Loan Interest (section 97(2)(e)) With this in mind concerns over the implications for a post-Clause 24 United Kingdom of rent price increases over the earlier period in Ireland seem somewhat exaggerated. This is further emphasised when said increases are considered in real, rather than nominal, terms. To begin with the uncited claim that "[f]ollowing the measure, rents rose by at least 24% in 1998" does not, as far as I can see, appear to be well supported by the cited literature. For instance, the Housing Policy Review 1999-2002, Michelle Norris, The Housing Unit and Nessa Winston, Department of Social Policy and Social Work, University College Dublin directly contradicts this claim (emphasis added): "The available evidence in this regard is set out in FIGURE 2.5 [. . .] It reveals that rent inflation averaged at 3 per cent per annum between 1990 and 1996, but that this jumped to 5.3 per cent between 1997 and 1998.1999/2000 and 2000/2001 saw particularly high growth in private residential sector rents, which increased by 10.5 per cent and 14.6 per cent respectively during these years." This apparent error may have crept in from either a direct misreading of FIGURE 2.5 in the above social policy paper (I would personally tend to have more faith in the authors' interpretation of their own chart) or a reference to a 1998 24% increase in Dublin-specific rents in The Housing Crisis in Dublin, BA Dissertation, National College of Ireland, April 2001, Karl Thomas Connell. As the deductibility of landlords' finance costs was removed across the whole of Ireland and not just in Dublin any regional variation in rent movements obviously cannot be attributed directly to this legislative measure and so either source would render the claim incorrect. (As an aside the third pre-financial crisis paper cited in the Property118 post, OPPORTUNITY KNOCKS?: Institutional Investment in the Private Rented Sector in Ireland, July 2004, Professor ADH Crook and Dr Steven Crowley, University of Sheffield notes that "[t]he Private Rented Sector in Ireland has grown at an unprecedented rate in the last six years for reasons" i.e. between 1998 and 2004. It also expresses concerns over the predominance of individual investors in the Irish PRS: And goes on to detail an increase in Irish first time buyers as a direct result of the tax changes: It's also worth noting that - unsurprisingly given the reputation Ireland has for having massively over built during the boom years - completions of new housing did not drop off over this period, though housing permits did, and the overall Irish housing stock continued to rise: Sourced from Global Property Guide, Ireland In the United Kingdom, of course, housebuilding activity seems likely to be supported against any possible impacts from Clause 24 by all of the various Help To Buy schemes.) Given the other papers cited in the Property118 post all pre-date the second period of reduced tax breaks on Irish landlords' finance costs, and the information for rents during the first period of total removal of said tax breaks is broadly similar across all, I'm going to focus on Ronan C. Lyons, “The spread of rents in Ireland, over time and space”, in Lorcan Sirr (ed), Renting in Ireland. Dublin: Institute of Public Administration, 2014 (PDF version of the relevant chapter available here). On Property118 emphasis is placed on nominal rent price movements, as illustrated in Figure 1: However, when we consider the overall rate of rent price movements this first period of totally removed tax breaks for Irish landlords' finance costs (1998-2002) does not actually appear to be sufficient to cause a significant deviation from the long-term trend in the annualised 10-year change; just as the second period of reduced tax breaks for Irish landlords' finance costs (2009-onwards), which is arguably a better parallel for the reduced tax breaks that will come in for UK landlords' finance costs under Clause 24, appears unable to significantly lift the 10-year change much above zero: (I've posted on this graph previously and I think I may have been mistaken, or at least overly strong, in my interpretation of the 1-year change for 2002 and 2009, due to irregular spacing on the x axis making the rate of changes in these specific years more obscure, but the overall trend in the 10-year change seems quite clear.) Additionally, it seems quite misleading to consider nominal rent price increases in isolation as Ireland adopted the Euro in early 1999 (possibly explicating the fact that nominal Irish rents only appear to take off in 1999, a year after the tax changes are introduced, and meaning that average rents did not literally increase from €600 in 1998 to almost €900 in 2001 because Irish rents were not denominated in euros in 1998) and experienced a general uptick in inflation at this point, with a doubling in general inflation as measured by the Irish harmonised consumer price index (Inflation.eu, Worldwide Inflation Data, Ireland): Hence, turning back to Lyons, it's hardly surprising to see that the rent price increases in question appear to be significantly less marked when rents are considered as a fraction of income; and on my reading neither seem to have succeeded (as yet) in defeating the long-term trend in this respect: So, having established a bit of background on the subject, back to the CBI paper I mentioned at the start, ‘House price volatility: the role of different buyer types’, Central Bank of Ireland Economic Letter Series, Vol 2015, No.2 (h/t The Bank of England ): There are two graphs in particular in this paper that stand out for me a great deal: Thoughts?
  3. http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/12019894/Buy-to-let-stampede-ahead-of-stamp-duty-hikes.html
  4. The sale of the Bradford & Bingley mortgage book sitting in United Kingdom Asset Resolution was confirmed in the Budget. Source: Budget 2016 Policy Paper Bradford & Bingley's buy-to-let lender, Mortgage Express, accounts for most of the loan book. Source: UKAR B&B 2015 annual report There's some 'interesting' commentary in the trade press. Source: Basel proposals could ‘compromise’ Bradford and Bingley asset sale, Mortgage Strategy, 18 March 2016 There is an alternative perspective to the IMLA argument, which is that if you are going to shut down the BTL industry, you ought to get shot of your £18bn worth of crappy BTL loans at whatever price the market can bear. The NRAM book was sold in 2015 to Cerebus who are, to use the technical parlance, grown-ups well capable of arranging their own financing and taking a view about the interest they'll have to pay on financing any funding, even after BCBS risk-weights alter the capital costs attached to any lending by the banks to them. I always wonder who this weak as shit IMLA logic is aimed at. Anybody with any familiarity with even the most rudimentary elements of the situation surely just laughs at it, and anybody ignorant enough to be taken in by it wouldn't be interested. Hence we can paint a situation whereby come 2018 all the PovertyLater Mortgage Express mortgages are held by Cerebus. The Court of Appeal has upheld the West Brom decision and Cerebus can bump the mortgages to something aligned with market SVRs. BCBS risk-weight implementation is coming down the tracks and market SVRs have risen markedly above 2016 levels of about 5%, and of course, you've already lost most of the tax deductibility of your mortgage interest. Balance of probabilities, all of this will happen. Sell now, sell everything.
  5. Prospective owner occupiers need not apply? http://www.property118.com/
  6. As it looks like BTL is going to blow-up spectacularly over the next few years I thought it might be interesting to have a guess at how much fraud is going to be discovered in the aftermath. We can then return to this poll at some point in the future and compare the opinions of the forum with the reality on the ground. If you vote "other" please give details in the thread.
  7. TL;DR - If you want to be taxed like a business, don't set up a mad leveraged empire with millions of pounds of mortgages which pays its tax via the personal income tax self-assessment form. _____ The four or five of you who don't yet have me on ignore will be aware that I've had a thrilling conversation with another poster about GAAP already here and have also (here on the Scum thread) reported elements of a temperate and well-mannered exchange of views with "Home Provider" in the now closed comments section of a recent Guardian article. My take on things is pretty much consistent with the position mapped out by the ICAEW in their 7 September 2015 briefing on "Finance (No. 2) Bill 2015 Clause 24: Relief for finance costs related to residential property businesses", which is now usually referred to as section 24. Here's what are in my opinion are the key passages (with emphasis added): and Now, somewhat unsurprisingly, when these ideas are encountered in the wild they tend to lean in a rather different direction and all seem to rest on this quote from the wonderful "The compelling case against Section 24" from the Axe The Tenant Tax Coalition. As posted on the Scum thread, my new leveraged landlord pal directed my attention to an HMRC internal manual BIM31005 which says (emphasis added) and also says Long and short of it, I think the leveraged landlords are offering a 'have your cake and eat it' argument There's generally accepted accounting practice (GAAP) and there are principles of taxation, and they are not the same thing A portfolio landlord can make a reasonable case that a prinicple of taxation is being set aside when they are not allowed to deduct mortgage interest expenses when determing taxable profits The idea that GAAP is being contravened is laughable horsehit (so much so that the quote attributed to the PwC partner strikes me as odd, to say the least) Buy-to-let mortgages were marketed to consumers to allow them to invest some money in housing The tax code as it stood in 1996 (when the marketing of this novel mortgage product began) did not countenance people trying to operate unincorporated property businesses with balance sheets of tens or even hundreds of millions of pounds and be paying their tax via personal income tax using a self-assessment tax return Any business structured in this way was always liable to be affected by changes to the personal income tax framework, and the personal income tax framework is liable to continual revision. Even leveraged property business themselves have seen repeated change. As per the ICAEW briefing "prior to 1998/99 interest paid on residential property lets was relieved as a charge on income". The idea that people's holdings of residential property represented a business was somewhat formalised in the ITTOIA 2005, but what one chancellor brings to pass another can reverse. As the PRS has grown and owner-occupation rates amongst younger cohorts have fallen it was always likely that BTL would catch a bullet, and the straws in the wind were obvious to anyone paying a blind bit of attention, way back in 2014.
  8. From the Law Society website From their representation, Finance Bill 2016: clauses 75-78 Transactions in Land - the Law Society's comments. Just the Law Society jumping at shadows? Or more fun ahead for the buy-to-let guys?
  9. How will UKAR handle property disposals from portfolio landlords in light of the recent Budget? It seems to me that the most aggressively leveraged landlords, who will be worst affected by the recent Budget changes to how tax relief on BTL mortgage interest and taxable rental income are calculated, are also highly likely to have mortgages tied up in UKAR. The 'bad banks' whose mortgage books UK Asset Resolution was set up to run down were in part 'bad' precisely because they had been aggressively lending into the buy-to-let sector: That being the case it would be surprising if the most aggressively leveraged landlords had not taken out mortgages with these lenders prior to them being rolled into UKAR. In fact, aggressively leveraged landlords are by definition subprime property speculators - betting everything on house price appreciation at very high leverage, on thin margins and with no real repayment plan - and so in some respects they are the quintessential remaining UKAR borrower, being the least likely to have been able to remortgage elsewhere. In light of the recent Budget many of these aggressively leveraged landlords will be looking at negative cash flows in the not too distant future and may as a result be looking to dispose of some or all of their property portfolios. They may encounter several issues in relation to this, not least of which being that aggressive mortgage equity withdrawal may mean that they now lack the equity to pay their CGT (h/t Bland Unsight and Frizzers), but those with mortgages tied up in UKAR may have additional problems. The issue is clauses like this one from Mortgage Express, that allow UKAR to enforce the repayment of all outstanding mortgages on the disposal of a single property: Mortgage Express Terms & Conditions (h/t little fish) Aggressively leveraged landlords might therefore find that they have placed themselves in a position where they cannot even safely dispose of those properties on which they have little or no Capital Gains Tax due, as doing so would allow UKAR to force the sale of other properties (perhaps with unpayable CGT bills, in negative equity, or in concentrated areas flooding the local housing market and depreciating values). UKAR have shown every inclination to enact these clauses in the past, especially in regards to unsustainable portfolios:
  10. Bearishness from The Telegraph? Mapped: how buy-to-let will lose money in 91pc of regions by 2021
  11. Great article by Dominic Frisby in MoneyWeek, How George Osborne could kill off Britain’s buy-to-let business, extract below:
  12. I have recently greatly enjoyed reading the many interesting articles, and comments, on the excellent Property118 website. A major content provider therein produced in October last year a little article on Equity Finance, something that is new to me, (also discussed in this Guardian piece). The mechanics of the lending are interesting and I refer you to the article. One feature that strikes me is that when the loan is settled up on disposal the equity finance provider receives a share of the capital gain in proportion to twice the lender's equity interest, e.g. is the equity finance provider acquired 10% of the equity, they capture 20% of any subsequent gain. (Of course all the CGT would still be payable by the borrower, though of course their ability to pay it would be adversely affected by having to pay out a disproportionate share of the gain to the provider of the equity finance.) Tangentially, as I understand matters from the author of the piece at the link, before the buy-to-let investor can be granted the equity finance, which results in a second charge on the property, the mortgage lender who provided the first charge mortgage must allow the second charge. Helpfully the author also produces a list of lenders who are, in his opinion, amenable to allowing the second charge equity finance. I am really starting to settle on the idea that what we have had since 2003 is a buy-to-let bubble, and it is being burst. The lenders and their fellow travellers have staked a lot of money on this bubble, it will be interesting to see whether or not they can be made whole by the disposal of the properties, should the need arise. I may be being overly pessimistic, but then I cleave to the idea that a UK bank is best understood as a large organisation run in the interest of its executives which uses mortgages secured on residential property to lend too much, and then explodes.
  13. At the link a pdf with a plain English (hopefully) discussion of the fact that if you continually use mortgage equity withdrawal to extract the capital gain from a buy-to-let, the answer to the question in the thread title is that in the end HMRC own your buy-to-let, and if you are really incautious you may create a situation where they end up having a claim on your other assets too. Who owns your buy-to-let? Please feel free to tweet, e-mail or print it off and leave it surreptitiously in the path of anyone who is using mortgage equity withdrawal to treat a buy-to-let as a piggy bank. I've never dealt with a mortgage broker, but neither have I ever heard of one warning about the interaction between mortgage equity withdrawal and Capital Gains Tax. If you want to improve it or change it PM me and I'll give you a link to the same document as .rtf or .doc according to your preference. Enjoy.
  14. HMRC have issued a public consultation document for "businesses, individuals, tax advisers, professional bodies and any other interested parties involved in the letting of residential property" to comment on Replacing Wear and Tear Allowance with Tax Relief for Replacing Furnishing in Let Residential Dwelling-Houses. The direct download link is here and comments are open until 09/10/2015 if anyone would like to write in to [email protected] on the subject.
  15. I am desperately in favour of a mansion tax, but surely it should apply to the total value of your property portfolio, including any buy to lets. It would be a great way to generate some money from fat cat landlords, and very few people would complain. Such landlords could not just raise rents to compensate because there would be plenty of other landlords who would not have to pay the tax, so tenants would be protected from landlords just passing on the costs en masse. They should then plough 100% of the money into building affordable housing (social rent or open market)... Should raise a lot more money!!
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