Credit Polarisation

[Goat]

Well, to put it simply BTLers do not finance mortgages out of post tax income!

Ordinary buyers have to - the balancing force of MIRAS for FTbers removed by Labour.

Sorry but this is wrong.

BTLs are financed by the rents received on the property which comes out of taxed income.

The only difference is that the tax bill is in the hands of the tennant, not the landlord. This limits the amount of rent that can be paid, in the same way that tax limits the mortgage payments for OO's.

As a further point, if the rental property is being run at a loss (which it usually is), relief is not available for that loss against other income.

The tax system emphatically does not favour BTLers over OOers

Edit: thanks to smell the fear also.

Edited February 27, 2006 by Young Goat

[Smell the Fear]

Not as much a waste of time as your posts!

Lets be clear - investors can afford lower yeilds as they setoff interest payments and other costs against rental payments by hapless tenants who cannot afford a home.

Ordinary people buying a home have to somehow afford a mortgage from POST-TAX income.

Where do you think the tax burden is going?

I addressed this nonsense in my last post, and Young Goat does also in his last post.

Argue your case and drop the pseudo-political appeals to "ordinary hard-working people" and other such drivel.

[Goat]

Lets be clear - investors can afford lower yeilds as they setoff interest payments and other costs against rental payments by hapless tenants who cannot afford a home.

Sorry, but this is also wrong. Investors need higher yields to cover void periods and agents fees, something that OO's don't need to cover.

[Smell the Fear]

Lets be clear - investors can afford lower yeilds as they setoff interest payments and other costs against rental payments by hapless tenants who cannot afford a home.

Investors CANNOT afford lower yields - in fact they should, if they had any sense, require a higher yield than an owner occupier, as they derive fewer tax advantages than the OO, and do not have the pleasure of owner occupation (whatever that may be worth).

Most people who rent today could access the credit required to buy the property they live in. The reason they don't is that it would entail a frankly ridiculous level of financial risk, so they choose the safer, cheaper option of renting. When most people say they cannot afford to buy, they are not referring solely to the mortgage payment. This is generally the same as the rent they pay.

What they really mean is they cannot afford to take the insane level of risk that such a huge mortgage would entail. Of course most people do not think of it in strictly these terms or with this clarity.

Fortunately there are plenty of idiot landlords around to take this foolish and reckless risk for them.

edit: Young Goat - great minds think alike, eh?

Edited February 27, 2006 by Smell the Fear

[homeless]

That's a smart & witty reply . Let me spell it out for you again:

LYING ON A MORTGAGE APPLICATION IS A CRIMINAL OFFENCE AND A HPC MYTH. WHY WOULD I RISK MY BUSINESS WHEN IT'S NOT NECESSARY TO DO SO?

lyinf is surely the only way people get mortgages now that dont have equity from selling a house.

apart from a few of course

[Elizabeth]

Most people who rent today could access the credit required to buy the property they live in. The reason they don't is that it would entail a frankly ridiculous level of financial risk, so they choose the safer, cheaper option of renting. When most people say they cannot afford to buy, they are not referring solely to the mortgage payment. This is generally the same as the rent they pay.

What they really mean is they cannot afford to take the insane level of risk that such a huge mortgage would entail. Of course most people do not think of it in strictly these terms or with this clarity.

Fortunately there are plenty of idiot landlords around to take this foolish and reckless risk for them.

edit: Young Goat - great minds think alike, eh?

I find this quite a strange assumption. Could you please explain further? Its a bit tricky in my case because I live in a HMO so the same rules don't really apply, but the new build studios down the road are going for 159 upward. I could not access that money without lying on my self-certification morgage, which they probably wouldn't lend me anyway.

[BillyShears]

lyinf is surely the only way people get mortgages now that dont have equity from selling a house.

apart from a few of course

It's not quite that bad. If someone's on 15,000 a year in Blackpool, Lancashire (I presume that's where you are) then they could just buy a 2 bed or 3 bed house for 60K for 3.5x salary plus say 12K deposit. Some banks will give 4x salary, so that's 60K, plus whatever deposit.

Where do people find out the median/average salaries for different areas in the UK?

Billy Shears

[Smell the Fear]

I find this quite a strange assumption. Could you please explain further? Its a bit tricky in my case because I live in a HMO so the same rules don't really apply, but the new build studios down the road are going for 159 upward. I could not access that money without lying on my self-certification morgage, which they probably wouldn't lend me anyway.

Without meaning to be harsh, single living is a new concept in society. My comments are based on more traditional examples such as a couple, both working, or a family with one earner, who would need to rent a house in any case.

I think you could access 5 or 6 times income through some lenders, which would cover it? However, as I said, that would be a crazy risk.

[Harry Sacks]

Rental property in the village near me stays on the market for no more than a week before it's let.

A two bed house there costs about £125-135K and rents for £450-550, so yields between 4-5%.

You can get a fixed rate repayment mortgage 4.99% for ten years.

If you put down £40k, mortgaged £80k, The repayments would be about £470 pm for ten years.

Now, as an investment the yield is low for your £40k. However, the tenant is buying the house for you by covering the mortgage.

People need somewhere to live.

Houses are only worth what people can BORROW to pay for them.

You can borrow fixed rate for 10 years!

Yes it is risky, but if you already own your own home outright, it looks like an attractive investment.

Sure, there are better investments for far less hassle. But what bank is going to lend you the money for them?

Brainclamp's theory may not be far off the mark.

Edited February 27, 2006 by dom

[Magpie]

I find this quite a strange assumption. Could you please explain further? Its a bit tricky in my case because I live in a HMO so the same rules don't really apply, but the new build studios down the road are going for 159 upward. I could not access that money without lying on my self-certification morgage, which they probably wouldn't lend me anyway.

Quite - there's plenty of people here who can't afford a mortgage on the places they are renting, I'm sure. There seems to be an odd attempt to prove that landlords are just useful idiots and that in normal circumstances it costs the same or less to buy as it does to rent. But it has generally been more expensive to buy than to rent and there is no reason why this will suddenly change. People will always be willing to pay more to buy because they end up owning, and at normal price levels that makes perfect sense.

(quote - smell the fear)Investors CANNOT afford lower yields - in fact they should, if they had any sense, require a higher yield than an owner occupier, as they derive fewer tax advantages than the OO, and do not have the pleasure of owner occupation (whatever that may be worth). (end quote)

I really think all this is a bit irrelevant. Owner occupiers don't have a "yield" as such - they are buying a home. Landlords do have a yield, which traditionally defined the profitability. But a lot of the current lot of BTLs are accepting that they will only break even or make a little bit on a property, because they are looking to long term gains. They may be misguided in this belief, but it means that going on about yield is irrelevant to them (unless they are losing too much to cope in the short term).

People spend a lot of time here talking about property in traditional investment terms (should I be in this asset class or that?) but I think the irrationality driving the market is impervious to this argument - no good telling them they'd have made more in gold because they aren't making that comparison and don't care. Doesn't mean they might not crash and burn in the end, but I think the BTL sector that already exists will be more stubborn than some think. It's no good that their decision to BTL doesn't make sense to you - the important thing is does it still make sense to them?

Without meaning to be harsh, single living is a new concept in society. My comments are based on more traditional examples such as a couple, both working, or a family with one earner, who would need to rent a house in any case.

I think you could access 5 or 6 times income through some lenders, which would cover it? However, as I said, that would be a crazy risk.

What are you on about? The traditional model (prior to "single living") was a family - one wage earner, needing more space, which would make it more difficult, not easier.

[Elizabeth]

Without meaning to be harsh, single living is a new concept in society. My comments are based on more traditional examples such as a couple, both working, or a family with one earner, who would need to rent a house in any case.

I think you could access 5 or 6 times income through some lenders, which would cover it? However, as I said, that would be a crazy risk.

Its not harsh, but it doesn't reflect the changing reality. For whatever reasons, and there are as likely to be as many reason as their are single people, this is an increasing population trend. Maybe traditional families (or even untraditional families) could get the money, but its a bit of a broad brush that excludes an increasing proportion of the middle aged population (of which apparently I am one).

[Smell the Fear]

Its not harsh, but it doesn't reflect the changing reality. For whatever reasons, and there are as likely to be as many reason as their are single people, this is an increasing population trend. Maybe traditional families (or even untraditional families) could get the money, but its a bit of a broad brush that excludes an increasing proportion of the middle aged population (of which apparently I am one).

You are right that it is an emerging scenario, to which a creative solution needs to be found. The obvious solution is to take on the equivalent of an HMO: buy a 2/3 bed flat and rent rooms.

edit - naturally this would be a bad decision at the moment due to high prices. But if prices drop it will be a good deal (just like BTL will be when prices drop).

Edited February 27, 2006 by Smell the Fear

[dog]

reality will bite soon, within weeks - maybe days - imho

What is the trigger that will make it bite so soon?

[Smell the Fear]

What are you on about? The traditional model (prior to "single living") was a family - one wage earner, needing more space, which would make it more difficult, not easier.

The point is that this family will find it cheaper to rent rather than buy due to the landlord's poor investment decsion.

[Elizabeth]

You are right that it is an emerging scenario, to which a creative solution needs to be found. The obvious solution is to take on the equivalent of an HMO: buy a 2/3 bed flat and rent rooms.

The price of rooms is going down as well. The reality is the rent would be all in 85 for a decent room (I am just about to relook at my options now). The flat itself would cost probably 320 in London or maybe 200 or less somewhere else (which they wouldn't lend me because I wouldn't be able to validate the income)

Its also tricky because if you end up with trash people it can be worse than a nightmare. Having lived in enough houses to count one for every year of my life, I am aware of all the pitfalls of shared living. Luckily I also know my weaknesses. I find it hard to prejudge people as trash. I am too inclined to give them a decent go. Its been my downfall more than once. As apom says, "shame on me".

But as well, like it or not, I actually don't like people enough to choose to live with strangers as a long term measure. Its kinda yucky really.

[Magpie]

The point is that this family will find it cheaper to rent rather than buy due to the landlord's poor investment decsion.

I see - but what I disagree with is the idea that it is necessarily a poor investment decision on the landlord's behalf whenever it is cheaper to rent than buy. That's a pretty natural state of affairs really. In your view it would pretty much always be a bad decision to be a landlord and I don't think that is the case even if I think a lot of the current lot are idiots.

I think people here sometimes take a contrarian viewpoint to an extreme - seeing that renting is a logical decision for most at this stage, I think you start to see renting as inherently a superior decision - rather than a strategic decision at this point - and justifying that idea with this kind of argument. It's important to attack the idea that renting is dead money, but you can get carried away and go to the other extreme.

I would be happy to pay more to buy than to rent and I don't think in itself that would make buying a bad decision (it might be bad for other long-term reasons of course....). And there are clearly plenty of people having to rent who would buy if they could afford to. (The comparison between renting and buying is different in different areas of course.)

[Smell the Fear]

I see - but what I disagree with is the idea that it is necessarily a poor investment decision on the landlord's behalf whenever it is cheaper to rent than buy. That's a pretty natural state of affairs really. In your view it would pretty much always be a bad decision to be a landlord and I don't think that is the case even if I think a lot of the current lot are idiots.

I think people here sometimes take a contrarian viewpoint to an extreme - seeing that renting is a logical decision for most at this stage, I think you start to see renting as inherently a superior decision - rather than a strategic decision at this point - and justifying that idea with this kind of argument. It's important to attack the idea that renting is dead money, but you can get carried away and go to the other extreme.

I would be happy to pay more to buy than to rent and I don't think in itself that would make buying a bad decision (it might be bad for other long-term reasons of course....). And there are clearly plenty of people having to rent who would buy if they could afford to. (The comparison between renting and buying is different in different areas of course.)

I agree that it makes it a good decision at the moment, but not necessarily always. If BTL gives a good return for the risk inherent in the investment, then it doesn't really matter what the cost of renting vs. buying is. A good investment is a good investment.