Tax Relief On Buy To Let Mortgage Interest.

[FreeTrader]

Selected quotes from Paragon Group's trading update released this morning:

During the quarter, buy-to-let completions across the Group were £370.3 million, representing an increase of 98.0% compared to the same period in the last financial year. Group-wide year-to-date buy-to-let completions totalled £816.5 million, of which £630.5 million (77.2%) was originated through Paragon Mortgages and £186.0 million (22.8%) through Paragon Bank, which reflects the increased capacity through the Group's continued funding diversification strategy.

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At 30 June 2015, the pipeline of buy-to-let business (including Paragon Bank) stood at £864.9 million, compared to £352.7 million at the same point in 2014, and this is expected to lead to strong growth for 2015.

The recently announced Budget changes may impact some landlords' investment decisions in the future, but the Private Rented Sector continues to see strong tenant demand, thereby providing the platform for strong and stable buy-to-let returns.

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The success of Paragon Bank's retail deposit gathering has again been evident during the quarter, where over £200 million of new deposits were raised. Paragon's latest securitisation was positively received by investors, representing the strength of the underlying credit quality of the Group's buy-to-let assets.

Some of you may have noticed that Paragon Bank has been heading the fixed rate time deposit tables in a number of categories recently.

[Guest_growlers_*]

Back to business.

This is a bit wild, even for me, in full tin foil hat mode, but I don't know the answer.

When you take out a BTL mortgage, do they ask you what the original sales price was and is that information part of the customer file?

Clearly, if you ignore the CGT issue when assessing the risk in the loan you wouldn't care.

However, spinning off pipplman's post here, in the case of insolvency HMRC gets first dibs on the sales proceeds. Hence if there is a CGT charge due which is going to be material, say 15% of the sales proceeds, then the bank doesn't really have the equity cushion it thinks it has, by virtue of the borrowers equity, because as we've argued above, most or all of that equity belongs to HMRC.

Is it possible that the banks are ignoring this risk when allocating mortgage rates to loans? If they are, then shouldn't they jack rates to reflect that risk?

I made this point a couple of pages back but I'm not sure it is an issue.

Purpose of equity is to protect banks downside.

I briefly played around with CGT liabilities for various HPI / LTV examples before and after a 30% correction and as far as I can tell the CGT liability falls at a faster rate than house prices.

It's a dynamic debt. So if you calculated an effective LTV Inc. CGT liability pre crash and post crash, the delta is less than 30%.

Need to look into, only spent 20 mins fiddling with.

[Bland Unsight]

Selected quotes from Paragon Group's trading update released this morning:

Some of you may have noticed that Paragon Bank has been heading the fixed rate time deposit tables in a number of categories recently.

I am going to go out on a limb and at least punt the idea that the market has not priced in the changes yet.

Considering matters in the abstract and, to make matters explicit, not thinking about any particular lender, let us consider a lender balls deep in moar-rooned borrowers with large portfolios.

If the borrower goes into bankruptcy, the HMRC gets first dibs on the proceeds from the sale of the assets. This means that what remains of the sales proceeds after the Revenue have taken what is theirs will, in many cases, be inadequate to pay off the mortgage, so the the lender eats an immediate loss.

In light of this, you could argue that if the lender is presenting accounts which don't deal with this issue then the accounts are misleading, as they present a LTV in the loan book which is correct only in a narrow sense.

You now have a tax change which means the borrowers will be bankrupt by 2020, latest. The borrowers cannot sell, as they cannot afford to pay the CGT. Once the CGT owing is included, both the imprudent bank and the mourons may in fact both be insolvent, and stuck with each other.

The idiocy is astounding.

Edited July 29, 2015 by bland unsight

[Venger]

Paragone seems cornered a lot of BTL business then this year, figures up big on last year.

Appalled Landlord
29/07/2015

[..]I suggest adding: “Landlords will, with immediate effect, be less inclined to buy the new-builds which the government is hoping to facilitate by making planning approval automatic. Historically they bought 57% of new-builds, but they are unlikely to volunteer to increase their potential liability from this proposed new tax treatment.”

http://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-144/#comment-60163


BTL INVESTOR SCOTLAND
29/07/2015

[..]We think the big housing issue in the UK is one of supply. We want to see more land freed up for house building so that the demand for housing is met.

http://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-144/#comment-60166

HPCer: Why people think they can build homes faster than government encouraged property speculators can speculate on them is beyond me.

[Guest_growlers_*]

I made this point a couple of pages back but I'm not sure it is an issue.

Purpose of equity is to protect banks downside.

I briefly played around with CGT liabilities for various HPI / LTV examples before and after a 30% correction and as far as I can tell the CGT liability falls at a faster rate than house prices.

It's a dynamic debt. So if you calculated an effective LTV Inc. CGT liability pre crash and post crash, the delta is less than 30%.

Need to look into, only spent 20 mins fiddling with.

Even if you ignored crash scenario you have to be sitting on allot of HPI and have a v high LTV before your effective (Inc CGT) LTV was + 100%.

E.g £100k house.

85% LTV so £15k equity.

15/0.28 + 10 =£63k

So need £63k of HPI from a £100k house at 85% LTV before this hits.

Probably worth considering but likely to be small population.

[Killer Bunny]

I am going to go out on a limb and at least punt the idea that the market has not priced in the changes yet.

The idiocy is astounding.

I see what you did there.

[Bland Unsight]

I see what you did there.

Picking up pennies walking in front of the steam roller is stupid. I'm of an academic bent and not a trader, but its seems to me that picking up £10 notes whilst walking a safe distance behind a steamroller that is about to breakdown might be a trade with some appeal, shortly, .

[koala_bear]

Paragone seems cornered a lot of BTL business then this year, figures up big on last year.

Has this just been because everyone else has been trying to do less new BTL lending at the same time?

Edited July 29, 2015 by koala_bear

[little fish]

Just reading about how rentiers define them selves in terms of accidental, amateur etc and came across this little snipet from 118 in 2013. Sometimes you really do have to be careful what you wish for.

Do we have the makings of a professional status, the Royal Institute of Accredited Landlords perhaps? Only time will tell but if it happens we may also be better placed to lobby for better tax treatment too, e.g. roll-over of capital gains and income being treated as earned as opposed to investment. Now that would be a nice carrot to add to the stick

http://www.property118.com/what-is-an-amateur-landlord/44304/

[Bland Unsight]

Probably worth considering but likely to be small population.

I think you may be mistaken. Buy-to-let really kicked off, volume wise, in 2003.

In July 2003 the Land Reg price for a Greater London flat was £225,562, today it is £432,386 (June 2015). Buy-to-let re-mortgaging volumes are pretty healthy, interest rates are on their @rse. There are 85% LTV mortgages in the market. Do we really think that spiv brokers aren't enabling pwoperdee mad idiots to extract their Mad Gainz? To these people it will be free money with no downside.

The other joker in the pack is that when you re-mortgage to get a LTV you don't offer it to the market and find a seller, the value is bullsh!t. You could re-mortgage to £550,000 at 85% LTV, but when you sell you discover that you can only get £500,000. What was badged as 85% LTV may actually be 93.5% LTV.

[long time lurking]

I think you may be mistaken. Buy-to-let really kicked off, volume wise, in 2003.

In July 2003 the Land Reg price for a Greater London flat was £225,562, today it is £432,386 (June 2015). Buy-to-let re-mortgaging volumes are pretty healthy, interest rates are on their @rse. There are 85% LTV mortgages in the market. Do we really think that spiv brokers aren't enabling pwoperdee mad idiots to extract their Mad Gainz? To these people it will be free money with no downside.

The other joker in the pack is that when you re-mortgage to get a LTV you don't offer it to the market and find a seller, the value is bullsh!t. You could re-mortgage to £550,000 at 85% LTV, but when you sell you discover that you can only get £500,000. What was badged as 85% LTV may actually be 93.5% LTV.

It`s far worse than that 100% +

Edited July 29, 2015 by long time lurking

[Bland Unsight]

It`s far worse than that 100% +

One of the things that is quite interesting here is the extent to which the crap banks have doubled down on the bubble, unsurprisingly, and have therefore relied on their BTL quislings more and more. Presumably these bonkers LTV products available for re-mortgaging are essentially an in your face extend and pretend play by the lenders. The thing is a proper extend and pretend play has to include some f**king pretending.

You have an interplay between collapsing interest rates and weak house prices in certain pockets of the market, (for example city centre slave-boxes in places where the cretin box builders have provided supply where there was no real demand).

The house prices fall, but rents are not quite so soft, so you use the rents to service interest-only mortgages at ever higher LTVs at each re-mortgaging, and neither the lender nor the borrower has to take their losses. But it's not much of a pretence is it really?

The Bank of England need to bring some f**king reality to this market. If the crap banks won't behave they need to be made to behave. Basel 3 implementation to jack BTL rates up to business loan rates at 8% or more, a decent house price crash. Roll the bust banks into UKAR allow the more robust challenger banks to pick up the market share.

Why can't we have something more like an economy and less like a really long, boring, unfunny farce?

Edited July 29, 2015 by bland unsight

[Bland Unsight]

I actually think this is a really good idea. You can't get tax relief on other investments like buying shares, why should you get one on property investment? Maybe BU can do the wording as s/he seems to be very lyrically apt?

Great, a hive mind but just one amanuensis, is that the plan?

Any other volunteers?

[Digsby]

Great, a hive mind but just one amanuensis, is that the plan?

Any other volunteers?

My plan at the moment, being formulated off board with another regular poster, is to start a thread inviting submissions for the content of the petition, then to create a poll so members can vote on their preferref petition, and then invite members to volunteer to create the petition by pm, choose one of those who would create it and pm the link, which I would then post so those of us who wish to sign it can do.

This will give us the most agreeable wording, and preserve the anonymity of the member who puts their real name to it (unless there is anybody who doesn't care about that - frizzers?).

And yes, unsight, I'd expect a suggestion from you!

[Guest_northshore_*]

My plan at the moment, being formulated off board with another regular poster, is to start a thread inviting submissions for the content of the petition, then to create a poll so members can vote on their preferref petition, and then invite members to volunteer to create the petition by pm, choose one of those who would create it and pm the link, which I would then post so those of us who wish to sign it can do.

This will give us the most agreeable wording, and preserve the anonymity of the member who puts their real name to it (unless there is anybody who doesn't care about that - frizzers?).

And yes, unsight, I'd expect a suggestion from you!

joe42's (and my) example is here

[Bland Unsight]

My plan at the moment, being formulated off board with another regular poster, is to start a thread inviting submissions for the content of the petition, then to create a poll so members can vote on their preferref petition, and then invite members to volunteer to create the petition by pm, choose one of those who would create it and pm the link, which I would then post so those of us who wish to sign it can do.

This will give us the most agreeable wording, and preserve the anonymity of the member who puts their real name to it (unless there is anybody who doesn't care about that - frizzers?).

And yes, unsight, I'd expect a suggestion from you!

That sounds like a plan. And you just got a note saying Captain and Commander stapled to your shirt tail whilst you weren't paying attention so the organisation and leadership is on you, . I did have one tactical thought, which might be relevant at this stage which was "Bet on all the horses"

Because the Property118 clowns come at it from an odd angle, defending as they are their peculiar institution, responding to them, though amusing, is perhaps poor tactics.

What is the over-riding strategic objective? IMO it is a housing market that provides the best possible housing at the lowest possible cost and offers good quality rented accommodation with a good security of tenure where that is desired and also the ability to buy at prices that are sustainably linked to people's earnings.

If, tactically, we are trying to play our own small part in a much broader war to achieve these ends, it seems there that there are a number of separate issues best addressed separately, by more than one petition.

In particular I think that a very strong argument can be made about the fact that the mortgage interest should not be deductible at all, and, as that is presumably the direction of travel anyway, we may do some small measure of good by voicing the belief that it is the right direction of travel, and I'd ask you to consider keeping the financing side of buy-to-let separate from the security of tenure issue, which applies to all private rental sector regardless of whether it is financed with an (ersatz) mortgage or owned outright.

If your response to that is, "Yeah, f**k that", you get to call it. There's a note stapled to your shirt tail that says so.

[Digsby]

Yeah, somebody else suggested no need to stick to one petition and what you say makes sense.

I would have suggested simply a sticky thread of petition links which I would administer in the sense that members can go away and create an epetition, pm the link to me and I'd post it there, but it runs the danger of falling into the 118 trap of somebody else having had already created one along the same lines you want to, but perhaps less convincing, so to avoid that I think the polling system is best - perhaps a poll for each area that needs a petition (and I don't need to be the one to create the poll, I can just act as the go between when the votes are in)

[Digsby]

I'm not going to be starting any polls until I'm sat down with a proper screen and keyboard though. Right now I am on my phone, sheltering from the rain outside a pub with a pint of brains in one hand.

If somebody wants to take the initiative and get a poll running with some of the suggestions already made, that would save me many missed key presses...

[Guest_growlers_*]

I think you may be mistaken. Buy-to-let really kicked off, volume wise, in 2003.

In July 2003 the Land Reg price for a Greater London flat was

£225,562, today it is

£432,386 (June 2015). Buy-to-let re-mortgaging volumes are pretty healthy, interest rates are on their @rse. There are 85% LTV mortgages in the market. Do we really think that spiv brokers aren't enabling pwoperdee mad idiots to extract their Mad Gainz? To these people it will be free money with no downside.

The other joker in the pack is that when you re-mortgage to get a LTV you don't offer it to the market and find a seller, the value is bullsh!t. You could re-mortgage to £550,000 at 85% LTV, but when you sell you discover that you can only get £500,000. What was badged as 85% LTV may actually be 93.5% LTV.

Take the £432k and £225k figures.

That's £64k equity at 85% LTV.

CGT liability of £55k.

Even in this extreme case you still have some equity post CGT.

[Guest_northshore_*]

Yeah, somebody else suggested no need to stick to one petition and what you say makes sense.

I would have suggested simply a sticky thread of petition links which I would administer in the sense that members can go away and create an epetition, pm the link to me and I'd post it there, but it runs the danger of falling into the 118 trap of somebody else having had already created one along the same lines you want to, but perhaps less convincing, so to avoid that I think the polling system is best - perhaps a poll for each area that needs a petition (and I don't need to be the one to create the poll, I can just act as the go between when the votes are in)

If a petition is important to you, just write and sumbit it. I don't think anyone will really mind.

[Killer Bunny]

"Three good reasons to get out of buy-to-let now".

http://moneyweek.com/merryns-blog/three-good-reasons-to-get-out-of-buy-to-let-now/

She still thinks rates are going to rise. Oh give me strength

[Bland Unsight]

If a petition is important to you, just write and sumbit it. I don't think anyone will really mind.

On the other hand, many hands make light work, and it's difficult to edit and review your own writing.

[Bland Unsight]

Take the £432k and £225k figures.

That's £64k equity at 85% LTV.

CGT liability of £55k.

Even in this extreme case you still have some equity post CGT.

If there is an error in the unpleasant case here, point it out so I can fix it. Sorry for cross-posting. I'm going to pick up any response on this thread.

[dgul]

I actually think this is a really good idea. You can't get tax relief on other investments like buying shares, why should you get one on property investment? Maybe BU can do the wording as s/he seems to be very lyrically apt?

Perhaps they are saving up sorting out the tax relief problem to the end of the 5 years in power - reintroducing miras and tax-relief for rent. At the zero-bound there aren't many options left to stimulate the economy... And it would be an easy vote-winner for most...

[lots of countries have at least some tax relief on rent and mortgage, so not anything special]

[pipllman]

She still thinks rates are going to rise. Oh give me strength

not only does she think they are going up, but that a rise is coming soon!

"But the really big and immediate risk is a shift in interest rates."