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overlander

Btl Scum Regrouping And On The Offensive. -- Merged

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They are not going down without a fight, they are running scared.

http://www.property118.com/open-letter-george-freeman-mp-conservative/76353/#comments

Open Letter to George Freeman MP – Conservative

Dear Mr Freeman Open-Letter-George-Freeman-MP-Conservati

I have been a Conservative voter for my whole life and have used the influence of my property forum and blogs (200,000 subscribers) to encourage my peers to vote the same way.

I would very much like to meet with you to discuss my concerns regarding the budget, in particular the impact on lending institutions and a hardcore of Conservative voters who invest into buy-to-let property. I believe the impact is far more wide reaching than may have been considered and could well lead to another banking crisis, as I will go on to explain below.

My understanding of the logic behind the budget announcement is to reduce incentive for highly geared buy to let transactions, which the Bank of England recently reported to be a risk to the economy. I broadly agree with that. However, the consequences of the budget are that an established private landlord using a high gearing business model could now end up falling into the 45% tax bracket even if his rental portfolio is only breaking even and even if he has little or no other income or resources with which to service that increased tax burden. Please see the example below:-

SCENARIO AS OF TODAY

Rental income: £300,000 per annum

Mortgage interest: £200,000

Other legitimate expenses: £100,000 (e.g. insurance, letting, management, maintenance etc.)

Taxable income = zero.

SAME SCENARIO AS OF 2020

Rental income: £300,000 per annum

Legitimate expenses excluding interest: £100,000

Net taxable income = £200,000

Net cashflow is still zero but tax is payable on £200,000 less a tax credit of £40,000 due to the 20% relief on the £200,000 of mortgage interest.

Given that net cashflow is zero, where is the landlord expected to find the money to pay the extra tax from?

The position worsens when interest rates increase.

It gets worse!

Until now, buy-to-let mortgage underwriting and associated lending criteria has been based on the current tax system, which has not made provision for this extra tax. Many thousands of established professional landlords have based their business models on the current tax system and lending criteria. If these landlords are now allowed to fail we could be looking at another credit crisis, plus of course a further negative impact on the housing crisis..

Worse still

General consensus is that highly geared landlords will be able to pay down their debt by selling some of their properties. However, the very nature of a highly geared property investment strategy means that in several cases the net sale proceeds would be insufficient to pay CGT due to outstanding mortgage liabilities having significantly exceeded the original purchase price of assets due to refinancing in line with property values during the property boom which has occurred since the early/mid 90’s. There is no CGT rollover relief available to private landlords on residential property so they cannot convert to a corporate structure either without incurring CGT. Accordingly, many are trapped into an inevitable bankruptcy scenario by the budget announcements. The net losers (in addition to these landlords) will be the banks and society as a whole due to the losses incurred on forced sales, the reducing supply of quality rental property and the associated demand led rental inflation.

The Chancellor said that he wishes to make it easier for people to become homeowners. A significant exodus from the Private Rental Sector may well facilitate this in terms of reducing property values but it will not create any more housing. In fact, it may well reduce incentive to develop new housing. This is because over the last two decades a significant proportion of new build housing stock has been purchased by landlords, thus driving up the profits of developers to a point where it makes developing new builds viable. A reduction in the appetite for buy-to-let investment, combined with a reduction in property prices, may well have the effect of reducing property developer profits, and hence incentive to build new homes. Another knock on consequence of this is that a reduction in new developments would result in less new social housing being built.

My suggestions

It would be politically very awkward for the Chancellor to do a u-turn at this point, albeit not impossible. However, the following concessions may be equally effective to deal with the Chancellors objectives whilst negating the necessity to openly backtrack in order to avoid the negative repercussions and unintended consequences of the Summer 2015 Budget:-

Option 1) announce that the new tax rules only apply to new debt as of 2017 or

Option 2) introduce CGT rollover for residential investment property in order to allow landlords with large portfolio’s to roll their assets into a corporate structure or

Option 3) declare a CGT amnesty for BTL landlords for a given period which will still have the effect of reducing the size of the PRS (albeit with some reduction in property values due to the possible scale of transactions) but with reduced negative consequences in terms of insolvency induced forced sales and the knock on effects to banks and property developers.

I look forward to your reply and hope we can schedule a meeting sooner rather than later.

Yours sincerely

Edited by overlander

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  • Taxable income = zero (brag-sweet, all as it should be, let's buy some more BTLs woot, £1million of mortgage debt, yeahhh)
  • 2020 Net taxable income = £200,000.

Here is the other letter they're readying for Osborne.

http://www.property118.com/open-letter-george-freeman-mp-conservative/76353/comment-page-4/#comment-58849

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That letter is wonderful.

I have printed it out and will frame it.

It shows a huge sense of entitlement, tells GO how wonderful Landlords are.

How on earth did we manage before BTL?

Do these idiots truly believe that Osborne made a mistake, that somehow the new tax measures were just slipped in when he wasn't looking. Do they think that he just sat at his desk, chewed the end of his pencil and wondered 'What can I tax next? I know, BTL'

This is the Tory party unshackled from the LibDems, in full fury.

The BBC, Doctors, BTLers are all going to get a kicking.

Next in line will be multi nationals paying corporation tax in other EU countries but doing most of their trading in the UK.

The Tories know that BTL is a scourge. There can hardly be an MPs surgery up and down the country that does not have people complaining about house prices.

Parents with adult children still at home, the list goes on.

There is little public sympathy for Landlords now.

Osborne couldn't care less about Landlord votes, he needs the young disposed in their millions, not a small rat bag of greedy scummers.

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Osborne couldn't care less about Landlord votes, he needs the young disposed in their millions, not a small rat bag of greedy scummers.

The landlords don't seem to grasp this. It's over. It's not going back to the way they want it. Life moves on. Like a field that needs ot be ploughed, the economy will not function without "turning over the soil" and flipping winners to losers and losers to winners. It happens. No government simply sides with a group of people for the hell of it.

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I'm actually thinking a CGT amnesty might work in favour of a crash.

It'll appease these fools, but equally

* It will inevitably cause a stampede for the exits.

* if the above happens, there probably won't be any cgt to pay anyway for those recent highly leveraged landlords ;-)

Thus - turkeys voting for christmas!

I might even suggest it in my letter to George congratulating the change, stating it'll get more votes than it loses. And at the same time suggesting to turn the screw on the relief even further.

Edited by Frugal Git

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What amuses me is how LLs on the self-righteous warpath so often imply that if they weren't so nobly and heroically providing all these homes for the less fortunate, the properties would somehow magically disappear.

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I'm sure George will be sympathetic and won't be influenced by the way the political wind is blowing.

Metro170715.jpg

Quite. If the choice is annoying a few overleveraged spivs, or otherwise inevitable future mass social unrest, i think george knows which side his bread is buttered.

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I'm actually thinking a CGT amnesty might work in favour of a crash.

It'll appease these fools, but equally

* It will inevitably cause a stampede for the exits.

* if the above happens, there probably won't be any cgt to pay anyway for those recent highly leveraged landlords ;-)

Thus - turkeys voting for christmas!

I might even suggest it in my letter to George congratulating the change, stating it'll get more votes than it loses. And at the same time suggesting to turn the screw on the relief even further.

I think the author has hit the nail on the head regarding CGT but missed the point entirely. This could like the pension reforms be a way to encourage the greedy to pay taxes sooner than they might have liked. In the example mentioned people who have extracted and probably spent capital gains from the 90s tax free have been rumbled. Parties over, either pay up at 20% a year or as a lump sum when you sell up or restructure.

I might vote Tory next time.

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An amnesty on unearned capital gains, that are still gains. Righto.

If that was announced, older landlords selling up quickly might get away with a fortune. But it'll cause carnage. Supply would go through the roof. They were all in it for the capital gain, and they'll run for the exits en masse.

The conditions would be even more favourable for a ludicrously *severe* crash.

I might be wrong, but I almost think it could be the greatest con trick ever if it happened.

It won't though, but again, these landlords should be very very careful they ask for...the scale of unintended consequences could be catastrophic (for them).

Edited by Frugal Git

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If that was announced, older landlords selling up quickly might get away with a fortune. But it'll cause carnage. Supply would go through the roof. They were all in it for the capital gain, and they'll run for the exits en masse.

The conditions would be even more favourable for a ludicrously *severe* crash.

I might be wrong, but I almost think it could be the greatest con trick ever if it happened.

It won't though, but again, these landlords should be very very careful they ask for...the scale of unintended consequences could be catastrophic (for them).

I don't care. I have no sympathy. Zero. These people seriously misunderstand the long-term and seriously misunderstand the function and incentives of Government. And I don't want a crash I want fundamental change.

Change that doesn't involve every p!sstaker walking off into the sunset with other people's money and opportunity. Overleveraged land speculating individuals aren't the only p!sstakers, but they're a start.

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I'm actually thinking a CGT amnesty might work in favour of a crash.

CGT amnesty? We've had that, haven't we?

Any BTL landlord with capital gains can avoid CGT by re-investing the gains in EIS-qualifying investments. Simple enough, and if they've lived with an illiquid asset they should presumably be comfortable living with another, even if it's in the real economy.

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Osborne won't listen and even if he did....

1. CGT applies to the capital gain even today, so if you've made a gain you should pay the tax on that gain, just like i will if i sell my shares. I wonder how this practice of withdrawing equity via remortgage should actually affect the capital gain tax liability, since my accountant friend has been telling me for years that these people cannot avoid CGT in this way

2. A CGT holiday won't save them, since all the changes will put off the greater fools, prices will fall and there will be no CGT to pay anyway

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Could you sell two at a time, but in one transaction? One with CGT and one that had negative CGT (worth less than you paid) with the total being no CGT?

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What amuses me is how LLs on the self-righteous warpath so often imply that if they weren't so nobly and heroically providing all these homes for the less fortunate, the properties would somehow magically disappear.

It is incredibly bizarre, isn't it? I think it's partly social superiority in that they can't imagine their tenant's ever being able to afford their own homes, and partly misguided moral justification in that they like to pretend to themselves that none of their tenant's even want to own their own homes and therefore their (the landlord's) leveraging of the tenant's own income (in the form of rent) against them is for the good of the tenant and the best of all possible worlds.

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I had whole orchestra of the world's smallest violins playing when I read that letter

Anyone who builds a 'business' that relies on tax relief to survive is an idiot. End of story

Well, perhaps they're not idiots and will just pass the burden on to the renters, who will be even less able to save for a deposit.

G.O. will not back down - so we end up with an indirect tax on renters.

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Well, perhaps they're not idiots and will just pass the burden on to the renters, who will be even less able to save for a deposit.

G.O. will not back down - so we end up with an indirect tax on renters.

Chill Winston.

alastair Offline

Member

06-07-2015,12:41 PM

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Too few viewings ...

Hi All,

Due in large part to the excellent advice on these forums, we are about to complete on the purchase of a new home next week ... we remortgaged our current flat and converted this to a BTL in order to make this happen.

Now, funnily enough, we're finding that it's taking longer than expected to find a tenant - I thought that would be the easy bit!

Our flat is in south west London, about 10mins walk from the train/tube, and there are a lot of renters in our block and the street in general.

In 4 weeks, we've had 4 viewings ... we reduced the price by £100 a month after two weeks, but it hasn't really done anything.

Having spoken to a couple of agents apart from the one we are using, the consensus appears to be that the usual summer peak hasn't materialised ... there are a lot of properties to compete with, and price is obviously one factor to take into account.

This is our first time renting out in the UK, so is there anything else we should be thinking about doing to maximise our chances of finding a tenant?

Our agent is not one of the main high street chains, and I noticed that they adverties on Rightmove only, not Zoopla, which I guess is not the end of the world ...

I don't know what the average time to find a tenant is either, I guess it's pretty variable, so not sure if we're being impatient .... I don't file we are! ;-)

Any advice gratefully appreciated as always.

Alastair

Iamsnakes Offline

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14-07-2015,09:25 AM

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RE: Too few viewings ...

I am experiencing the same thing, very little interest for a flat in Brixton which rented easily last time (over 2 years ago). I do wonder if the amount of buy to let stock is increasing as no one wants to sell with prices rising and so let instead.

Right move tells me that properties are taking a while to shift.

But I am considering my options as yields aren't huge.

Brighton btw is the opposite, I rented a house out here within a day last week.

http://www.propertytribes.com/too-few-viewings-t-127621177.html

Simon Dewsberry says: Read about me on my member profile

17/07/2015 at 00:09

Reply to the comment left by “James Tallis” at “16/07/2015 – 20:08“:

many Landlords are those FTB who dont release the property on 2nd purchase but keep it and let it out , or even 2 FTB get together as a couple and keep both props and buy a third between them……

http://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-76/#comment-58893

That's been normal practise during boom 1.0, and for all the 'crunch' especially agains since 2009/10. So many threads of keeping house to rent out and buy again on MSE. Loads of them on BTL/Let To Buy and Consent To Let, having traded up. If interest rates hadn't been slashed in 2009 they would have struggled to keep the original house; instead they've got 2 or more now. Just checked MSE now.. still all falling over themselves with questions to BTL.

With banks in far stronger positions with their balance sheets to ride out HPC, and many under new management with younger smarter people - West Brom and younger Chief Exec with a far more prudent background.. their new HQ being built for hundreds of staff .... (and my theory being huge volumes of fresh mortgage debt is the only way to defeat existing levels of debt for banks and gov)... buyers right now are making their own decisions.

Whether it's to upsize, keep old place rent it out and buy another (thread after thread right now on MSE, and has been for years), or for FTB £quarter million HTB newbuild small house box.

We all want a house/home; but some of us not prepared to pay anything like the prices being asked. And if someone has it in their head to keep acquiring BTLs... meeting banks requirements for security, that's the investor's own decision.

23 April 2013. http://www.dailymail...-residence.html

Increasing numbers of homeowners opted last year to let their main residence and buy a new place to live in response to strong rental demand and tax breaks, mortgage brokers have reported.

Let-to-buy - where a borrower keeps their existing home to rent to tenants and buys a new main residence – has continued to see a surge in popularity this year as well, according to John Charcol.

Like this one? (May 2014 http://www.dailymail.co.uk/money/mortgageshome/article-2630348/Rents-rise-5-12-months-buy-let-yields-remain-steady.html)

a111, Portsmouth, 55 minutes ago

The amount of rent the landlord gets is inconsequential. I know several people who have bought properties outright with cash, and plan on keeping them to rent out well into retirement. Even if rent prices halve, they will still keep hold of them and continue getting rent. And even if you have a mortgage, and even if the rent doesn't quite cover the mortgage, you are still better off putting money into rental property than a bank account at the moment.

Being right isn't a democracy, and this sort of malinvestment I will punish. Cash is dead money... we'll see.

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Given that net cashflow is zero, where is the landlord expected to find the money to pay the extra tax from?

ahahahahahah

I really hope George Freeman responds with the obvious. "A job you parasite"

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Mark Alexander's letter certainly raises some interesting thoughts.

We have a BTL investor who, assuming he is paying 5% interest, has mortgages worth £4m.

Since he is highly geared we will assume he has paid only a 20% deposit for these mortgages. Thus he had £1m in cash and has a £5m portfolio.

£300k in rent is only a 6% return; most BTL fans quote returns at least a little above that. Even a 1% increase in return will generate an extra £50k in rent annually. Of course, George Freeman is expected to take Mark Alexander's figures as being beyond question.

As an aside, if this mythical investor really has a million in cash and doesn't expect any immediate return then I have an interesting proposition for locating a lost silver mine in Atlantis. He can contact me by reply.

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