How Osborne Could Kill Btl

[Neverwhere]

Are some lenders starting to put the brakes on the BTL MEW machine?

Further Advance Hell or is it just me?

I’m in the midst of an application (on my own – am not using a Broker) for a further advance and am reaching out to other Property118 forum members to learn more about their experiences.

Having read through several related topics on Property118 I had a vision that this would be a simple (ish) process so long as the figures all matched up and that the Mortgage provider and their Underwriters approved.

My intention has always been to secure a 2nd Buy To Let once the further advance goes through.

Also, for reference, the current rental income covers the property value by the 125% which is a requirement of the Mortgage provider – given the 5.89% interest rate they put in place to cover risk. Our joint salary income is also way above the minimum £25,000 per annum criteria .. so there should be nothing getting in our way.

However, having since applied (for my first ever further advance btw) in April 2015 it’s now mid August and I’m beginning to wonder if this mythical further advance will ever go through.

The current hold up has been caused because the Underwriters have queried as to what value property I intend to buy next and what rental income I believe I could achieve.

Hypothetically, if I were able to release £25,000 through a further advance then I cannot realistically purchase a second BTL which is greater in price than £100,000 (based on a typical 75% LTV ratio). Surely some basic maths could have answered the Underwriters own question? Anyhow, I’m not here to bash Mortgage providers and their Underwriters – although I’d love to right now!

Ideally, I would like some discussion around the average duration it takes a typical further advance to complete based upon your own experiences. Is 4+ months way too long to be waiting on a further advance completing? Do you too get silly queries from Underwriters (as above) which have delayed your application(s)? Are there any tips on how to ‘fast track’ further advances in future? Are there any mortgage providers who you would steer clear of? Have you even been so frustrated that you’ve switched Mortgage provider because of a slow/bad experience?

Also, one such tip (to kick start this thread) from my own further advance application would have been to have setup a current account (purely for all BTL financials) with my BTL Mortgage provider (Woolwich/Barclays in this instance). This would have meant that I didn’t have to print off bank statements each month from my current account provider (Natwest) then drop them off (by hand) to my Mortgage Advisor each time they requested ‘just another thing we need from you before we can progress your further advance’.

Let me know your thoughts …

Daniel

Mike W 17/08/2015 at 19:08

Daniel,

I am not a mortgage advisor but reading your post it appears that your intention is that you want to borrow a further £25k against your existing BTL property. You do not say what your existing LTV is on the existing BTL but I suspect this is the source of the problem. I assume your existing LTV is say 50%?

I do not know whether you own or rent your own home and therefore whether there is other security. Moreover you haven’t specifically stated your income but I assume it is £60K +

For your second BTL you appear to be wanting to borrow 75% of the value of the second property from a bank and to raise the other 25% from your existing property. In other words you want to borrow 100% of the property value at marginal rates close to 6%.

Are you close to 40% tax bracket?

Since underwriters in main banks are worried about property price drops (eg Mark et al selling their properties en mass!!), risk of redundancy, effect on rents from government cuts etc., I would suggest your case is flashing amber if not red.

Frustrating. My bank manager said ‘ we don’t want to lend money to property investors any more’ and I have been with the bank 50 years!

[Gooner82]

Hi,

Long time lurker. I probably have a bit of an inside line here working for one of the big high street banks. I am told that we have called the top of the resi market and are not interested in development deals apart from with the big housebuilders who have revolving credit facilities anyway. I should also add that there are also quite clear restrictions on borrowers with multiple BTLs. My understanding is that we won't allow >4 to an individual. This has been the case some time.

Regards.

[Venger]

Would be nice if that's the next stage. MMR and lenders beginning to snub BTLers.. having got enough fill of them to smooth out HPC.

A common feature of economic slumps is credit revulsion. Even good borrowers find their welcome mat withdrawn. When the music stops, the attitude of lenders hardens. Banks will slash credit and call loans even to good customers. They will be driven to do this in part, because of growing demands to hold cash. When the public raises its demands for currency, the banks have no choice but to shrink. Each time commercial bank obtain refills for their customers, they must reduce their reserve accounts with the central bank.

With the value of real estate collateral falling, the true market value of construction and other real estate loans will fall. Bankers like other lenders, like their predecessors after 1929, will not wish to magically turn one pound of cash into a loan worth just eighty pence, much less sixty pence.

And Mr.Kensington flipper noticing change in lending conditions from last year. IMO both he on the flip, and his pal with £6m place (original mortgage £100K) both need to give back a lot of that ridic inflation via hardest HPC of all time. Slam the doors closed, and leave market under siege at insane high smug valuations. Serpico style where the offers for funds went from handwritten fountain pen notes, to bank managers sweating him for their money... wasted on Bentleys and private planes and butlers - mansion and other property theirs to seize.

By some peculiar accident of a previous life, I bank where the Queen banks. For 25 years I have borrowed from them against homes I have bought. I have always repaid these loans, always paid every monthly interest payment. Never once have I given them cause for even a flicker of concern.

For most of those years, they've never given me cause for concern either. If I was moving home or renovating a home, a quick chat with my manager was all it took to secure the funds required. Once, they even added an extra £100k to the mortgage offer just in case I needed it.

Their managers were always good sounding boards, providing reassurance or caution when appropriate.I was in love with my bank, in fact. And took every opportunity to tell anyone who'd listen what a fantastic operation they were.

When I recently asked for a bridging loan however, the answer was an immediate no. They didn't have a reason. There was no discussion of the case. Just a NO. Eventually they did come up with an emailed reason: I was too old. They don't lend to people over 65, apparently. Trouble is, I'm not 65. Not for a few years, anyway.

Now, I accept that I don't fit the usual mould of borrower. My regular income is insignificant. I have neither an employer or a business with a track record. What I do have though is a long history of financial stability, a couple of decent unencumbered prime property assets and a plan that would repay any bridging loan within 12 months.

I was asking for an LTV(loan to value) of only about 10-12%. So even in a catastrophic crash, the loan would still be well covered. The risk involved was almost non-existent. But there is no longer any human process by which risk is assessed. In its place there is now a facile fits-all check-list that permits no flexibility, no history, no individuality.

in fulll http://doerupperdiary.blogspot.co.uk/2014_06_01_archive.html

The timidity of the banking system appears to have been general and widespread. Indeed, the 1939 survey found that over half the reasons given for credit refusals by banks were "bank policy"; only a third were because of "the condition of the borrowing concern."

- Michael A.Bernstein,
The Great Depression

[Neverwhere]

Hi,

Long time lurker. I probably have a bit of an inside line here working for one of the big high street banks. I am told that we have called the top of the resi market and are not interested in development deals apart from with the big housebuilders who have revolving credit facilities anyway. I should also add that there are also quite clear restrictions on borrowers with multiple BTLs. My understanding is that we won't allow >4 to an individual. This has been the case some time.

Regards.

Thanks Gooner82, that's very interesting!

[Venger]

Hi,

Long time lurker. I probably have a bit of an inside line here working for one of the big high street banks. I am told that we have called the top of the resi market and are not interested in development deals apart from with the big housebuilders who have revolving credit facilities anyway. I should also add that there are also quite clear restrictions on borrowers with multiple BTLs. My understanding is that we won't allow >4 to an individual. This has been the case some time.

Regards.

Good reading. I will happily believe you, even if we have to bump along at peak for 12 months+ longer.

It's the PEAK. We're just bumping along at the very peak. Slightest turn and more inventory will hit market.

[South Lorne]

Thanks Gooner82, that's very interesting!

Hi,

Long time lurker. I probably have a bit of an inside line here working for one of the big high street banks. I am told that we have called the top of the resi market and are not interested in development deals apart from with the big housebuilders who have revolving credit facilities anyway. I should also add that there are also quite clear restrictions on borrowers with multiple BTLs. My understanding is that we won't allow >4 to an individual. This has been the case some time.

Regards.

....4...is 4 too many whenever a crash comes .....

[Gooner82]

One final snippet; over the last year the Prudential Regulation Authority have been all over us (and all of the other big banks) in regards to forbearance granted against problematic loans. In essence the days of interest only are GONE.

[Neverwhere]

...And Mr.Kensington flipper noticing change in lending conditions from last year. IMO both he on the flip, and his pal with £6m place (original mortgage £100K) both need to give back a lot of that ridic inflation via hardest HPC of all time. Slam the doors closed, and leave market under siege at insane high smug valuations. Serpico style where the offers for funds went from handwritten fountain pen notes, to bank managers sweating him for their money... wasted on Bentleys and private planes and butlers - mansion and other property theirs to seize.

I note that his current flip is still on the market and has dropped in asking price from £2.85m to £2.695m (some related blog posts here). I'm not really surprised given the poor layout choices made but moving from rightmove to OnTheMarket can't have helped.

[Neverwhere]

One final snippet; over the last year the Prudential Regulation Authority have been all over us (and all of the other big banks) in regards to forbearance granted against problematic loans. In essence the days of interest only are GONE.

The PRA have been encouraging your bank not to extend forbearance and to repossess instead?

[South Lorne]

One final snippet; over the last year the Prudential Regulation Authority have been all over us (and all of the other big banks) in regards to forbearance granted against problematic loans. In essence the days of interest only are GONE.

..even for BTL...?

[Gooner82]

Where forbearance has been given the Bank must impair the loan 100% irrespective of the underlying security value. It costs us a fortune therefore and so we don't like interest only loans anymore. My understanding is that interest only is dead.

[Neverwhere]

..even for BTL...?

I'm not sure there was ever any inclination to offer much forbearance to BTL, they're less likely than OOs to maintain the property when in arrears, there's no negative PR associated with repo'ing them, and they generally have the BTLers own home to put a charge against if there's any shortfall.

[Neverwhere]

Where forbearance has been given the Bank must impair the loan 100% irrespective of the underlying security value. It costs us a fortune therefore and so we don't like interest only loans anymore. My understanding is that interest only is dead.

Awesome!

[Ah-so]

Where forbearance has been given the Bank must impair the loan 100% irrespective of the underlying security value. It costs us a fortune therefore and so we don't like interest only loans anymore. My understanding is that interest only is dead.

Quite sensible. Once a loan goes into forbearance of any sort, it becomes higher risk and needs more capital.

Interest only has been dead for some years, anyway, except in one area, BTL.

It sounds like you have your ear fairly close to the ground at your bank, so it would be very interesting to hear what they make of the budget changes and whether the PRA has asked any questions of them.

[Venger]

There's nothing for bears with forbearance. And possibly allowing distressed debtors to find themselves even deeper in, years later.

BTLers should have zero forbearance.

Financial Conduct Authority Fears Mortgage Forbearance Bubble
Started by FreeTrader, Oct 02 2013 02:43 PM
http://www.housepricecrash.co.uk/forum/index.php?/topic/193674-financial-conduct-authority-fears-mortgage-forbearance-bubble/

[..]“One of the issues around [new mortgage regulation] and the general economic climate is that we understand that firms have exercised a considerable and increasing degree of forbearance.”

Woodall said while “in many respects that is good because it’s sympathetic to the borrower’s circumstances” she warned that it could have potentially severe consequences for some borrowers.

“In other respects it’s not so good because it’s putting off the inevitable,” she said. “The borrower may be put in a position that is ultimately even worse than the one they started out in.”


Moody's Warns Against Going Soft On Mortgage Borrowers In Trouble
Started by Tenubracon, Mar 29 2011 12:26 PM
http://www.housepricecrash.co.uk/forum/index.php?/topic/161659-moodys-warns-against-going-soft-on-mortgage-borrowers-in-trouble/

[Neverwhere]

Tax Efficient Incorporation for Landlords

Mark Alexander - Published on 18/08/2015

View Member Profile

Landlords with a rental property portfolio worth more than £5million may be able to incorporate and pay 20% tax on retained profits (reducing to 18%) without needing to pay CGT and Stamp Duty, or to refinance.

All of the above can be achieved WITHOUT becoming a tax exile.

How to find out more

Once you have completed the form below we will contact you to let you know whether this arrangement is likely to be suitable for you.

Tax Planning - Register Your Interest

• Name*
• Email*
• Daytime telephone (UK office hours)*
• Approximate property portfolio value*

• Status*
  • Married
  • Long Term Relationship
  • Single
• Current trading style*
  • Sole Trader
  • Partnership

• Do you have any employees?*
  • Yes
  • No
  • Not at the moment, but I could have
• Do you have an office?*
  • Yes
  • No
  • Not at the moment, but I could have
• If you are not currently trading as a partnership, do you know another portfolio landlord who you trust enough to go into partnership with?*
  • Yes
  • No
  • Maybe
  • Not applicable, already a partnership

Comments

Commenting on this thread is now closed!

Edited August 19, 2015 by Neverwhere

[Neverwhere]

Mark Alexander 19/08/2015 at 08:32

Reply to the comment left by “David Atkins” at “19/08/2015 – 08:11“:

Why not employ a local book-keeper, then it doesn’t matter so much where your specialist accountant has based.

Also consider going into partnership with other landlords and then incorporate the partnership when it is big enough. See my link below.

.

Mark Alexander recently posted…Tax Efficient Incorporation for Landlords

[Neverwhere]

According to the Office of Tax Simplification "individual partners still pay income tax on their share of the profits" even in large partnerships, most likely with the same tax reliefs as is normal to individuals elsewhere. Partnerships can include companies as well as individuals so it may be technically possible to create a ltd company for no reason other than to join the partnership and funnel an inordinately large share of its profits through it, thus hypothetically avoiding both the tax relief changes and the CGT bill? I can't imagine HMRC would look very favourably on such activity.

[mrtickle]

I can't imagine HMRC would look very favourably on such activity.

Agreed. It drives right through the middle of the anti-avoidance rule, with noisy klaxons and balloons.

[Neverwhere]

Agreed. It drives right through the middle of the anti-avoidance rule, with noisy klaxons and balloons.

Mark could, of course, have something entirely different in mind than the possibility I outlined.

[Bland Unsight]

One final snippet; over the last year the Prudential Regulation Authority have been all over us (and all of the other big banks) in regards to forbearance granted against problematic loans. In essence the days of interest only are GONE.

This is a marked contrast to 2008-2009 where there was a great deal of forbearance conducted by rolling repayment borrowers onto interest-only terms, as evidenced in the PRA comissioned Experian report on interest-only in May 2013. If you're going to burst a bubble you're going to have to warn the banks off extend and pretend nonsense, (likewise you'll need to make them provision appropriately for borrowing that is in arrears s they bite the bullet). It's getting a past a point where we're talking signs in the wind and closer to a point where we might be willing to offer that the wind is all signs.

[pipllman]

I think what Mark has in mind may include that by proving (to the level that the UT accepted in the Ramsay case http://www.tribunals.gov.uk/financeandtax/Documents/decisions/Elisabeth_Moyne_Ramsay_v_HMRC.pdf)that the BTL portfolio is a business, roll over relief on the transfer of the business to a company in exchange for shares will be allowed

[Neverwhere]

I think what Mark has in mind may include that by proving (to the level that the UT accepted in the Ramsay case http://www.tribunals.gov.uk/financeandtax/Documents/decisions/Elisabeth_Moyne_Ramsay_v_HMRC.pdf)that the BTL portfolio is a business, roll over relief on the transfer of the business to a company in exchange for shares will be allowed

If so then it's a bad plan, that case was won not on the size of the operation but on the amount of actual work done (emphasis added):

CG65715 - Transfer of a business to a company: conditions for relief: meaning of ‘business’, HMRC Capital Gains Manual

The meaning of ‘business’ in the context of incorporation relief itself was considered by the Upper Tribunal in the case of Ramsay v HMRC [2013] UKUT 0236 (UTT). That decision confirms that where the Courts have considered the words elsewhere the particular context of the legislation involved often restricted the meaning compared with the less restricted use for incorporation relief. The First Tier Tribunal had misdirected itself by relying too much on such cases.

The Ramsay case endorsed the approach in American Leaf Tobacco set out above, confirming that for there to be a business for incorporation relief there has to be “activity” and that just a modest degree of activity would not suffice. It also shows us that it is the quantity not the quality of the activity that is important.

The First Tier Tribunal found against Mrs Ramsay partly because it considered that the activities she undertook in relation to her property were “normal and incidental to the owning of an investment property”. That was not the correct test in this context - it was agreed that Mrs Ramsay had devoted a considerable part of her week to managing, maintaining and planning the development of a large property which was divided into several apartments. She had passed the threshold to be considered in business because of the quantity of the activity involved.

[Neverwhere]

Apparently Frizzers has started something of a meme: Death of buy-to-let: landlords wake up to Osborne's 150pc tax

[WARNING: the above article may contain some traces of undisclosed vested interest propaganda]

[interestrateripoff]

Apparently Frizzers has started something of a meme: Death of buy-to-let: landlords wake up to Osborne's 150pc tax

[WARNING: the above article may contain some traces of undisclosed vested interest propaganda]

What is also becoming clear is that worst hit will be those modest, middle-class savers who have prudently chosen to invest in buy‑to‑let, often alongside pensions and Isas, as a means to supplement their income.

The mechanism of Mr Osborne’s tax attack is the removal of landlords’ ability to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax.

So very wealthy landlords who do not need mortgages are untouched.

Nice the rich get away with paying no tax and everyone else gets screwed over. The Tories looking after there own interests and no doubt many rubbing their hands at picking up a bargain or too to avoid doing anything productive?

However BTL should never have been allowed to take a hold on the British economy, it's unproductive but seen as 100% risk free.... if you ignore the risk of the rules changing.