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thefruits

Btl - Why The Hatred ?

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Its been interesting seeing how excitable many on here have been about the budget changes to the tax situation for BTL. Question is surely though if it will actually change much other than inflate rents for tenants to ensure the landlords are not out of pocket. Is this really what those who have gone STR etc wanted ?

In addition, with falling stock markets, negative savings returns and the threat of cash being stolen from central governments if its left in banks, i'm really surprised anyone should be surprised that BTL remains so attractive. If anything, I would have thought its attraction is only set to get more so.

Reading Robert Kiyosaki he puts a strong case for investing in areas that work for you, so you don't need to work yourself. A BTL portfolio is surely a perfect vehicle for anyone who wishes to invest their savings to generate some sort of certainty and security for their old age. In fact, it strikes me that its really the act of a responsible person to look after themselves and their family so they don't become a burden in old age on the social security net.

My belief is that right now those who maybe over leveraged and who lack the cashflow buffer to absorb the tax changes might be forced to bail and deliver stock into the free housing market for purchase. I also feel though, this could be a real catalyst for many BTL investors to become even more professional, possibly moving houses into limited company structures, and this could mean they have to take a longer term and hopefully more sustainable approach to delivering quality rentals for people to enjoy. Hence it might become more difficult for BTL investors to flip properties so easily. No harm in that I say.

So, in summary, might BTL actually be a boon to those who want the flexibility, without the responsibility that home ownership entails. Might landlords having an interest in securing good rental returns by providing quality accommodation actually benefit those on this site who have STR'd ? Hence, is the hatred really justified ?

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Reading Robert Kiyosaki he puts a strong case for investing in areas that work for you, so you don't need to work yourself. A BTL portfolio is surely a perfect vehicle for anyone who wishes to invest their savings to generate some sort of certainty and security for their old age. In fact, it strikes me that its really the act of a responsible person to look after themselves and their family so they don't become a burden in old age on the social security net.

BTL-ers bidding on houses puts prices up. What about the security and certainty in old age for your tenants?

Considering how many BTL-ers rent to people on housing benefit, they are a burden on the social security net.

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There is no hatred for the poor pathetic leeches who have bought in to the government backed ponzi, only pity.

There is much anger against said government and their policies that allow BTL.

BTL is not a good thing for society in any way shape of form and any government polices that encourage or support it should be ended ASAP.

Also, I personally *****ing hate 2nd hand house salesmen, they are mostly ****s, but that's just me.

Edited by TheCountOfNowhere

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Why should BTL be ended asap ? As JoeDavola recognised, those on housing benefit gain from the provision of properties by those who are renting them out (BTL landlords). These people are hardly likely to be those who are trying to buy the properties that the BTL investors are buying, otherwise why would they be on housing benefit ?

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Hey it's as live troll!

I know, I was bating him. Of course we hate BTLers they are ****s too.

Sponging off thed back of the young and the state. Boring everyone to death with how well they are doing when in reality they've been bailed out just to save the bankers and now the banks are stronger they are going to get right royally s**t on.

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Why should BTL be ended asap ?

That's not what I said. I said the government support of BTL shuld end. If someonbe wants to go and buy a house and let it out go ahead, I have no problem with that. If they expect me to fund their "property empire" through over taxatioin, FLS/HTB/Housing benefit/Inflation/QE then I am f**king p*ssed off in the extreme. In fact I am probably more angry than Venger and that is saying something.

Now, please, ***k off.

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Why should BTL be ended asap ? As JoeDavola recognised, those on housing benefit gain from the provision of properties by those who are renting them out (BTL landlords). These people are hardly likely to be those who are trying to buy the properties that the BTL investors are buying, otherwise why would they be on housing benefit ?

it's these hearsay, opinion-as-fact, waffley generalisations that annoy me. The lack of logic or context to your broad statements is so obvious it's untrue. And your every second word is self-promoting.

The fact that people with such unsubtle uninsightful views, combined with the confidence of ignorance and some enormous effective government bailouts and biased markets, have become outrageously rich without a care for the risks to themselves or the wider society, and then come along and lecture me about their morailty - this fact alone winds me up about them. I don't oppose landlords per se, there's clearly always going to be a need for them.

But your analysis-free analysis simply does my nut in.

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So, in summary, might BTL actually be a boon to those who want the flexibility, without the responsibility that home ownership entails. Might landlords having an interest in securing good rental returns by providing quality accommodation actually benefit those on this site who have STR'd ? Hence, is the hatred really justified ?

Your argument is flimsy - it goes like this: "I think BTL benefits the BTL landlord, therefore why the hatred?"

It doesn't even consider moral hazard and other people that BTL impacts upon.

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I sense your vitriol but you miss my key argument. If you have savings, you wish to invest, then where else offers the returns and security that BTL does ?

Also, can you argue that by and large, the vast majority of new builds that have been developed to cater for BTL purposes, haven't immeasurably improved the overall quality of the fabric of the housing stock. The regeneration of great parts of many towns and cities across the UK is due to the attraction of BTL as an investment vehicle. In my opinion, this has benefitted the wider community and not just the BTL landlords who have bought the properties.

Now if your argument is that you want the investment and the gentrification but not the higher house price that is the result, then that's faulty logic. Its taking your cake, eating it and then asking for a refund. There needs to be an incentive for people to invest in property, otherwise why on earth should they bother ?

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I sense your vitriol but you miss my key argument. If you have savings, you wish to invest, then where else offers the returns and security that BTL does ?

the bookmakers?

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Very good.

I notice the standard response to anyone challenging the quo... accusations of being a troll etc.

Well for the record, i'm an OO, with no BTL investment at all. I'm a long time member of HPC (nearly 10 years) and i'm simply interested in all sides to an argument.

Why on earth such views are seen as being vilified so much is an amusing stance.

Its like the government trying to ban shorting of stock markets. Insane

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Its been interesting seeing how excitable many on here have been about the budget changes to the tax situation for BTL. Question is surely though if it will actually change much other than inflate rents for tenants to ensure the landlords are not out of pocket. Is this really what those who have gone STR etc wanted ?

In addition, with falling stock markets, negative savings returns and the threat of cash being stolen from central governments if its left in banks, i'm really surprised anyone should be surprised that BTL remains so attractive. If anything, I would have thought its attraction is only set to get more so.

Reading Robert Kiyosaki he puts a strong case for investing in areas that work for you, so you don't need to work yourself. A BTL portfolio is surely a perfect vehicle for anyone who wishes to invest their savings to generate some sort of certainty and security for their old age. In fact, it strikes me that its really the act of a responsible person to look after themselves and their family so they don't become a burden in old age on the social security net.

My belief is that right now those who maybe over leveraged and who lack the cashflow buffer to absorb the tax changes might be forced to bail and deliver stock into the free housing market for purchase. I also feel though, this could be a real catalyst for many BTL investors to become even more professional, possibly moving houses into limited company structures, and this could mean they have to take a longer term and hopefully more sustainable approach to delivering quality rentals for people to enjoy. Hence it might become more difficult for BTL investors to flip properties so easily. No harm in that I say.

So, in summary, might BTL actually be a boon to those who want the flexibility, without the responsibility that home ownership entails. Might landlords having an interest in securing good rental returns by providing quality accommodation actually benefit those on this site who have STR'd ? Hence, is the hatred really justified ?

well yes, it is justified.

the country as a whole, if it is to prosper, needs as large a percentile as possible to have a stake(ie ownership) of part of the country's fabric.

we have seen how communism sucks the life out of countries, because there is no incentive to work(and therefore acquire things by bettering onesself)

we have also seen how corporatism also sucks the life out of countries, because in the big game of monopoly,only those who have enough firepower to buy off the legal machinery of the country will hoover up everything,and try to pull up the drawbridge after themselves to thwart legitimate competition...when in actual fact the bit of competition and the kick up the pants is what is required to make companies(and the country) evolve and improve.

handing tax breaks,with taxpayers money, to entities that are not engaging in fair play "queensbury rules" commerce, is a very bad policy.

or, lets put this in really basic "pirate" terms.

captain bird's eye sails upon the high seas, looting and plundering.

he does not give his crew a fair share of the booty....result=mutiny.

Edited by oracle

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I have had some pretty nasty experiences in the PRS but during some of it I was severely mentally ill which just compounded things I guess but the lack of security of tenure, lack of available accommodation (dare I say discrimination?) and difficulties of living in shared housing definitely made the situation worse.

The mess that the PRS is in has a host of consequences to society. It pisses me off that any hint of regulation that might help to remedy some of the problems are so vehemently opposed by landlords (for eg- litigation against local authority HMO licencing schemes).

The sector is in desparate need of regulation and reform. In my opinion being a landlord should be a full time job and require a level of professionalism, not something that the average Joe can take up almost on a whim just because they happen to own a spare property or two and want to supplement their future pension income. That inevitably leads to lower standards as there's no requirement to understand the law.

The majority of landlords I've known have full time jobs too and see the work required as an annoyance to the enjoyment of their 'spare time'... All they seem to care about is the money.

There is no need to have a situation like this anyway. Look at the PRS in Germany, Denmark, Norway, Holland, Sweden. In the case of Holland I know that a situation like ours wouldn't work over other there because of of stronger tenant rights. Funny that.

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Why should BTL be ended asap ? As JoeDavola recognised, those on housing benefit gain from the provision of properties by those who are renting them out (BTL landlords). These people are hardly likely to be those who are trying to buy the properties that the BTL investors are buying, otherwise why would they be on housing benefit ?

As people have indicated, that's not the nature of the beast. People will always benefit from there being a PRS, it's not a defence of the status quo.

Basically you make it sound this situation exists in a vacuum, that all this unneccasary speculation doesn't have negative consequences for others.

As for housing benefit, the majority of people on it are in work and could get a mortgage in many cases but they've got no chance competing against buy to let besides the fact that its helped contribute to house prices being so high in the first place.

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I have had some pretty nasty experiences in the PRS but during some of it I was severely mentally ill which just compounded things I guess but the lack of security of tenure, lack of available accommodation (dare I say discrimination?) and difficulties of living in shared housing definitely made the situation worse.

The mess that the PRS is in has a host of consequences to society. It pisses me off that any hint of regulation that might help to remedy some of the problems are so vehemently opposed by landlords (for eg- litigation against local authority HMO licencing schemes).

The sector is in desparate need of regulation and reform. In my opinion being a landlord should be a full time job and require a level of professionalism, not something that the average Joe can take up almost on a whim just because they happen to own a spare property or two and want to supplement their future pension income. That inevitably leads to lower standards as there's no requirement to understand the law.

The majority of landlords I've known have full time jobs too and see the work required as an annoyance to the enjoyment of their 'spare time'... All they seem to care about is the money.

There is no need to have a situation like this anyway. Look at the PRS in Germany, Denmark, Norway, Holland, Sweden. In the case of Holland I know that a situation like ours wouldn't work over other there because of of stronger tenant rights. Funny that.

I agree. I am a full-time landlord and take my responsibilities seriously. I manage my properties personally as I believe letting agents are generally a bad deal for tenants and landlords.

There does need to be clearer legislation and more professionalism. I also agree that there needs to be greater protection for tenants but the rules also have to be easier for landlords to enforce.

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I agree. I am a full-time landlord and take my responsibilities seriously. I manage my properties personally as I believe letting agents are generally a bad deal for tenants and landlords.

There does need to be clearer legislation and more professionalism. I also agree that there needs to be greater protection for tenants but the rules also have to be easier for landlords to enforce.

Cards on the table, I have grave reservations about leveraged landlordism. However, this forum will be much the poorer if blowhards like me banging on about things that are ultimately ideological commitments drive away people who are positioned differently and believe different things, so I will be civil and I will not make an attack on you for holding ideological commitments that are different to mine.

That said,

  1. Do you see a difference between a landlord who owns outright and a landlord who is financed 75% LTV on an interest-only basis?
  2. What are the details of how your property investment is financed?
  3. Do you believe that leveraged landlords are playing any role in setting prices?
  4. If you are, as you say you are, an economics graduate, how do you explain the fact that they Basel Committee on Banking Supervision look to be taking a very aggressive stance against rentals operated with what are arguably financing arrangements falling on the wrong side of Misnky's division between hedge and Ponzi financing?

Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified. Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on "income account" on their liabilities, even as they cannot repay the principle out of income cash flows. Such units need to "roll over" their liabilities: (e.g. issue new debt to meet commitments on maturing debt). Governments with floating debts, corporations with floating issues of commercial paper, and banks are typically hedge units. For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes. A unit that Ponzi finances lowers the margin of safety that it offers the holders of its debts. It can be shown that if hedge financing dominates, then the economy may well be an equilibrium seeking and containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation amplifying system. The first theorem of the financial 7 instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system. In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance.

Source

I think a lot of people hate leveraged landlords because they see leveraged landlords operating a vast Ponzi scheme, driving up prices and hoarding property. I accept that others may look at the same facts and economic structures and perceive a different reality, but that's my perspective on why lots of people hate leveraged landlords, which is after all the thread title. No amount of professionalism or regulation will mitigate the perception, right or wrong, that you are farming people and hoarding property that in a more equitable society people would be able to use their wages to buy. Personally, I don't hate leveraged landlords though I do think they are fools.

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I often read this forum as a way of measuring the sentiment towards landlords (a term that I hate by the way). I can understand the frustration of people against landlords and the dysfunctional housing market. Many property owners are fortunate only by the date of their birth and the timing when they first bought a house.

The hatred towards landlords is truly palpable on this forum and TBH it's probably not worth the stress of posting but I feel that sometimes a little balance is needed.

I have indeed used some finance through the use of BTL mortgages to finance my position but have always adopted a risk averse attitude towards this and endeavoured to reduce my debts as soon as possible. I am not over-leveraged for a number of reasons -

I don't use letting agents which saves 10 to 12% fees.

I have taught myself a number of new skills in plumbing and general maintenance. I can fit kitchens, bathrooms, plastering , fencing etc. It's a full-time job.

I have bought properties that have needed a lot of repair or needed redeveloping.

I bought and sold at the right times.

I keep a careful eye on finances.

Timing is the of course the most important factor but no-one has a crystal ball.

The difference between a landlord who owns outright and one who is highly indebted might be measured in hours of sleep over the next few months or years. I think we have all come across those highly indebted a88holes who do have a superiority complex because a bank has lent them money to buy a rental property or properties. This is IMO doubly irresponsible on behalf of the banks and the landlord. The market has become far too bloated and is an accident waiting to happen.

I believe that nearly a third of mortgage approvals are now in the BTL market but 40% of all house purchases this year were made in cash, so an exact estimate of its impact is difficult. It must have an impact and I think that it is right for the B of E, chancellor and other institutions to be worried about this.

The government has been instrumental in fueling market demand without addressing supply issues.

I haven't purchased a house for a number of years. Is the system unstable - yes. Are highly leveraged landlords fools - perhaps depending on when they decide to exit the market. With respect to your last point, of course being highly leveraged in the present market is very dangerous to everyone involved and should rightly be curbed. Is it a Ponzi scheme - looks that way now.

Perhaps the biggest question is what the feck will the government do about the housing shortage?

Finally I would add that renting rather than buying is appropriate for many people.

PS Minsky seems popular now since the financial crises and the movement towards more Keynsian ideologies. Unfortunately, a trait of economics is that it is fantastic as a tool for explaining why things have happened but pretty crap as a predictor.

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I agree. I am a full-time landlord and take my responsibilities seriously. I manage my properties personally as I believe letting agents are generally a bad deal for tenants and landlords.

There does need to be clearer legislation and more professionalism. I also agree that there needs to be greater protection for tenants but the rules also have to be easier for landlords to enforce.

For instance?

If you are suggesting it should be easy to gain possession against a tenant, these were always known risks (and costs).

And it was a always a risk on the BTLer side that costs would rise and tenants may receive improved rights. That legislation would change so BTLers can't serve S21 early into tenancy (or at outset). As I understand things, it's changing so a landlord can't serve S21 until 4 months into a tenancy. These are simply small measures to improve tenant rights, from my perspective.

1. The Home office have announced that Right to Rent checks will now be the responsibility of all Private Landlords from the 1st February 2016. This is part of a wider government scheme to make it harder for illegal immigrants to live in the UK. Landlords not making the checks could be fined up to £3,000 per tenant if found guilty of renting out a property to someone who is illegally living in the UK.

2. More authorities are bringing in licensing for landlords (+ fee). Even requiring them to attend courses.

3. Court fees have risen, and risen again, if landlord/BTLer requires court action.

http://blog.painsmith.co.uk/2015/03/06/possession-claims-court-fees-rise-again/

4. New legislation comes into effect - 1st October 2015.

A valid EPC

A current landlord’s Gas Safety Certificate

The Government How to Rent Guide

Timing: A Section 21 Notice cannot validly be served in the first four months of a tenancy

Expiry: If proceedings are not issued within 6 months of the service of a Section 21 Notice, then the notice will be invalid.

Although see up-to-date official sources for it is my understanding rules got a further tweak/tightening the very following day. re item 4.

Some of the landlord/BTLer reactions to all of this. Overly hysterical from my point of view.

http://www.propertytribes.com/new-legislation-comes-into-effect-today-smoke-alarms-t-127622059.html

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I haven't purchased a house for a number of years. Is the system unstable - yes. Are highly leveraged landlords fools - perhaps depending on when they decide to exit the market. With respect to your last point, of course being highly leveraged in the present market is very dangerous to everyone involved and should rightly be curbed. Is it a Ponzi scheme - looks that way now.

Perhaps the biggest question is what the feck will the government do about the housing shortage?.

Well how many houses/properties do you own, in this shortage of property crisis?

The prices are the issue for me, and it's a housing financialisation crisis. Something too many BTLers want to overlook.

In 1980, each house had to be shared by 2.7 people.

In 1990, it was around 2.5 people per house.

It is currently around 2.4.

From 2000-2013, 2.3M houses were built in the UK.

We have, therefore, built enough houses for around 5.5M people.

Over the same period, population increased by 5.2M people.

There is no shortage of housing. Housing has never been more plentiful.

http://www.housepricecrash.co.uk/forum/index.php?/topic/93303-housing-shortage-real-or-imaginary/

http://www.thetimes....f4bb875d204d1d6

Departmental figures show that the vast majority of new housing in the UK since the turn of the millennium has been bought by landlords. Between 2000 and 2012, the private rented sector has accounted for some 2.5 million of the extra homes. Only 400,000 have been bought by occupiers.

'Of 2.9m new homes built since 2000, 2.5m (i.e.86%) bought by landlords, 400k by owner-occupiers as home ownership plunges to lowest since 1988.'

Lapped up supply at high prices through the years, soaked it up. Now conditions may be in place for many on the BTL side to begin selling it back into a tighter would-be owner occupier market. Finance constrainted tenants who have paid rent for years (to landlords above), limited savings, MMR constrained, other BTLers having more financial barriers from acquiring more, HTB ISA taking demand out of market for a few years. Values are set at the margin.

Real estate runs on money, not on population growth. And you're an economist. One property sold by a BTLer to a family OO (hopefully at ever more distressed lower prices), is an equalling market balance from my POV.

Sorry but there are separate markets.

If landlords leave the rental market the supply of rental properties falls (especially relevant given the cut in funding to local authorities and housing associations) and if demand stays the same, the price goes up. Population predictions indicate that demand is increasing. The main factor that might influence demand here are benefits.

If landlords leave the rental market and sell their properties then the market price for buying a property may fall as a result of the increase in supply.

Of course the two markets are related but I believe that the rental sector now has a significant number of people who are either not interested in buying or will not be able to buy their won home.

Finally, the land market is also very different - have a look at how much land is being banked by the major developers.

I am both a developer and landlord. Without the ability to be a landlord, I would not be able to develop property due to the UK taxation system.

If you do not like the thought of renting then the alternative is to buy. Finance in the BTL market is much more expensive than for the first time buyer. Landlords have not engineered the housing shortage.

Not such an alternative for many of us vs very high market-values in many areas. And not fully accurate at all, when BTLers have been able to release equity from previous HPI gains on property to put down large sums + the huge tax advantages they have had. Although now so many BTLers are astonished about C24 passed into law. Government/HMRC within its rights to disallow what is an allowable expense, and taking mortgage financing out of it, and lowering the tax relief, in stages to 2020. - "If something cannot go on forever, it will stop." Herb Stein

I have a degree in Economics and then went on to teach it for 15 years before the recession.

.

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The difference between a landlord who owns outright and one who is highly indebted might be measured in hours of sleep over the next few months or years. I think we have all come across those highly indebted a88holes who do have a superiority complex because a bank has lent them money to buy a rental property or properties. This is IMO doubly irresponsible on behalf of the banks and the landlord. The market has become far too bloated and is an accident waiting to happen.

BTL - it's an unregulated market.

Market participants on the BTL side make/made their own market decisions. BTLers paying £300K (and more) for semis in my area, having been making their own decisions. Time after time followed house for sale on RM, to see it sell, look up sold price, then see it reappear as a rental.

In my view, the banks have chunk of money down as deposit, and in many instances, equity to go after in other BTLs the landlord owns, and the landlord's own family home. HPC ahead + fresh lending. The banks will be fine. What is irresponsible about, in the tail end of a big bubble, allowing those who already own one house, to put themselves on the line to absorb a HPC? Banks have shrunk their balance sheets by £Trillions into the reflation of the market, as eager Generation Rent people farmers bought up more and more family homes at higher prices.

And, these BTLers make their own market decisions. They often have completely different market views to HPC minded renter-saver participants (or HPC minded owners who haven't overstretched themselves). Even on HPC we have explained some of the issues to BTLers, and watched them buy another property to add to their portfolios at £400,000 - happy with their tax advantages and glowing they've put down 25%, and 'makes me safe'.

It differs from absolute belief in HPI+++ future, to supply and demand, to 'not enough houses', to 'population growth - population growth population growth', to 'core-voters' so 'gov won't let HPC happen'... on and on it goes. I read quite a few into your posts.

We're in a market. We even have BTLers in recent times buying in London, adding more houses to their position at hundreds of thousands of pounds (pre budget), who were/are entirely convinced their 25% deposit makes them the strong force in the market.

Some of us here are not here to "protect the HPI" of other market participants - and definitely not BTLers. Not at these bubble prices (from my perspective). I'm not protecting positions of those who have more than one home.

They can meet the same type of hardships and challenges I've had to meet throughout the bubble years, including challenge of meeting the rent, or renting somewhere lesser in order to save money. Some shocks ahead imo for those who have had high-life BTL good living.

You can have a breakdown for BTLers who will be up against it in the future; but I will be celebrating the return of houses to FTBs -OOs at much much lower prices. Or lower rents.

Irresponsibility for buying up homes via BTL.. the banks? At these prices, in this housing financialisation crisis? Or even from your point of view, supply crisis? The BTLers stand on their own to the full brunts of the market ahead. It's not just renter-savers carry all the hardships in life.

You know you're coming back and from my point of view, regurgitating clunky wishful thinking BTL flawed-logic that we've dealt with so many times over. Beliefs which have fuelled the bubble.

[...]Also you're totally missing the point. The thread title is falling rents. fru-gal's anecdotal is consistent with falling rents, because the rental achieved recently is lower than the rental achieved earlier.

However, we can add to the anecdotal because one way to square the circle is to propose that the BTLer took all that time because they couldn't at first accept that they were going to have to accept a lower rent in order for the market to clear. Basically, the market stayed irrational* longer than they could stay solvent, so eventually they folded and let at a lower price. Now that suggests that some BTLers are simply unable to believe that rents fall, and you are giving the appearance of being additional anecdotal evidence to that end.

It also suggests two tricky questions for BTLers. How long do you keep a property void in order to wait for a pinch point in the mismatch between supply and demand to allow you to lock in the rent you want, and how many times does 'bad luck' on this score result in BTLers wiping out all their profits? On thin margins even a single month void is bad news. The take home message is that... a wise BTLer with any sense wouldn't hold the property void for too long. If that meant pulling the rent down sharply then plenty of BTLers will do just that, with the earlier entrants able to pull further down without turning cash flows negative. In the teeth of the next recession with all these piss weak late entrant BTLers desperate to avoid voids, rents could fall quite sharply. Sweet. Again, combine that with the end of FLS, BCBS RWA revisions and housing element of UC being trimmed and some late entrant BTLers are going to find that a 5% gross yield was just a ticket to an enormous capital loss on an investment with a negative carry. Double sweet.

* Irrational according to the BTLer, natch.

BTLer: Piss weak? With their 25%+ deposits - yeah right.

[...]You've set down at least £100k invested in a property somewhere in London, which you paid £400k for, and which you think will let at £2,700 pcm. Firstly, I just don't believe your numbers. As there are obviously plenty of BTLers willing to pay prices which correspond to 5% 'gross yields', somebody would have outbid you, unless of course you missed something, e.g. the people who signed up for £2700 pcm propose to pay for a month and then string you along as the arrears mount up for as long as they are able, or possibly you are just exaggerating.

What makes your hand weak is that if buy-to-let mortgage rates move up sharply and a recession hits and you find that you can't secure the rents that you'd anticipated, the net cash flows on your property can turn negative. Now your work as a contractor generates income, but sometimes bad things happen. The HR director, you might find your contracting services are no longer required. The recession makes it difficult for you to get work and your buy-to-let investments, as well as sundry expenses like tissues and hand lotion, are bleeding your savings. A point would come where you might want to sell the BTLs so you could get out ahead. However, you'd find that a house price crash meant that if you sold the BTL you'd make a capital loss, (that is of course what the deposit is really for, to ensure that you and not the bank absorb the capital loss).

Hence you'd be looking at a situation where you thought the market was irrational (your BTL, in your estimation, was worth £400k, although nobody would pay you £400k for it) but the rate at which the negative cash flows and your own living expenses were bleeding out your liquid assets meant that you couldn't hold out forever because eventually you'd run out of savings to pay the mortgages on the BTLs; you would no longer be able to meet your obligations as they fell due, i.e. you would be insolvent, but sometimes the market can stay irrational longer than you can stay solvent. That is the heart of the aphorism; it's about holding on to a leveraged investment position when the market turns against you.

Late entrants are piss weak because in reality the gross yields people are signing up for are too thin to absorb much movement on rents or BTL mortgage rates, much less disadvantageous movements of both at the same time.

You've got it all back to front.

The bank demands the big deposit because they know that you are weak. Arguing that you are not weak because you've handed over a big deposit is an interesting way to look at things, but in my opinion, completely wrong headed.

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Housing financialisation (bubble), The White Horse.

IMO the BuyToLet investors, not happy with 1 home, but seeking more to outbid and rent out to younger families have fallen into the trap.

The Gov, and the Banks, imo, have allowed greed to feast upon itself in the housing market. BTLers have no special protection. They might have to become the renters in HMOs in the future, or go up North (Middlesbrough / Blackpool) where they tell FTBs they can get 'value housing'. I'm tracking some BTLers trying to sell their own homes at £700K (and who have had a life of high spending luxury), knowing they are highly leveraged with 50+ BTLs, and technically insolvent over a few years with the tax changes.


But surely all these professional BTL magnates have squirreled away £100K's of 'profit' from their brilliant businesses and can just pay HMRC out of petty cash?

I can't see how they can unwind and stay solvent otherwise - can they really remortgage their other properties to put equity back into the one they want to offload next, or alternatively declare each of them as their primary residence without the banks/HMRC smelling a rat and just margin-calling them or auditing them?


"Pull the other one, it has bells on" as they say.

BTL is a capital gain play and you generate cash to pay the lease on the Range Rover by re-mortgaging, hence you extract the gains as you go.

They aren't going to unwind and stay solvent - that's the point. They've just been notified that they need to get the f**k out or have their faces ripped off. In point of fact many will get their faces ripped off as they try to get out.

Still, at least they understand property, that should be some comfort.

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As previously argued, if rents soften and mortgage rates to buy-to-let investors ramp up (either to reflect changes in the risk now the sector is in the government's cross-hairs, or because of Basel 3 implementation, or both, :ph34r: ) the net cash flows on the portfolio will turn negative in a heart beat.

There's no getting out from under it - you and the rest of the BTL brigade have walked into a trap, and now you're going to get your faces ripped off, (financially, of course).

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