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Landlords Bruised By U.k. Tax Rise May Face New Loan Limits

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Bloomberg:

http://www.bloomberg.com/news/articles/2015-11-30/landlords-bruised-by-u-k-tax-rise-could-face-new-loan-limits

The U.K.’s amateur landlords, already bruised by higher taxes when they buy rentals and lower rates of tax relief, could be facing a new blow.

Chancellor of the Exchequer George Osborne told lawmakers in October that Bank of England will get powers to regulate the so-called buy-to-let market as soon as possible. The central bank may move as soon as Tuesday’s meeting of the Financial Policy Committee to curb lending for rentals, Morgan Stanley analysts including Chris Manners wrote in a Nov. 20 note.

“If they do something, it will probably be along the lines of an equivalent to the LTI cap they put in place for residential mortgages,” said Philip Rush, an economist at Nomura International Plc in London. “The pressure has been removed by some of the other measures” that have been taken.

Governor Mark Carney moved to limit the riskiest loans to homeowners last year by setting loan-to-income limits for some mortgages. Lending to landlords soared afterward, leading Jon Cunliffe, the Bank of England’s deputy governor for financial stability, to warn that investors could amplify an adverse shock to the housing market because they might seek to sell their rentals.

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The stock of U.K. mortgage lending for buy-to-let has increased to 200 billion pounds ($302 billion) from 65 billion pounds in the past decade and is growing by about 9 percent a year, Cunliffe said. The loans represent 16 percent of all mortgages and accounted for 80 percent of net lending over the past year. Borrowers are often required to only pay the interest each month.

Buy-to-let lending’s growth as a proportion of lending and falling mortgage spreads for landlords may prompt the BOE to take action, Morgan Stanley said. The central bank may also opt to tighten underwriting standards, the report said.

Amid fears rental owners were pushing up house prices, Osborne last week hiked the stamp duty tax paid by investors by three percentage points. The mortgage-interest tax break is also being cut to the basic rate starting in April 2017, he said in July.

Buy-to-let was attractive for landlords because they received as much as 45 pence back for every pound of mortgage interest they incur. That helped boost expense claims by U.K. landlords to 11.6 billion pounds ($17.4 billion) in the 2013 to 2014 tax year, according to a Freedom of Information Act request by Bloomberg. That’s almost 520 million pounds more than a year earlier.

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Landlords were attracted by annual returns from rental income and value gains of almost 12 percent in England & Wales in the 12 months through October, according to LSL Property Services Plc. That compares with a total return of almost 6 percent from U.K. government bonds and 1.1 percent from U.K. equities in the same period.

Limiting buy-to-let lending will affect the wider housing market, according to Annabel Schaafsma, a managing director of structured finance at Moody’s Investor Services. Loan-to-value restrictions or debt-to-income ratios for landlords will slow the pace of lending, “softening house price growth in turn,” she said in an e-mail on Monday.

The decision to raise stamp duty for rental purchasers from April was surprising because it will also affect landlords paying cash for the rentals, said Phil Nicklin, a real estate tax partner at Deloitte LLP. “They’re not adding to property lending which is something governments tend to worry about,” he said.

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This change should have happened a long time ago if BTL is to be discouraged and in my mind the only sensible idea of recent times. Extra taxes will also hit those small developers and builders who are adding to the UK housing stock.

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The stock of U.K. mortgage lending for buy-to-let has increased to 200 billion pounds ($302 billion) from 65 billion pounds in the past decade and is growing by about 9 percent a year, Cunliffe said. The loans represent 16 percent of all mortgages and accounted for 80 percent of net lending over the past year. Borrowers are often required to only pay the interest each month.

That's vigilance for you.

It would be apt if the main entrance to the BoE building was in the style of a stable door.

They shouldn't be concerned there are some nice ones available.

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Edited by billybong

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The loans represent 16 percent of all mortgages and accounted for 80 percent of net lending over the past year. Borrowers are often required to only pay the interest each month.

80 percent?!? They were the market. Oh dear. :lol:

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80 percent?!? They were the market. Oh dear. :lol:

Yep. That's my opinion.

I started to notice BTL loans - rather than fully owned rentals - in the early 2000s.

By 2004ish, BTL buyers were taking all the places you'd expect a FTB to buy.

There was a surge 2004-2008, were there was a stupid amount of stock bought on BTL, IO probably too.

Then it stopped 2007-2009

Then it returned but by then the number of transactions are are very low. MMR has killed off what few OOO purchases where I am. The local economy was financial services, so if getting hammered as people have stopped saving, so the local employees have just shutdown.

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Bloomberg:

“If they do something, it will probably be along the lines of an equivalent to the LTI cap they put in place for residential mortgages,” said Philip Rush, an economist at Nomura International Plc in London. “The pressure has been removed by some of the other measures” that have been taken.

I don't think they will do it. They will say all the new BTL tax changes will "disincentivise" BTL enough.

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I don't think they will do it. They will say all the new BTL tax changes will "disincentivise" BTL enough.

I think they'll can IO BTL loans totally. Dead.

They need to prepare banks for the BaselII changes will will aplly to existing lending.

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Wonder if it will affect remortgaging?

Presumably it will, and if they do impose a much more restrictive limit - whatever form it takes - then existing LLs are going to find themselves in a world of pain when they come off their fixed rates or introductory rates and get stuck on the SVR. SVRs for BTL are very high - even now they are in the high 4's. Changes to BTL mortgage criteria could have more effect than all of the other stuff we have seen - and in combination with the other stuff (i.e. tax relief) things could get quite nasty quite quickly IMO.

edit: e.g. Skipton BTL SVR is currently 5.19%, so likely to be a rough doubling of interest payments. If they can't qualify for a new mortgage then your existing provider is going to have absolutely no incentive to help you out - they'll love it in fact, although I'm sure they'll protest any changes.

Edited by mattyboy1973

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~Hit it again.
~You m***********, you made your point. Now let them pull back!
~Thank you, Mr. Cowboy. I'll take that under advisement. Hit it again.

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Jesus almighty, just take a look at that BTL bubble in full swing. If I were young now I would instantly move abroad somewhere more sensible. I am looking at options now. ZIRP is creating all kinds of economic side effects that nobody will ever take responsibility for and the lessons will not be learnt.

Edited by adamLancs

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If those statistics are to be believed then any action will have a huge effect on the lenders.

For that reason they'll watch carefully and talk a good game whilst doing nothing.

Sadly it's the classic case of "too big fail" so will be left till too late.

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It's beyond crazy isn't it.

what they say is, well fix the housing problem.

that they do is, bring in 40% help to banks scheme and extend FLS.

excuse me if I don't believe the utter s###e they tell the sheep

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Tax payers money will be used permanently to keep the ponzi going. As long as money can be freely obtained (FLS, QE, etc.) there will never be a crash. (Regardless of how much I want to see one).

BTL were 80 percent of net lending last year. All that net lending could turn negative in six months.

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BTL were 80 percent of net lending last year. All that net lending could turn negative in six months.

I agree, stamp duty effects should be known pretty quickly too as the lending figs are released monthly. And of course, well have a steady stream of anecdotes from the sector turning up in MSM.

Edited by Cry and Regret

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