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T'graph Article: 50% Btl Deposits, Higher Rental Cover, Etc Etc

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This article fits on several threads - I couldn't decide so have started a new one.

It outlines forthcoming (and already in place) woes of BTL LLs trying to get mortgages.

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/12027732/Buy-to-let-investors-will-need-50pc-deposit-or-no-mortgage.html

A worked example included.

With his current fixed-rate deal, the tax changes alone will cause his annual net profit after tax to will fall from £362 today to £296 in 2020. If he is forced onto BM Solutions’ standard variable rate, and his rental income remains the same, his profits will be completely wiped out and he will be making a loss of £20 a year, before any property maintenance costs are factored in.

Mark Harris, of mortgage broker SPF Private Clients, said the changes are bad news for tenants, as landlords will inevitably push up rents to cover their higher costs.

Someone else who doesn't understand markets.

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Have they got their sums right?

Surely its a lot worse than they claim.

As I undertsand the change, it removes the ability to offset rental income against mortgage paid.

In a year or so, a 40% tax payer will get the rental income taxed at his highest rate i.e. 40%.

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Yeahh.

Perhaps the lenders have looked at market, the changes coming in, and look to protect their positions on new BTL lending. No one dragged the BTLers into unregulated BTL mortgages during the last few years.

Mark Harris, of mortgage broker SPF Private Clients, predicted that "the market is moving towards a situation where only those with a 50pc deposit are likely to qualify for a loan". Barclays has been among the first lenders to move, dramatically raising the application criteria for new borrowers earlier this week.

What a gathering storm, with stamp duty April 2016 BTLer hike, 2017 can't offset BTL mortgages as an expense.. HTB ISAs taking a slug of would-be FTBs out the market.

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 dollar of cash into a loan worth just eighty cents, much less sixty cents. When the value of collateral falls, and the public's demand to hold cash rises, even easy money at the Fed may not stop deflation. Cash could be hard to come by, and idle credit lines may be withdrawn. If your business has seasonal needs, anticipatory borrowing may make sense.

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Any BTL'er that reads this and doesn't instantly get on the phone to their estate agent (best ring them from the khazi because that is where I would be) is a fool. They have been warned in very clear terms.

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When the going gets tough ...

Oh dear ! BTL is being attacked from every front front. The taxman, HTB(indirectly) and now the lenders. Someone mentioned 'cannon fodder' earlier which is where it is possibly heading to.

Spare a thought or two for them, not, each anti BTL action brings smile to FTBs. A good price drop of 50% should be the last nail in the coffin for greedy BTLers.

I am so pleased with the recent developments.

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A reminder of what the mortgage tax relief changes mean in the link below.

It also gives an example and in the example the profit after tax reduces from £8,250 a year to £2,000. A hefty reduction (but introduced over a period of time).


https://

www.repolist.co.uk/finance/btl-tax-changes-what-do-they-mean-for-you

Then there's the wear and tear change and the stamp duty increase.

Edited by billybong

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A reminder of what the mortgage tax relief changes mean in the link below.

It also gives an example and in the example the profit after tax reduces from £8,250 a year to £2,000. A hefty reduction.

Then there's the wear and tear change and the stamp duty increase.

Oooh that's nice. Makes me feela bit less bitter at all the interest I've lost on my savings due to interest rates being crashed to save these suckers!

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And you must realise that this is the start of taxing and restrictions, not the end.

Exactly.

LTVs down, rent cover up, stamp duty hikes, tax relief being pared back a bit. All good stuff. But potentially more in the pipeline if they don't get the message.

Some BTLers seem to think that these measures strengthen their hands- rent rises, got tenants just where they want them etc. Yeah, right.

Edited by Cry and Regret

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as landlords will inevitably push up rents to cover their higher costs.

As if they're not already pushed up as far as they'll go.

It's delusional. Try to push them up any further and the number of defaulters etc will increase and they'll end up being no better off.

Edited by billybong

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Rent rises ?

My friend in London, with a 1 bed rental in a nice part of London has just received a "friendly" email from his amateur LL, saying that he might be raising the rent in the annual review in Feb 2016. Friend has replied that if a rent increase is applied, he'll relinquish the flat. He'll get a flatshare for a while until he finds another 1 bed that meets his requirements and budget. The LL will have a void of X months to contend with, and all because of his "need" for a possible 3% increase to cover the changes.

Laughable :D

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Exactly.

LTVs down, rent cover up, stamp duty hikes, tax relief being pared back a bit. All good stuff. But potentially more in the pipeline if they don't get the message.

You have missed out HMRC chasing up undeclared rental income!

We know HMRC are gathering intelligence from Letting Agents.

We know there are 100,000s of rental properties not declared via tax returns. LLs have been offsetting mortgage interest against rental income, that is the business model. But this can only be done via a tax return, and a significant number haven't bothered.

I understand HMRC can now levy a 60% fine on unpaid taxes.

And we know the rules have now changed so that tax payers must pay in full before appeals can be made.

In other words, if HMRC find out a property has been let without a tax declaration, they are within their powers to charge you back taxes going back upto 20 years, add a 60% fine, and force a LL to pay it before the LL can appeal against it and even begin to claim the mortgage interest relief.

As they say, you do the math!

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You have missed out HMRC chasing up undeclared rental income!

We know HMRC are gathering intelligence from Letting Agents.

We know there are 100,000s of rental properties not declared via tax returns. LLs have been offsetting mortgage interest against rental income, that is the business model. But this can only be done via a tax return, and a significant number haven't bothered.

I understand HMRC can now levy a 60% fine on unpaid taxes.

And we know the rules have now changed so that tax payers must pay in full before appeals can be made.

In other words, if HMRC find out a property has been let without a tax declaration, they are within their powers to charge you back taxes going back upto 20 years, add a 60% fine, and force a LL to pay it before the LL can appeal against it and even begin to claim the mortgage interest relief.

As they say, you do the math!

As mentioned before on other threads - this is what they should be doing. Very easy to organise and its difficult to see how anyone caught could argue the point.

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Have they got their sums right?

Surely its a lot worse than they claim.

As I undertsand the change, it removes the ability to offset rental income against mortgage paid.

In a year or so, a 40% tax payer will get the rental income taxed at his highest rate i.e. 40%.

if women's beauty treatments work, why's there so many pig ugly women walking the streets?

never believe the adverts.

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You have missed out HMRC chasing up undeclared rental income!

We know HMRC are gathering intelligence from Letting Agents.

We know there are 100,000s of rental properties not declared via tax returns. LLs have been offsetting mortgage interest against rental income, that is the business model. But this can only be done via a tax return, and a significant number haven't bothered.

I understand HMRC can now levy a 60% fine on unpaid taxes.

And we know the rules have now changed so that tax payers must pay in full before appeals can be made.

In other words, if HMRC find out a property has been let without a tax declaration, they are within their powers to charge you back taxes going back upto 20 years, add a 60% fine, and force a LL to pay it before the LL can appeal against it and even begin to claim the mortgage interest relief.

As they say, you do the math!

Landlords will go back to the old way, ad in local paper/supermarket notice board, cash in hand no receipt, agreement ona handshake kind of thing. They might have to drop their rent a bit ,but they could scoop up tenants from the 118 types who have to sell up, or evict to make a point. Biggest loser would be 118 types and lettings agents?

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Rent rises ?

My friend in London, with a 1 bed rental in a nice part of London has just received a "friendly" email from his amateur LL, saying that he might be raising the rent in the annual review in Feb 2016. Friend has replied that if a rent increase is applied, he'll relinquish the flat. He'll get a flatshare for a while until he finds another 1 bed that meets his requirements and budget. The LL will have a void of X months to contend with, and all because of his "need" for a possible 3% increase to cover the changes.

Laughable :D

In London, or any city, the landlord will argue that he will have a replacement tenant in days? Hamish is arguing over on MSE that this is all a cunning ploy by HMRC to up their tax take...with tenants footing the bill.

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I read a thing on a tax forum yesterday and implied if a chap transferred 1% of a BTL property to his wife, she could then receive 100% of the rental income to lower their tax bill. HMRC see it as within the rules.

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Someone else who doesn't understand markets.

Landlords will not be extracting blood from a stone.......they require and expect access to easy money.... have they not worked out that their tenants also require access to easy money by the way of wages......and when they do sure as eggs is eggs they will not be paying high rent to live in their crap living conditions they will be expecting like them access to cheap and easy money.......

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With the Barclays rise in rental cover from 125% to 135% the LL needs an 8% uplift in rent since his last mortgage application (assuming no capital repayment) or he can't remortgage and will be stuck on the variable rate - which will possibly double his costs.

I can see a lot of LL's looking for 8% uplifts. Mine can have that if he pays my council tax / water rates which would be an effective rent reduction for me. Or he can get stuffed. Happy days.

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Landlords will go back to the old way, ad in local paper/supermarket notice board, cash in hand no receipt, agreement ona handshake kind of thing. They might have to drop their rent a bit ,but they could scoop up tenants from the 118 types who have to sell up, or evict to make a point. Biggest loser would be 118 types and lettings agents?

Who cares what Landlords will do in the future? This is about undeclared rental income from the PAST with an audit trail visible from space.

Here's an example.

Typical "accidental landlord", with a London flat, lived in it then let it out a couple of years ago. Set things up so rent just covers the costs, thinks there is no tax to pay, and files no tax return. Happy Dayz!

HMRC does some digging and finds the flat let through a LA for £1500per month last year and with no tax return. HMRC looks at Land Registry and sees it was bought 10 years ago. That's potentially £180,000 of undeclared income.

HMRC sends out a bill for £100,000. That's 40% tax plus a 50%ish fine.

Accidental Landlord says, "but I need to claim my costs!!".

HMRC says "ah, but you should have done that through a tax return, pay us the bill, then you can appeal."

Never underestimate the power of the taxman to seriously f**k up your day!

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With the Barclays rise in rental cover from 125% to 135% the LL needs an 8% uplift in rent since his last mortgage application (assuming no capital repayment) or he can't remortgage and will be stuck on the variable rate - which will possibly double his costs.

I can see a lot of LL's looking for 8% uplifts. Mine can have that if he pays my council tax / water rates which would be an effective rent reduction for me. Or he can get stuffed. Happy days.

That puts him back to square one, so he might go the "Next Tenant!" route. Be ready to move is my advice. In reality many landlords who try to raise rents because of things like this are going to have rent disputes and legal action that takes months to get tenants out. Landlords who paid down capital or bought long ago will do OK.

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That puts him back to square one, so he might go the "Next Tenant!" route. Be ready to move is my advice. In reality many landlords who try to raise rents because of things like this are going to have rent disputes and legal action that takes months to get tenants out. Landlords who paid down capital or bought long ago will do OK.

Actually I was being more hypothetical. I have a five year lease so unless the LL wants to 'buy me out' I am staying put. Rent was negotiated to be flat for 5 years so no possibility of an increase. However, he isn't highly leveraged so it probably won't bother him too much.

But my point is that an intelligent Landlord (oxymoron alert?) doesn't want to throw out a good tenant and risk a void period. But they do need the increase in rent. I would see this as a good bargaining tool that may appeal to both sides and avoids someone being evicted from somewhere they would rather stay.

Interestingly I did see a property to rent recently that included all manner of things- gardener, council tax, broadband and sky. The rent was higher than others nearby but not to the value of the extras. It didn't occur to me at the time but I wonder if this was done specifically to get a decent rent / mortgage cover %?

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Actually I was being more hypothetical. I have a five year lease so unless the LL wants to 'buy me out' I am staying put. Rent was negotiated to be flat for 5 years so no possibility of an increase. However, he isn't highly leveraged so it probably won't bother him too much.

But my point is that an intelligent Landlord (oxymoron alert?) doesn't want to throw out a good tenant and risk a void period. But they do need the increase in rent. I would see this as a good bargaining tool that may appeal to both sides and avoids someone being evicted from somewhere they would rather stay.

Interestingly I did see a property to rent recently that included all manner of things- gardener, council tax, broadband and sky. The rent was higher than others nearby but not to the value of the extras. It didn't occur to me at the time but I wonder if this was done specifically to get a decent rent / mortgage cover %?

One month void is a reduction in rental income of 8%

Two month - 16%.

That is the danger of chasing an extra 2% on the rent.

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Who cares what Landlords will do in the future? This is about undeclared rental income from the PAST with an audit trail visible from space.

Here's an example.

Typical "accidental landlord", with a London flat, lived in it then let it out a couple of years ago. Set things up so rent just covers the costs, thinks there is no tax to pay, and files no tax return. Happy Dayz!

HMRC does some digging and finds the flat let through a LA for £1500per month last year and with no tax return. HMRC looks at Land Registry and sees it was bought 10 years ago. That's potentially £180,000 of undeclared income.

HMRC sends out a bill for £100,000. That's 40% tax plus a 50%ish fine.

Accidental Landlord says, "but I need to claim my costs!!".

HMRC says "ah, but you should have done that through a tax return, pay us the bill, then you can appeal."

Never underestimate the power of the taxman to seriously f**k up your day!

Ok, fair enough, if they have dealt with a letting agent in the past there will be a paper trail, but some landlords will have had no contact with letting agents and there will be no paper trail concerning actual amounts of rent paid? Are LA`s obliged to give details on people no longer on their books as opposed to just sending HMRC a print out of landlords on their register right now? The distasteful question is why the big supposed clamp down now, is it just politically convenient while in the past it was politically convenient to pump out as many BTL loans as possible no questions asked? Another fly in the ointment is how reliable are the LA`s records, have they been dodging tax, and do they have ways to make payments to their bank accounts hard to pin down to specific properties?

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