Understanding Landlords

[Neverwhere]

4 hours ago, hotairmail said:

This makes the Property118ers seem particularly knowledgable. They know enough to know they are going to shafted and try to fight it.

However, by raising awareness for the 'fight' they could affect the price they get for exit.

Agreed. If they were sensible they would be quietly selling up.

[Neverwhere]

The relatively high percentage of surveyed BTL landlords who are (presumably already, before the tax changes come into effect) higher rate taxpayers - 'that is, singles with incomes over £45,000 or couples with incomes over £100,000' - is interesting, as is the fact that the non-BTL landlords are not necessarily debt free.

 

[Neverwhere]

Although when considering how accurate the information presented by such surveys may be it's worth noting this:

Quote

*This table gives responses to Q11: ‘Which, if any, of the following sources of finance have you ever used to finance the rented properties you currently own?’ The BTL/Non-BTL columns were defined by Q12: whether the respondent has any properties currently backed by a BTL mortgage. The 9% may be landlords who bought with a BTL mortgage but later repaid it. The 89% should logically be 100%; the discrepancy is unexplained.

[Confusion of VIs]

2 hours ago, Neverwhere said:

The relatively high percentage of surveyed BTL landlords who are (presumably already, before the tax changes come into effect) higher rate taxpayers - 'that is, singles with incomes over £45,000 or couples with incomes over £100,000' - is interesting, as is the fact that the non-BTL landlords are not necessarily debt free.

 

It appears that almost 50% of LLs are unaware of the large tax reliefs (mortgage interest and wear and tear) they are entitled to, either they are paying far too much tax or they haven't heard of that either.

Edited December 14, 2016 by Confusion of VIs

[Wayward]

5 hours ago, EnglishinWales said:

Did you get told off for 'spoiling it'?

hopefully it will be a rate rise, price crash and bankruptcy that will spoil it for them...

[Bear Hug]

41 minutes ago, Confusion of VIs said:

It appears that almost 50% of LLs are unaware of the large tax reliefs (mortgage interest and wear and tear) they are entitled to, either the are paying far too much tax or they haven't heard of that either.

My guess would be that some are just not paying tax on their property income at all.  Hopefully some past tax liabilities will also come out once current system causes more landlords to declare their income.

[Neverwhere]

1 hour ago, Confusion of VIs said:

It appears that almost 50% of LLs are unaware of the large tax reliefs (mortgage interest and wear and tear) they are entitled to, either the are paying far too much tax or they haven't heard of that either.

That particular table was on the changes to the wear and tear allowance, so they might be aware of the current regime but unaware of the new one, however I think this brings up an important point which is that the landlords in this survey are self-reporting their understanding and may not necessarily be the most accurate of judges.

There is no guarantee that landlords who think they understand these tax changes actually do understand these tax changes, and the CML didn't - AFAIK - ask any questions which actually tested their understanding.

Of course I'm sure that's fine, because you'd never catch a BTL landlord being hubristic or exaggerating in any kind of way.

[juvenal]

2 hours ago, Bear Hug said:

My guess would be that some are just not paying tax on their property income at all.  Hopefully some past tax liabilities will also come out once current system causes more landlords to declare their income.

IMHO the majority don't pay tax. "When John and I moved in together we just let my place out to a friend. He pays the rent direct into my account..."

[lastlaugh]

17 hours ago, fru-gal said:

I wonder what effect LHA going to EU migrants has had on all this since 2004? As I understand although not 100% certain, EU migrants can no longer claim LHA (or housing benefit) since 2015 (perhaps Durhamborn or someone knowledgeable on this can confirm). I would imagine this would have quite an effect on prices in areas with lots of migration.  In the tv programme about immigration set in Birmingham that was on recently (sorry can't remember what it was called), a shop worker was saying that in the past few months since LHA has been withdrawn to new EU migrants, there has been less demand for rental properties. I'll try and find the clip...

As I understand it, the reforms to LHA in 2015, wrt EU migrants, only applies to "jobseekers". There is no change to LHA connected to "in work benefits" ie. tax credits.  I expect any change to rental demand as a result of this reform to be negligible.

[newbonic]

17 hours ago, SarahBell said:

https://www.gov.uk/government/news/new-rules-to-stop-migrants-claiming-housing-benefit

New migrant jobseekers from the European Economic Area (EEA) will no longer be able to get Housing Benefit (HB) from April, Work and Pensions Secretary Iain Duncan Smith announced today (20 January 2014).

Does that mean the ones here before then can continue to?

Good question. The recent report from Casey on integration featured the 6000 mostly Roma that have pretty much colonised much of the Page Hall area in Sheffield since about 2005. There's a lot of friction between them and both the local indigenous and Pakistani communities. Although much of the private rented housing (3-4 bed Victorian terraces) that the Roma are crammed into are owned by Pakistani LLs who first moved into the area 20-30 years ago when such houses were dirt cheap (e.g. £20 - 30k). Given the low rate of employment (other than squeegee type jobs) among the Roma I assumed that the slumlords were vacuuming up housing benefits.   

[Bland Unsight]

This is a bit weird:

This is the text of the survey question that generates the table:

Quote

For the following question, by ‘overall net rental yield’, we mean the calculation whereby you subtract annual expenses (e.g. mortgage payments, maintenance and other costs of letting) from annual rent, divide this result by the total cost of the property and multiply the result by 100. For example, if your annual rental income is £15,000 after you have paid all your external costs and your rental property is worth £150,000, then the overall net rental yield is 10%. Based on current property values, what is your overall net rental yield across all your letting property(ies)? (Please select the option that best applies. If you haven’t calculated a yield or don’t know how to, please select the ‘Not applicable’ option

The LTV of the leveraged respondents is given elsewhere in the report.

Bit of a puzzler. My first thought is that given the level of interest rates the interest expense on the typical BTL portfolio (the median number of houses in a portfolio is one house) is comparable to the expense of maintaining a property properly. I am genuinely struck by the idea that the two cohorts are reporting essentially the same yields.

[Bland Unsight]

I find Scanlon and Whitehead's concluding paragraph quite intriguing.

Quote

The landlords who will be most affected by the changes are those at the most professional end of the sector—those with large, leveraged portfolios. They will be particularly hard-hit by the changes in the treatment of mortgage interest, which will be phased in over the next four years, and many may choose to divest or moderate their investment strategy. This seems at odds with the government’s longstanding aim of professionalising the sector.

I guess by the implicit definition of professional as large and leveraged, Fergus Wilson is the epitome of professionalism. 

So when they say "sell now, sell everything" it's sober commentary, but when I do it, it's sophistry and trolling! 

Edited December 17, 2016 by Bland Unsight

[Bland Unsight]

Also this:

Quote

CML commissioned this report to get a better picture of private landlords and their financial arrangements, in the light of the sector’s strong growth since 2004, when their last survey was carried out, and the dearth of information about landlords. While the 2004 study looked at BTL landlords only, this survey covered all private individual landlords to try to understand the position of BTL within the overall market.

The goals of this study were

•  to situate BTL landlords within the sector overall
• to understand landlords’ financial arrangements better and
• to explore their likely responses to last year’s changes in taxation.

In 2004 there were fears that landlords selling up in a declining market could trigger wider house-price falls. Our findings then suggested that the market was fairly robust, and that most BTL landlords were confident that a fall in the market would not force them to sell. These predictions were put to the test in 2008, when house prices in the UK as in much of the rest of the world fell in the wake of the global financial crisis. There was no mass sell-off of rental properties, and indeed the market has continued to grow since then. Even so there are continued concerns, particularly on the part of the Bank of England, that landlords’ behaviour could amplify any future house-price movement and particularly could exacerbate a fall.

I think that there are problems with the final paragraph of the quote.

The levels of forbearance in 2008 were off the f**king chart, and even still one of the major BTL lenders (B&B) caught a bullet. Also, as the BTL mortgages were interest-only when mortgage interest rates went through the floor it was a hell of a lot easier for the crappy punts to wash their nasty little faces (particularly as many deals were trackers or short term fixed rate deals that reset to become trackers, many with wafer thin margins about the base rate).

One other thing. When I started getting interested in this BTL stuff in 2011, the disclosures in the lenders accounts around BTL were very thin (for example the 2006 Lloyds Group accounts have no reference whatsoever to buy-to-let, as far as I can see). It is a very different story today. Why are the disclosures there? Presumably so that investors can assess the risks.

The clowns at the CML might think that a survey of 861 people, a third of whom don't even know the net yield on their investment, might close the file on the possibility of a procyclical sell-off, I'm not so sure.

 

Edited December 17, 2016 by Bland Unsight

[Si1]

Pro cyclical you say? I recall many landlords being generally pro cyclical when it came to raising rents and offering extortionate short term lets along the route of the tour de France, a couple of years ago.

You're not keeping up with the canny entrepreneurs young man!

[Toast]

4 hours ago, Bland Unsight said:

Bit of a puzzler. My first thought is that given the level of interest rates the interest expense on the typical BTL portfolio (the median number of houses in a portfolio is one house) is comparable to the expense of maintaining a property properly.

It does seem psychologically plausible to me that a heavily leveraged landlord, who must believe implicitly that prices always rise (independently of the state of a property) might be less likely to spend money on maintenance. It would be astonishing if (as the figures suggest) leveraged landlords, to a man, spend all the money they should be putting into maintenance on interest payments.

Another possible difference between the two groups is that one of them might be less aware of the current market value of their properties (presumably underestimating it if their knowledge lags). The figures would require this less aware group to be the leveraged LL's - which sounds wrong; if anything, I would expect the leveraged to be acutely aware of their capital gains, since that's the only reason their investments make any sense.

A third possibility is that one of the groups is significantly more likely to use original purchase price in the denominator, artificially pushing up the calculated yield. This would require the affected group to be substantially less intelligent on average. It would be disrespectful to suggest that the direction of this effect is plausible.

[Neverwhere]

6 hours ago, Bland Unsight said:

Bit of a puzzler. My first thought is that given the level of interest rates the interest expense on the typical BTL portfolio (the median number of houses in a portfolio is one house) is comparable to the expense of maintaining a property properly. I am genuinely struck by the idea that the two cohorts are reporting essentially the same yields

I suspect that this aspect of the survey struggles from the fact that it's asking people to self-report on things which they don't necessarily understand.

5 hours ago, Bland Unsight said:

The clowns at the CML might think that a survey of 861 people, a third of whom don't even know the net yield on their investment, might close the file on the possibility of a procyclical sell-off, I'm not so sure.

Especially when, if you compare the answers given for net rental income (where they consider the possibility of a decrease) and house prices (where they do not), the actual detail of the survey results seems to indicate the opposite...

[Bland Unsight]

16 hours ago, Toast said:

A third possibility is that one of the groups is significantly more likely to use original purchase price in the denominator, artificially pushing up the calculated yield. This would require the affected group to be substantially less intelligent on average. It would be disrespectful to suggest that the direction of this effect is plausible.

Amusingly the Discussion and Conclusions section of the report (p.48 onwards) begins with a numbered list of observations, the seventh and final of which is that landlords are "not very knowledgeable".

I agree with your arguments.

It seems to me that non-BTL landlords (employing the report's terminology for landlords who are unlevereaged) would be less likely to be tracking prices and more likely to be realistic about what the property will sell for. In a market of rising prices (and the survey data is weighted towards regions in the UK where prices have risen over the last twenty years) these people would be likely to allocate lower prices (hence have an understated denominator) relative to the BTL (leveraged) chaps.

The only other thing is that the unleveraged guys are under no pressure to raise rents so may well tend to keep tenants for longer and keep tenants for longer on rents that do not inflate. Hence rising prices reduce their stated yields because the asset price rises (and they track that to some extent) but the rental income remains constant.

The other thing (h/t Neverwhere) is how the "don't know" responses would fall out if you sent round an accountant and turned a "don't know" into a calculated net yield. If a bunch of the non-BTL yields turned out to be materially positive and many of the BTL yields turned out to be near zero or negative then that would sit a bit better with a reasonable expectation that there should be a difference between the profile of net yields for the two groups.

[Neverwhere]

6 minutes ago, Bland Unsight said:

non-BTL landlords (employing the report's terminology for landlords who are unlevereaged)

Some (a minority) of the non-BTL landlords are leveraged. For instance consent-to-let counts as 'non-BTL', as do commercial loans and MEWing against their main residence (see Table 11). IIRC somewhere north of 60% of the properties (not landlords) in the survey were leveraged in some fashion.

11 minutes ago, Bland Unsight said:

The only other thing is that the unleveraged guys are under no pressure to raise rents so may well tend to keep tenants for longer and keep tenants for longer on rents that do not inflate. Hence rising prices reduce their stated yields because the asset price rises (and they track that to some extent) but the rental income remains constant.

I can totally buy that. That might also indicate that, because they are more likely to have pushed rents as far as they can, for instance in order to meet ICRs when (re)mortgaging, perhaps BTL landlords are also more likely to have tenants who fall into the 17% of UK households with combined rent and debt burdens that exceed 30% of income (see p.191 h/t Hi5 Lo5)?

[Bland Unsight]

32 minutes ago, Neverwhere said:

Some (a minority) of the non-BTL landlords are leveraged. For instance consent-to-let counts as 'non-BTL', as do commercial loans and MEWing against their main residence (see Table 11). IIRC somewhere north of 60% of the properties (not landlords) in the survey were leveraged in some fashion.

Point taken.

[Neverwhere]

8 minutes ago, Bland Unsight said:

Point taken.

Then again Table 11 includes self-identified BTL landlords who claim to have used no BTL finance and self-identified non-BTL landlords who claim that they have used BTL finance (if the latter have since paid said finance off that makes sense, but not otherwise, and there is no explaining the former) so this seems to be another area of confusion on the part of participating landlords.

Given the kinds of questions and claims that have been made on Poverty Later I'm pretty sure that there are those amongst them who don't actually understand that BTL loans are a specific kind of finance product, so they might answer any which way to such questions.

[Bland Unsight]

32 minutes ago, Neverwhere said:

Given the kinds of questions and claims that have been made on Poverty Later I'm pretty sure that there are those amongst them who don't actually understand that BTL loans are a specific kind of finance product, so they might answer any which way to such questions.

Hence my hope that more people will adopt the term leveraged landlord. In the more extreme cases I think pwoperdee mad debt junkie cretin has merit, and for the most severely afflicted sociopathic amoral BTL scum can be judiciously employed by suitably trained pea-brained numbskull anarchists, from time to time. 

[Neverwhere]

2 minutes ago, Bland Unsight said:

Hence my hope that more people will adopt the term leveraged landlord. In the more extreme cases I think pwoperdee mad debt junkie cretin has merit, and for the most severely afflicted sociopathic amoral BTL scum can be judiciously employed by suitably trained pea-brained numbskull anarchists, from time to time. 

My training is clearly lacking because my inclination is increasingly to jump straight to that last one for almost all of them.