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Btl Just Became A Very, Very Bad Idea

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Because I bought at the depths of the housing recession in the 90s the properties I own have been bought twice by tenants, with tread to spare.

I suppose I could just give them away now :-).

Actually the agent I used phoned up about a flat I have. It's the cheapest place on their books but nowhere near the worst. They said I was charging 100 to 150 pcm under the market rent for the property and did I want to raise the rent. "The tenant has been no trouble, leave it as it is for another year", I told them.

Edited by davidg

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There was some maths in that article so there is no chance any prospective BTL'r will understand it :)

The only thing that will get the message through is endless BTL-failure sob-stories in the media (hopefully soon).

The masses do memes, not maths. (my new "3M" rule)

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Just skim read it ,but she's completely missed the fact that the vast majority of BTL lending is interest only ,as this is the only way a landlord can remain cash flow neutral at today's prices so being left with a hose after 20 years that someone else has paid for is off the mark by a long way

The idea in the mind of the average amateur buy-to-let investor — as I understand it from 15 years of reader emails on the matter — is that as long as you are cash-flow neutral each year (i.e. it costs you nothing) all is well. You’ve put down a deposit. Someone else pays the mortgage via their rent and at the end of 20 years you have a house — for which you have effectively paid nothing but the deposit

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I'd also say the amateur BTL LL will not care too much for the calculations in these examples and their real lives. They are looking at capital gains - that's easy for them to understand. "

I bought for X , it's now worth Y, and I have a "profit" of Z at current prices. Goody, in 10 years I'll be very rich and someone else will have paid it for me"

That is the level of their investment skills.

Until the prices start to tank , and over a period of 3-5 years, the amateur will continue to pile in. It's already happening in the North and PCL. Now it needs to go nuclear in Zones 2-6 of London......

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BTLers are highly dependent on social public funding........why else would a hard working person with low interest rates, 40% help to buy and special ISA savings accounts rent at rip off rents when they can borrow to live in their 'own' place?

BTLers fate is in their hands, how much the state is prepared to support them.......in one hand out the other.....they are providing a service.....but not at any price. ;)

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Just skim read it ,but she's completely missed the fact that the vast majority of BTL lending is interest only ,as this is the only way a landlord can remain cash flow neutral at today's prices so being left with a hose after 20 years that someone else has paid for is off the mark by a long way

True but she did say

"The idea in the mind of the average amateur buy-to-let investor — as I understand it from 15 years of reader emails on the matter"

That to me suggests the BTLers understanding is ignorant of their interest only mortgage status, not necessarily Merryns understanding. It would not surprise me AT ALL if your average BTLer doesn't know they have an interest only mortgage, or if they do, what that means.

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I would put it to anybody.......that most will have no possible chance of repaying their mortgage debt in full from their wages/investments.......only a sale will enable them to repay, servicing the low interest with high debt is as much as they can manage if that...

...fairness would say all borrow to let mortgages should be repayment mortgages....seems fair to me, level playing field and all that.

Buy to let.......not a problem with that......you own it in full, you do as you please. ;)

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I would put it to anybody.......that most will have no possible chance of repaying their mortgage debt in full from their wages/investments.......only a sale will enable them to repay, servicing the low interest with high debt is as much as they can manage if that...

...fairness would say all borrow to let mortgages should be repayment mortgages....seems fair to me, level playing field and all that.

Buy to let.......not a problem with that......you own it in full, you do as you please. ;)

Agreed.

Borrow forever (IO mortgage) to Let is what I have a problem with.

BTL IO is a commercial loan and should attract commercial rates to go with the risk - 8%+.

An IO mortgage is a specialist, risky loan too. - another 2 or 3% extra. Mainstream banks + esp. building societies should not be anywhere near them,

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Agreed.

Borrow forever (IO mortgage) to Let is what I have a problem with.

BTL IO is a commercial loan and should attract commercial rates to go with the risk - 8%+.

An IO mortgage is a specialist, risky loan too. - another 2 or 3% extra. Mainstream banks + esp. building societies should not be anywhere near them,

Agree......banks should stop all new interest only loans at preferential interest rates, so as to make up their income losses increase their margins to commercial borrowers.......meaning those who purchase property for investment/commercial purposes, secured on land and buildings......

Try getting a business loan at 2% above base rate interest only term open ended.......then you wonder why we are going to the dogs. ;)

Edited by winkie

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There was some maths in that article so there is no chance any prospective BTL'r will understand it :)

The only thing that will get the message through is endless BTL-failure sob-stories in the media (hopefully soon).

The masses do memes, not maths. (my new "3M" rule)

:P:lol: Great post

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I bet (and I don't think this) that some people will read this

"Add that to his mortgage interest and you will see that his annual profit of £1,200 has turned into an annual loss of £400. Nasty."

and think so I still have a house after 25 years which only costs me the deposit and £400 pa - still a good deal. It is my pension.

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Well I know an 'amateur' buy to letter, the penny seems to be dropping, but I think he's carrying on regardless.

He'd obviously been through it all with someone in the know and the tax situation seems to be worse than we thought. All sorts of costs can no longer be offset and rental income is classed as unearned and as such you pay 40% no matter what.

Oh and is intention is to use the rent to pay for the house.

Edited by frederico

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BTL has enjoyed capital appreciation over the last 15-20 years because lending multiples have gone from 3x main income to 4.5x (or more) joint income. House prices are all about lending and in effect it's gone from 3x income to around 9x income. Wages have gone up 50% but lending has gone up 300%. Can the BTLers now really expect the same capital appreciation, won't it need 9x income to jump to 27x income?

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Borrow to Leters......rely on never having to repay their debt until their asset is sold and to walk away with a cash lump sum, in the meantime have the benefit of a regular monthly income......that income is dependent on the private tenants income and ready, willing and able to want or not to want to buy, along with the value for money of the rent against the freedom a choices renting can give short-term to some people.

The rest do not pay their rent from their wages, they are dependent on the state to pay all or part of it......therefore many BTLers are also dependent on the state.....

Borrow to Leters are providing a service.......it is up to those paying the rent how much they are prepared to pay for that service. ;)

Edited by winkie

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Prices can still increase but now the salary aspect has reach the maximum position so George has started gifting cash ... 40% in London .... this can increase to 50% or 60% to enable more debt for the buyer and more cash for the seller ... and of course the mortgage term needs to increase to 40 or 50 years and become intergenerational. And these are only the bullets we know about ....

I agree to some extent. Though are the props more to sustain prices, rather than make them increase as much as the rise in lending salary multiples has caused?

Then the props will need more props. Who are the people buying 40% Help to Buy Bail Banks new builds going to sell to, if the equity loan isn't extended to existing houses? They could ignore 40% of the price but the next buyer cannot (yet). In a few years could the new build losers thread be overflowing?

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