Btl Just Became A Very, Very Bad Idea

[shindigger]

Rubbish that has been sat forlorn for a year is now flying off the shelves prior to April 5. Nth Dorset. Everything is selling. Expect rental glut of houses around June. Silly silly Boomers.

[winkie]

Rubbish that has been sat forlorn for a year is now flying off the shelves prior to April 5. Nth Dorset. Everything is selling. Expect rental glut of houses around June. Silly silly Boomers.

Why rent if you can buy.....if you want to move, move to rent at the right price or move and live well...cheaply.

[Clarky Cat]

If people really are rushing to buy before the 3% deadline things could get very interesting.

It looks like there's another recession coming (or the resumption of the previous one!). The warning signs are already there - stock market volatility, rumours regarding the stability of major banks (eg Deutsche Bank), collapsing oil price etc.

See below the effects of the previous recession on rental price growth - peak declines seem to have occurred 3-4yrs after the onset of the first major issues in 2007.

If you apply past trends then you would see rents reducing just as the effects of the removal of mortgage tax relief start to bite.

Edited February 12, 2016 by Breowan

[shindigger]

Stuff above 300k is being reduced but 200-300k selling fast.

Classic btl pension spunkage.

[winkie]

Stuff above 300k is being reduced but 200-300k selling fast.

Classic btl pension spunkage.

Good observation.....shit flat was £40k ok house £150k .....now shit leasehold flat £250k ok freehold house £600k.....do the math......nothing to do with value, all to do with funds available.

[Si1]

Inflation has also done the job here, you need more £ 'tokens' to buy a house because a £ is worth less and less over time.

Err

It's a pretty secure loan though, there's the property as security. Business loans require banks to understand business plans and try to work out the risk (8 out of 10 businesses fail). Far easier to just lend it out to BTL, it's been a very good ride for them.

Apart from the fact that most BTL loans are owned by the government because the banks that wrote them collapsed?

[Tapori]

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.

As a tenant with an AST ending soon.

[Tapori]

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?

Menage-a-trois relationships?

[Tapori]

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......

I started a thread to address what impact say Crossrail will have to behavior even if a crash happens?

Too much hype from speculators looking to get more money.

-

Also, Can someone clear up; A BTL investor with an interest-only mortgage argued to me that he received no tax relief so changes wouldnt affect him, because his whole payment was interest therefore where was no interest tax relief subsidy other btl investiors enjoyed?

Edited February 13, 2016 by Tapori

[Ah-so]

I started a thread to address what impact say Crossrail will have to behavior even if a crash happens?

Too much hype from speculators looking to get more money.

-

Also, Can someone clear up; A BTL investor with an interest-only mortgage argued to me that he received no tax relief so changes wouldnt affect him, because his whole payment was interest therefore where was no interest tax relief subsidy other btl investiors enjoyed?

I think that he has misunderstood this completely. Nearly all btl mortgages are interest only. Edited February 13, 2016 by Ah-so

[campervanman]

I have one property in the UK that I rent out. It was purchased with cash. The house is just there as an insurance policy, it will by my UK residence eventually. The only thing I need is a tennant in situ, the rent only needs to cover the overheads, I do not need or want a return on investment as the money tied up in the property was just dead money sitting on deposit earning diddly squat. Whilst there are others who are heavily indebted who bought several properties as an alternative to earning an honest living, there are also probably many more like me.

[19 year mortgage 8itch]

I have one property in the UK that I rent out. It was purchased with cash. The house is just there as an insurance policy, it will by my UK residence eventually. The only thing I need is a tennant in situ, the rent only needs to cover the overheads, I do not need or want a return on investment as the money tied up in the property was just dead money sitting on deposit earning diddly squat. Whilst there are others who are heavily indebted who bought several properties as an alternative to earning an honest living, there are also probably many more like me.

Most people lose money on their insurance policies.

Such a shame.

[dgul]

Also, Can someone clear up; A BTL investor with an interest-only mortgage argued to me that he received no tax relief so changes wouldnt affect him, because his whole payment was interest therefore where was no interest tax relief subsidy other btl investiors enjoyed?

Ah, of course. Tell him he's understood it perfectly and that he's clearly much cleverer/luckier than those other stupid BTL investors who are going to get shafted. Well done.

[spyguy]

I started a thread to address what impact say Crossrail will have to behavior even if a crash happens?

Too much hype from speculators looking to get more money.

-

Also, Can someone clear up; A BTL investor with an interest-only mortgage argued to me that he received no tax relief so changes wouldnt affect him, because his whole payment was interest therefore where was no interest tax relief subsidy other btl investiors enjoyed?

He's an idiot.

A leveraged BTL IOer of 2002-2008ish vintage problem does not not grasp the finances.

They have been (incorrectly) allowed to offset mortgage IR payments from their rent income.

All those BTL booster companies encouraged BTLers to keep withdrawing equity and keep the portfolio leveraged to the moon + more.

The fact is BTL should have always been classed as an investment. You cannot offset any money you borrow for an investment.

[jiltedjen]

I do feel these BTL will take a few banks with them.

[Guest eight]

Looking at a local bottom feeding estate agent's website yesterday I was quite surprised at the number of two-up two-down terraces - traditionally the preserve of BTL, mainly to immigrants - up for sale for around the just sub 50K mark. Still overpriced, but achievable for a couple with a modest income, these properties were going for at least half that again ten years ago. Can only be longer term BTL'rs offloading.

[spyguy]

Looking at a local bottom feeding estate agent's website yesterday I was quite surprised at the number of two-up two-down terraces - traditionally the preserve of BTL, mainly to immigrants - up for sale for around the just sub 50K mark. Still overpriced, but achievable for a couple with a modest income, these properties were going for at least half that again ten years ago. Can only be longer term BTL'rs offloading.

A brexit will see plaves like this go into meltdown.

[spyguy]

Or a change to tax credits.

Stopped off at MaccyDs lastnight. The entire staff were misc. EE of child bearing/tc claiming age.

[Ash4781]

He's an idiot.

A leveraged BTL IOer of 2002-2008ish vintage problem does not not grasp the finances.

They have been (incorrectly) allowed to offset mortgage IR payments from their rent income.

All those BTL booster companies encouraged BTLers to keep withdrawing equity and keep the portfolio leveraged to the moon + more.

The fact is BTL should have always been classed as an investment. You cannot offset any money you borrow for an investment.

On the stamp duty land tax expected changes the talk is of landlords jumping in. Whether it's sinister and trying to get people in who will take all the risk (onto their residential home too) I don't know. Would not surprise me though de-regulate pensions, get people to rush into BTL then make it a closed shop.

https://www.gov.uk/government/consultations/consultation-on-higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties/higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties

This consultation will run from 28 December 2015 to 1 February 2016.

Confirmation of the final design will be announced at the Budget on 16 March 2016. The higher rates will apply from 1 April 2016

[MattW]

I wonder, who is buying these ex-BTLs with sitting tenants? Only makes sense if it's cashing buying landlords.

[Bland Unsight]

Also, Can someone clear up; A BTL investor with an interest-only mortgage argued to me that he received no tax relief so changes wouldnt affect him, because his whole payment was interest therefore where was no interest tax relief subsidy other btl investiors enjoyed?

The boys and girls at PovertyLater were pretty sour about this.

Osborne really made two changes. Firstly he changed the rules so that interest was no longer an expense which could be deducted from rental income when calculating profit. This seemed pretty 'out there' at the time, but we now see that it is going to become part of the tax code for companies going forward, so it was just the timing gave the appearance that BTLers were being singled out.

He then created a tax relief, restricted to the basic rate of income tax.

Hence if you are still a basic rate tax payer, even after your gross rental income is included in assessing your total income, then the change does not affect your taxation, (though it might affect access to any means tested benefits).

The BTL investor you're describing has totally misunderstood the situation. The PovertyLater crew were titsed because as they correctly argued, before Clause 24 they did not get any relief, it was just that in keeping with the treatment of financing costs for businesses more generally, their interest expense was an allowable deduction when calculating profit, hence Osborne was being a little tricksy by presenting it as if they had earlier enjoyed generous reliefs.

Your post is nice anecdotal evidence that the choice of presentation was enough to trick some leveraged landlords into believing the change won't affect them.

[shindigger]

I have one property in the UK that I rent out. It was purchased with cash. The house is just there as an insurance policy, it will by my UK residence eventually. The only thing I need is a tennant in situ, the rent only needs to cover the overheads, I do not need or want a return on investment as the money tied up in the property was just dead money sitting on deposit earning diddly squat. Whilst there are others who are heavily indebted who bought several properties as an alternative to earning an honest living, there are also probably many more like me.

You are Neil Kinnock, and I claim my five pounds.

[long time lurking]

The boys and girls at PovertyLater were pretty sour about this.

Osborne really made two changes. Firstly he changed the rules so that interest was no longer an expense which could be deducted from rental income when calculating profit. This seemed pretty 'out there' at the time, but we now see that it is going to become part of the tax code for companies going forward, so it was just the timing gave the appearance that BTLers were being singled out.

He then created a tax relief, restricted to the basic rate of income tax.

Hence if you are still a basic rate tax payer, even after your gross rental income is included in assessing your total income, then the change does not affect your taxation, (though it might affect access to any means tested benefits).

The BTL investor you're describing has totally misunderstood the situation. The PovertyLater crew were titsed because as they correctly argued, before Clause 24 they did not get any relief, it was just that in keeping with the treatment of financing costs for businesses more generally, their interest expense was an allowable deduction when calculating profit, hence Osborne was being a little tricksy by presenting it as if they had earlier enjoyed generous reliefs.

Your post is nice anecdotal evidence that the choice of presentation was enough to trick some leveraged landlords into believing the change won't affect them.

I know two in this camp adamant it won`t affect them as they are not higher rate tax payers (but will be within 6-8k most years ) ,both are going to have a rude awakening if they are still in their current employment at the end of next year

[jiltedjen]

Helps to explain the lack of rush to exits. People just don't think it will affect them.

I have spoken to a few BTL types (sadly can't escape them sometimes) and they say it's just a buying opportunity.

there will still be s rush but it will be all at the same time. when will these morons get the first tax demands landing on their door-steps? what the crunch date when people with head in sand are actually faced with reality?

When do letters hit door-matts?

Edited February 13, 2016 by jiltedjen

[Bland Unsight]

Helps to explain the lack of rush to exits. People just don't think it will affect them.

I have spoken to a few BTL types (sadly can't escape them sometimes) and they say it's just a buying opportunity.

there will still be s rush but it will be all at the same time. when will these morons get the first tax demands landing on their door-steps? what the crunch date when people with head in sand are actually faced with reality?

When do letters hit door-matts?

I posted a related argument on the Scum thread. I think that the first time that the mug money BTLers will become aware of the changes is when they try to refinance. Many if not all of them will be on short fixed term mortgages. I've no idea where you'd get data on the distribution, but I'd guess that the majority are on 2-year fixes.

Now, whilst market rates are very possibly not going to move up over the intervening months, it looks very likely that the taxation changes from the Treasury and headwinds from BCBS risk-weights mean that the lenders are going to push the notional stress rates that they use to assess affordability. As flagged on the BTL Finance Watch thread, some lenders are already doing exactly this.

When their current 2-year fix ends and the borrowers looks for a new deal they may find that their borrowings no longer pass the affordability test because the increase in the effect of the notional stress rate is larger than any rent hike they've achieved. There will then be two options, put more deposit down so that the borrowing required is lower and they pass the affordability test, or get bounced onto the SVR which could easily be more than twice what they are currently paying (for example a BM Solutions high-fee 60% LTV 2-year fix is presently at 2.14%, but the SVR is 4.84%).

The mortgage was probably written so that the investment just washed its face at the 5% stress rate. Hence a fair number of these investments will go from decent positive net cash flow before tax to minimal positive net cash flow before tax at this point.

As these very low rate 2-year fixes have been in the market for a while now this is happening right now. Hence the answer to when any of this will bite is that it is must already be biting.

Once we get to April 2018 and the restriction of mortgage interest relief also bites, the net cash flow after tax will be negative. (Of course it is to be hoped that a correction in prices will trigger margin calls before we get to April 2018, and the stress rates may continue to climb as the BTL lenders take stock of how the game has changed.)