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And Then You Win

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They're such lovely people.

Ranjan Bhattacharya says:

Great thought provoking article Mark.

If we define buy-to-let as buying a place pretty much at market value, in rentable condition (ie minimal refurb), and letting it out; then in the M25 zone, I would say BTL is dead (for now).

What standard of property is good enough for a private tenant? Why, minimal refurb of course. In what other industry would you as a customer expect to receive a "minimal" standard of service in exchange for paying £30-£40 a day, every day, 365 days a year?

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They're such lovely people.

What standard of property is good enough for a private tenant? Why, minimal refurb of course. In what other industry would you as a customer expect to receive a "minimal" standard of service in exchange for paying £30-£40 a day, every day, 365 days a year?

I think they mean buying one that didn't have to have much work done rather than having to spend a month making it habitable.

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I think they mean buying one that didn't have to have much work done rather than having to spend a month making it habitable.

Which would mean, the market is improving. The pure-bred parasite is out.

What that "dead" then implicitly excludes is the house that needs £50k spending before it's fit to let out. And that house is absolutely fair game for someone to make an honest living in property, buying it, doing the work, and either selling for a profit or letting it out. Because that's the property investor who has added genuine value.

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Well we've got some insight into their minds (BTLers) from their earliest reactions to Summer Budget 2015.

Seller of BTLs (which he's confirmed on other threads) bigging up the BTL market - not surprising.

Although it seems like Malta is an escape for CGT - he seemed concerned about his huge CGT liabilities initially, a few days after Summer Budget 2015 - and an a communication to his pal at BoE.

Malta....and very little CGT on the UK investment properties we will be selling (only on gains post April 2015).

Demand for UK rental accommodation is set to continue to rise but if investment into the sector slows down the inevitable consequence is that rents will rise.

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Mark Alexander - Property118 says:
08/07/2015 at 18:04

Reply to the comment left by “Dan Smith” at “08/07/2015 – 17:41“:

OK, so here’s a “dummies guide” from my perspective.

I’ve scared myself to death by the way!

Let’s pretend my interest bill is £20,000 a month.

Now let’s also pretend my rental income is also £20,000 and I have no other expenses.

As of today I would be able to set off one against the other and pay no tax on rental profits because I wouldn’t have any.

With me so far?

OK, so now lets pretend I earn a living elsewhere and pay 40% tax on that income.

So we have established I am now a 40% taxpayer.

The problem from 2017 (or whenever the Chancellor announcement take full effect) is that whilst I will still be able to offset all of my mortgage interest against my rental income, he will only give me 20% tax relief, not the full 40%.

The net result is that I will be £4,000 a month WORSE OFF!!!

That’s because £4,000 a month is 20% of my mortgage interest that I can no longer claim.

We are going to be releasing a new calculator later this evening or tomorrow morning. The calculator will be embedded into an article called “Chancellor hits landlords for billions! How will this affect your cashflow?”

We will publish a link in tomorrows Newsletter.

WATCH THIS SPACE!

http://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-3/#comment-57708
Mark Alexander - Property118 says:
08/07/2015 at 19:56


Fantastic idea Simon. I have played with your words slightly and sent him the following email ….

Subject: Unfair tax on landlords

Dear Mr Osbourne

Today you took the fundamental basics of business “Business profit = Income – Running costs” and you destroyed it, along with any trust or credibility that you had.

BTL mortgage interest costs are a straight forward cost of running a business, as is rent, rates etc.

You are now planning to collect tax on money spent, not a tax on profit.

This is past ridiculous.

This needs undoing and quickly – have you lost your mind?

http://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-6/#comment-57753

Mark Alexander - Property118 says:
08/07/2015 at 21:10

OK, so now we are all pretty clear on what the implications are, what next?

I am in the process of remortgaging several of my properties to 85% fixed for 5 years but now I must re-think this.

Should I sell up? Maybe, but the CGT is horrendous!

Maybe I should remortgage to the max and wait for distressed sellers? I’m sure there will be plenty of these and the LPA receivers may well get very busy come 2017 and they won’t be wanting to hold highly leveraged assets that are losing money but still incurring tax liabilities for too long! Will we see early 90’s style fire sale opportunities? If so, cash will be king!

Will lenders change their notional rates to reflect the new cashflow issues? If they do borrowing will get tougher, and as we know, this drives property values down too.

Will mortgage brokers see another crash in applications?

Will BTL purchases in progress be aborted? If so this will hit estate agents and developers.

Will developers be able to continue to build if they lose the BTL off plan speculators which they are so reliant upon to get funding these days?

On balance, I think all those who have huge amounts of cash or the ability to raise it quickly are in for some rich pickings, leaving the rest with major difficulties to endure.

Maybe I will refinance at high gearing and a long term fixed after all?

What are your thoughts?

http://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-7/#comment-57774

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The relationships between councils and the PRS hopefully will improve but it will stifle entrepreneurship. Long leases and guaranteed rents and ROI will be introduced for a hassle free investment. Many BTL`ers will be attracted to this new style investment. A lower rate of return but a solid secure return just like a building society but BTL will still be much better. You may have an opt in / opt out golden handshake lump sum arrangement which they take out of the capital growth when you sell on in 20 years to another scheme member

Those little captain of industry!

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The cgt avoidance scheme of "move to Malta" seems ridiculously simple to the point of I can't believe it's valid.

Does anyone know if it is?

Scumbags steal all the property then move abroad to avoid taxes. Total scumbags.

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The cgt avoidance scheme of "move to Malta" seems ridiculously simple to the point of I can't believe it's valid.

Does anyone know if it is?

You have to non-resident (and therefore spending the majority of your time outside the UK) for at least 5 full tax-years. Not for the faint of heart.

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Scumbags steal all the property then move abroad to avoid taxes. Total scumbags.

I thought it was to distance himself from angry members when his ludicrous legal action fails!

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You have to non-resident (and therefore spending the majority of your time outside the UK) for at least 5 full tax-years. Not for the faint of heart.

Also, they can't take their houses abroad with them so it's always possible that a retrospective change in the law could scupper their plans and there's not a lot they could do about it.

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Also, they can't take their houses abroad with them so it's always possible that a retrospective change in the law could scupper their plans and there's not a lot they could do about it.

I would so love it if George made the tiniest tweak and legislated so that CGT was payable based on tax residency at the time of the gain...

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I would so love it if George made the tiniest tweak and legislated so that CGT was payable based on tax residency at the time of the gain...

That wouldn't work because the gain is crystallised on the sale of the asset, but there are numerous ways of achieving the objective.

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That wouldn't work because the gain is crystallised on the sale of the asset, but there are numerous ways of achieving the objective.

Here's hoping. Although in reality it may just be simpler to subject any would be tax-exiled BTLer to rigorous HMRC investigation. I doubt that tax exile is really quite as simple to achieve as is being made out, especially when the majority of one's income stream is derived from the UK.

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I would so love it if George made the tiniest tweak and legislated so that CGT was payable based on tax residency at the time of the gain...

Or just make it so that CGT is payable on UK residential property irrespective of where the owner is tax resident.

I never understood why past governments felt it was important to give people living overseas tax advantages over UK residents when it comes to owning property in the UK. What was the policy objective?

Edited by Dorkins

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Or just make it so that CGT is payable on UK residential property irrespective of where the owner is tax resident.

That would be the case already if BTL were considered a business and not an investment.

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Or just make it so that CGT is payable on UK residential property irrespective of where the owner is tax resident.

I never understood why past governments felt it was important to give people living overseas tax advantages over UK residents when it comes to owning property in the UK. What was the policy objective?

Doesn't overseas investors buying property throw a sheen of respectability on our ludicrous desires to live beyond our means?

[sent from Chinese manufactured smart phone.]

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Ha the funny thing is these 118 lot are probably significantly brighter than the average BTL person.

Someone I know into BTL now thinks they will crash, however only in 2020 with the internet offset rules. I dont think she knows they come in gradually and she is not alone in noticing them. Still thinks shes a superstar business woman that makes a 6 figure wage.

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Ha the funny thing is these 118 lot are probably significantly brighter than the average BTL person.

Someone I know into BTL now thinks they will crash, however only in 2020 with the internet offset rules. I dont think she knows they come in gradually and she is not alone in noticing them. Still thinks shes a superstar business woman that makes a 6 figure wage.

This is beneficial from the perspective of anyone looking to have a home of their own, but with the patience to wait it out for a few more years, I think.

The longer BTLers who know that they can't weather the tax changes hold out the more of them will have to try and exit together and all at once, and the more likely they will be to spark a proper crash rather than a controlled correction (not that the latter can't easily develop into the former, given current conditions).

Of course, if someone wanted the most full on, spectacular, humongously large house price crash possible - and wasn't in any particular rush over timeframes - then they would be better served by trying their damnedest to have all of the recent measures against BTL overturned, and no further measures against BTL brought in (if I were actually an anarchist that would be what I would do ;)).

The more BTL builds up in the market, and the harder they push things, the worse the eventual crash will be. It's like climbing a credit mountain and deciding when the best point to start an uncontrolled descent downhill will be. If you're looking for maximum velocity and maximum distance of travel on your downard journey then the higher you climb in the first place, the better.

BTL is inherently unstable and unsustainable, even when (mistakenly) discounting the social costs and political risk.

Lending to landlords on an interest-only basis out of (currently) pre-tax income can of course move prices further away from wages than is possible through lending to owner-occupiers on a (currently) repayment basis out of post-tax income, but it can't entirely divorce prices from earnings. Rents are still determined by income (and, at the bottom end, by LHA) and so all that is achieved by this is a higher ceiling on house prices relative to income, but there is still a ceiling.

A BTL driven market will inevitably tend towards 0% yields and 0% capital gains, and then it will explode.

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This is beneficial from the perspective of anyone looking to have a home of their own, but with the patience to wait it out for a few more years, I think.

The longer BTLers who know that they can't weather the tax changes hold out the more of them will have to try and exit together and all at once, and the more likely they will be to spark a proper crash rather than a controlled correction (not that the latter can't easily develop into the former, given current conditions).

Of course, if someone wanted the most full on, spectacular, humongously large house price crash possible - and wasn't in any particular rush over timeframes - then they would be better served by trying their damnedest to have all of the recent measures against BTL overturned, and no further measures against BTL brought in (if I were actually an anarchist that would be what I would do ;)).

The more BTL builds up in the market, and the harder they push things, the worse the eventual crash will be. It's like climbing a credit mountain and deciding when the best point to start an uncontrolled descent downhill will be. If you're looking for maximum velocity and maximum distance of travel on your downard journey then the higher you climb in the first place, the better.

BTL is inherently unstable and unsustainable, even when (mistakenly) discounting the social costs and political risk.

Lending to landlords on an interest-only basis out of (currently) pre-tax income can of course move prices further away from wages than is possible through lending to owner-occupiers on a (currently) repayment basis out of post-tax income, but it can't entirely divorce prices from earnings. Rents are still determined by income (and, at the bottom end, by LHA) and so all that is achieved by this is a higher ceiling on house prices relative to income, but there is still a ceiling.

A BTL driven market will inevitably tend towards 0% yields and 0% capital gains, and then it will explode.

Thats what I'm thinking. Even the ones that have seen the writing on the wall are still holding out, as they assume it will go up a bit more then they can cash out.

I remember 10 years ago people were saying 12% yeild was optimal, now people are only getting 4% and they are happy with that and keep buying more.

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Thats what I'm thinking. Even the ones that have seen the writing on the wall are still holding out, as they assume it will go up a bit more then they can cash out.

I remember 10 years ago people were saying 12% yeild was optimal, now people are only getting 4% and they are happy with that and keep buying more.

It's because they're not actually analysing why house prices have been going up, they're just taking it as an article of faith and then building their investment decisions on that basis. Even intelligent BTLers will come up with stupid plans if they don't subject their first assumptions to proper scrutiny.

Key to the gospel according to BTL, as expressed on the various landlord fora, is the apparently widespread belief that BTLers don't add to demand for residential properties and that supply is at a historic low relative to the UK population. It would take them the work of a moment to realise that neither of these assumptions are correct, but many of them seem to enjoy the implications of their fantasy to such a degree that they have no will to question it.

2e3cyuw.jpg

CBR, UK Economy Forecast Report, Winter 2015

I would wager that they will come to regret this choice in the fullness of time.

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It's because they're not actually analysing why house prices have been going up, they're just taking it as an article of faith and then building their investment decisions on that basis. Even intelligent BTLers will come up with stupid plans if they don't subject their first assumptions to proper scrutiny.

Key to the gospel according to BTL, as expressed on the various landlord fora, is the apparently widespread belief that BTLers don't add to demand for residential properties and that supply is at a historic low relative to the UK population. It would take them the work of a moment to realise that neither of these assumptions are correct, but many of them seem to enjoy the implications of their fantasy to such a degree that they have no will to question it.

2e3cyuw.jpg

CBR, UK Economy Forecast Report, Winter 2015

I would wager that they will come to regret this choice in the fullness of time.

I think they are, but not with much logic. Most people on mumsnet said houses prices were going up as its simple supply and demand. There is nothing simple about it and thats not a significant cause - not that I need to tell anyone here that.

They look at past performance and assume it will continue again. I've done spread betting for a year, and ended up back where I started. Although it made time at work pass quicker.

Your right they are in a fantasy, make 50k on one house. They assume it was their great business mind and all they have to do is the same thing 20 more times and be a millionaire,

I was a turning point seeing a BTL person go from "i don't think they will ever stop rising" to "i think they will crash in the future".

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I think they are, but not with much logic. Most people on mumsnet said houses prices were going up as its simple supply and demand. There is nothing simple about it and thats not a significant cause - not that I need to tell anyone here that.

They look at past performance and assume it will continue again. I've done spread betting for a year, and ended up back where I started. Although it made time at work pass quicker.

Your right they are in a fantasy, make 50k on one house. They assume it was their great business mind and all they have to do is the same thing 20 more times and be a millionaire,

I was a turning point seeing a BTL person go from "i don't think they will ever stop rising" to "i think they will crash in the future".

They mouth the words in order to justify their beliefs but they don't tend to analyse them in any great detail IME. Of course, there will be exceptions. They will likely already have sold by now.

It is interesting to see the change in sentiment, although the idea that they can time the market perfectly and get out with maximum gains just before prices crash (I'm inferring, perhaps incorrectly) seems to be as much a matter of misplaced faith as everything else!

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It's because they're not actually analysing why house prices have been going up, they're just taking it as an article of faith and then building their investment decisions on that basis. Even intelligent BTLers will come up with stupid plans if they don't subject their first assumptions to proper scrutiny.

Key to the gospel according to BTL, as expressed on the various landlord fora, is the apparently widespread belief that BTLers don't add to demand for residential properties and that supply is at a historic low relative to the UK population. It would take them the work of a moment to realise that neither of these assumptions are correct, but many of them seem to enjoy the implications of their fantasy to such a degree that they have no will to question it.

2e3cyuw.jpg

CBR, UK Economy Forecast Report, Winter 2015

I would wager that they will come to regret this choice in the fullness of time.

Interesting but untrustworthy. The fallacy here is in starting from a preconceived idea of how markets and economies should behave and then attempting to massage the raw data via a multitude of parameters and exogenous variables to approximate those expectations, rather than taking the raw data and deducing an empirical model from it ab initio.

The UKMOD model contains no fewer than 80 econometric equations, 145 identities and and 250 variables! If one were being uncharitable this might be described as cargo cult science - practices that have the semblance of being scientific but contain no understanding of the scientific method. To do actual science we should start by attempting to construct a falsifiable zeroth-order model containing as few variables as possible.

Unsurprisingly, UKMOD's most recent predictions are generally no better than the consensus macro forecast.- i.e. 2015 UK GDP +2.8 (UKMOD), versus +2.5 (consensus), +2.3 (actual) - and often worse.

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