'green Tax' To Hit Landlords With £5,000 Bill On Buy-To-Let Homes

[Sandwiches33]

As the government starts to collapse financially it will lash out and grab whatever it can.

God help any group who have a big fixed asset they cant run off with. BTL will be the biggest juiciest target, staggering at the back of the herd like an obese buffalo.

Nobody is going to stick there neck out to protect them as they are universally despised.

I completely understand why pirates chose gold over property folios

[Lovely Rum]

A good example of why the government needs to keep turning the screw on BTL:

http://www.telegraph.co.uk/money/jessica-investigates/hsbc-caused-stamp-duty-rise/

don't get it

why does a 83 year old want more BTLs??

[Crumbless]

As the government starts to collapse financially it will lash out and grab whatever it can.

God help any group who have a big fixed asset they cant run off with. BTL will be the biggest juiciest target, staggering at the back of the herd like an obese buffalo.

Nobody is going to stick there neck out to protect them as they are universally despised.

I completely understand why pirates chose gold over property folios

The politicians who are also landlords as well as banks who will crash if BTL goes to the wall will stick their necks out.

[Bland Unsight]

The politicians who are also landlords as well as banks who will crash if BTL goes to the wall will stick their necks out.

Can you explain why there is any risk to the banks relating to BTL going to the wall? I'm struggling to see how BTL imploding poses any risk to the banks whatsoever.

[Crumbless]

Can you explain why there is any risk to the banks relating to BTL going to the wall? I'm struggling to see how BTL imploding poses any risk to the banks whatsoever.

As it would cause a HousePriceCrash of unknown proportions. Being as its the main asset class banks are invested in, it will create misery for them. And judging by the actions of the govt in the last 8 years a HPC is something they've done everything in their power to protect the banks from.

Hence why like you say the govt are bringing in S24 over 6 years as opposed to overnight as they're petrified of a HPC and its effects on the banking system.

[TheCountOfNowhere]

http://www.telegraph.co.uk/news/2016/07/30/green-tax-to-hit-landlords-with-5000-bill-on-buy-to-let-homes/

Indeed.

Are there not fears tennants are being used as a cash cow, or more accurately the tx payers who fund Housing Benefit ?

[TheCountOfNowhere]

[TheCountOfNowhere]

As it would cause a HousePriceCrash of unknown proportions. Being as its the main asset class banks are invested in, it will create misery for them.

GOOD.

[Crumbless]

GOOD.

If they would stop rigging the game and allow it to happen.

[Bland Unsight]

As it would cause a HousePriceCrash of unknown proportions. Being as its the main asset class banks are invested in, it will create misery for them. And judging by the actions of the govt in the last 8 years a HPC is something they've done everything in their power to protect the banks from.

Hence why like you say the govt are bringing in S24 over 6 years as opposed to overnight as they're petrified of a HPC and its effects on the banking system.

Banks are not invested in buy-to-let.

They have made loans to people who have invested in buy-to-let. There is a massive difference.

The following figure is taken from the Spring 2014 Wallace & Rugg report Buy-to-let Mortgage Arrears: Understanding the factors that influence landlords’ mortgage debt.

Here are the LTVs

Remember that as well as the equity in the buy-to-let property protecting the bank (should the borrower not be able to repay the loan) there will be equity in the investor's primary private residence too.

I'd guess that the banks could see house prices lose 40% and basically walkaway without a scratch on their buy-to-let lending.

There are reasons why governments don't generally like to see house prices fall, largely relating to the fact that we basically run a debt-fueled growth model, but it's not clear that can go on forever. However anxiety about the threat to bank solvency that will result in the buy-to-let clowns getting their metaphorical throats cut is a dog that won't hunt; it's 'conventional wisdom' in Galbraith's pejorative sense.

[Crumbless]

Yes but they have also made massive loans to owner occupiers and obviously the 2 mortgage markets are connected by 1 housing market.

The states actions tell me they need to protect BTL, hopefully this will change in the autumn statement and months that follow.

[Bland Unsight]

Yes but they have also made massive loans to owner occupiers and obviously the 2 mortgage markets are connected by 1 housing market.

The states actions tell me they need to protect BTL, hopefully this will change in the autumn statement and months that follow.

That dog won't hunt either. It's a recession making it impossible for owner-occupiers to service their mortgages that produces a problem for banks on their secured lending.

With interest rates so low, it's never been easier to service a mortgage.

The idea that a crash in house prices in and of itself represents a meaningful threat to the banking system as a whole is just a daft fantasy.

[Crumbless]

That dog won't hunt either. It's a recession making it impossible for owner-occupiers to service their mortgages that produces a problem for banks on their secured lending.

With interest rates so low, it's never been easier to service a mortgage.

The idea that a crash in house prices in and of itself represents a meaningful threat to the banking system as a whole is just a daft fantasy.

Everything is interconnected, of course if people still have jobs they can pay the mortgage should interest rates remain at the levels they are.

But if interest rates rise then people can no longer pay the mortgage whether they've a job or not even if we had no recession.

Much of our GDP over the last 18 years has been built on never ending property price rises and imputed rent. So an end to this in itself could be the cause of a recession.

A HPC due to reckless lending on property in the run up to 2007/8 destroyed banks in the western world and this is all we've had since. To say a HPC won't be a meaningful threat to banks when most of their lending goes into property doesn't reflect whats happened over the last decade.

You even said yourself that bringing in S24 overnight would cause a property crash, seems they're afraid of doing such a thing.

[Bland Unsight]

A HPC due to reckless lending on property in the run up to 2007/8 destroyed banks in the western world and this is all we've had since. To say a HPC won't be a meaningful threat to banks when most of their lending goes into property doesn't reflect whats happened over the last decade.

That's just wrong. In no meaningful sense did reckless lending on residential property destroy the banks. The UK poster child was RBS and the losses there were on insane acquisitions, of which the acquisition of ABM Amro was obviously the worst, and commercial lending.

What brought the banks to their knees was the failure of a funding model which relied too heavily on short-term money and an old fashioned bank run in response to fears of possible solvency problems.

UK banks have survived property crashes in the past and they'll survive them in the future too. There is simply no comparison between the structure of the funding of the UK banks and their leverage today and their funding and leverage in 2008. Proposing that there is, as you are doing, is basically demonstrating that you don't know anything about banks. You can keep repeating your belief that the banks can't weather a house price crash because "most of their lending goes into property", but that doesn't make it so.

Edited August 1, 2016 by Ghost Bird

[Crumbless]

That's just wrong. In no meaningful sense did reckless lending on residential property destroy the banks. The UK poster child was RBS and the losses there were on insane acquisitions, of which the acquisition of ABM Amro was obviously the worst, and commercial lending.

What brought the banks to their knees was the failure of a funding model which relied too heavily on short-term money and an old fashioned bank run in response to fears of possible solvency problems.

UK banks have survived property crashes in the past and they'll survive them in the future too. There is simply no comparison between the structure of the funding of the UK banks and their leverage today and their funding and leverage in 2008. Proposing that there is, as you are doing, is basically demonstrating that you don't know anything about banks. You can keep repeating your belief that the banks can't weather a house price crash because "most of their lending goes into property", but that doesn't make it so.

It didn't finish off many banks as they got bailed out by the taxpayer to this day (either directly or indirectly), and the people they lent to were gifted extremely low interest rates for best part of a decade and counting, without this their bad lending would have been shown up. If capitalism was allowed in the west the banks lending to anyone who can write their name would have taken a far greater hit and much of it was due to lending on property.

You mention RBS but what about all the demutualised building societies that went to the wall due to bad lending to the residential property market.

No i am aware the banks are better prepared in the event of prices falling than in 2007/8, but reverse QE, raise rates, get rid of all the other props and let property prices drop hit their natural level which in my part of England would mean 50-60% drops and banks will not look so well prepared.

[Patient London FTB]

A good example of why the government needs to keep turning the screw on BTL:

http://www.telegraph.co.uk/money/jessica-investigates/hsbc-caused-stamp-duty-rise/

The government is definitely turning the screw and I think it's going to have some effect, in as much as it removes demand for fresh purchases, changes the investment case for successful, professional BTLers who understand the writing is on the wall and can deleverage, and forces the over-leveraged idiots to sell or go bust.

However, how do you turn the screw on the castles-in-the-air investment crowd, the amateur Middle Englanders who've got in late to BTL but will have done so conservatively, with low LTVs? I believe they will stop buying once their folly becomes clear, but I don't believe they will sell what they've already got.

If you're a Tory government, it would be electoral suicide to take on this crowd of people who have just one, maybe two, buy-to-lets.

In the above scenario I think we get a London-led crash in property prices, but the unknown is how many properties get released onto the market and how many FTBs will have the finances and guts to buy in a falling market. (Count on the government doing all it can to incentivise them, but don't count on them taking the bait.)

The more FTBs buying and quitting rentals the better, as that will mean a further turn of the screw on landlords as rents start falling due to their higher-earning tenants leaving, which hopefully leads to a waterfall effect.

However, it's also possible those properties get bought by other landlords, whether due to over-optimism or the ability to pay cash.

So, I think there needs to be a further turn of the screw, which is a commitment from the government to dramatically up the level and pace of housebuilding, enough for it to dawn on the whole population that price growth is going to be minimal in the long-term.

I sense that the idea we have a housing shortage is a minority view on HPC, but I have come to believe it is true for London and the South East at least. Some people seem to regard belief in shortage as a denial of the BTL/financialisation bubble theory, but for me both are factors in the current mess. I think BTL mania is largely to blame for HPI and prices are way above what the actual shortage of housing justifies, but I also think that BTL mania grew from the reality that landlords have had pricing power because of a real shortage of enough places to live in London and the South East.

Another reason I think a big housebuilding programme is a must is that while the shortage of housing overall may not be so bad as it appears, it is the shortage of housing on the market that is the problem. If BTLers are going to hold on to their properties as long as they can - and I think they will given the mind-altering effects of long-wave HPI - then the only way for the government to really move the needle on owner-occupation is to build its way around them.

[Bland Unsight]

You mention RBS but what about all the demutualised building societies that went to the wall due to bad lending to the residential property market.

Northern Rock and Bradford and Bingley? They both went to the wall; they weren't bailed out, they were nationalised. They are both perfect examples of a problems with the funding model. Even in 2008 it looked as if there was probably just enough capital in B&B to keep it alive; the problem was that the bank's creditors didn't care to be around to find out.

The bank runs as the money market lines of credit were cut off were the key problem. Whilst these bank runs were prompted by concerns about solvency you are posting as if the matter of solvency was obvious and deducing from that assumption the conclusion that we'll never have a house price crash again. That's ridiculous. Whilst HPC posters get stick for supposing that a crash is always right around the corner, proposing that there is presently no possibility of a crash because the banks can't take it is silly.

The government can see the banking system through a crash by bailing it out, with new base money printed by the Bank of England's computer.

If there is a combination of a recession and a change in sentiment we'll almost certainly get a crash. With all the government moves against buy-to-let we could get a real beauty if that part of the market takes fright. The chances of a really big crash in the next 12-18 months have never looked better in the five or so years I've been posting here, and I don't believe for a moment that the government will propose to prevent one (even if they could) because of the impact of a crash on the banks.

Edited August 2, 2016 by Ghost Bird

[Crumbless]

Northern Rock and Bradford and Bingley? They both went to the wall; they weren't bailed out, they were nationalised. They are both perfect examples of a problems with the funding model. Even in 2008 it looked as if there was probably just enough capital in B&B to keep it alive; the problem was that the bank's creditors didn't care to be around to find out.

The bank runs as the money market lines of credit were cut off were the key problem. Whilst these bank runs were prompted by concerns about solvency you are posting as if the matter of solvency was obvious and deducing from that assumption the conclusion that we'll never have a house price crash again. That's ridiculous. Whilst HPC posters get stick for supposing that a crash is always right around the corner, proposing that there is presently no possibility of a crash because the banks can't take it is silly.

The government can see the banking system through a crash by bailing it out, with new base money printed by the Bank of England's computer.

If there is a combination of a recession and a change in sentiment we'll almost certainly get a crash. With all the government moves against buy-to-let we could get a real beauty if that part of the market takes fright. The chances of a really big crash in the next 12-18 months have never looked better in the five or so years I've been posting here, and I don't believe for a moment that the government will propose to prevent one (even if they could) because of the impact of a crash on the banks.

So should they lower interest rates, introduce more QE and extend FFL this week as many are predicting do you not deem this as the govt attempting to prevent a HPC? In my view the only reason interest rates haven't gone up is to prevent a house price crash. And no i don't think the BoE is independent.

NR and BB were nationalised as they were about to go to the wall thus the nationalisation was a bail out and BB were balls deep in BTL lending, the fact you can't pop down to either today speaks volumes. And with the state intervening all banks benefited.

Aren't the recent stress tests done on the basis of a 30% HPC, in southern England that will get you back to pre HTB2 prices in October 2013, and to me these prices were well overvalued.

Look you clearly know the ins and outs of the banks but if these banks are so stable then why does the state keep on helping them out, and the fact banks are lending obscene amounts of money into a property market that has the highest house prices in history and is reliant on people paying back at the lowest interest rates in history when a run on the pound is possible tells me something is wrong.

[Crumbless]

. There is simply no comparison between the structure of the funding of the UK banks and their leverage today and their funding and leverage in 2008. Proposing that there is, as you are doing, is basically demonstrating that you don't know anything about banks. You can keep repeating your belief that the banks can't weather a house price crash because "most of their lending goes into property", but that doesn't make it so.

Do those at the Adam Smith Institute know anything about banking?

http://www.thenational.scot/business/adam-smith-institute-ridicules-boe-stress-tests-as-it-warns-on-fresh-banking-crisis.20691

[Bland Unsight]

Do those at the Adam Smith Institute know anything about banking?

http://www.thenational.scot/business/adam-smith-institute-ridicules-boe-stress-tests-as-it-warns-on-fresh-banking-crisis.20691

There are a two of weak points in your argument, the first I've covered already but is worth repeating, the second is new.

Firstly you are assuming incorrectly that a property crash necessarily entails losses on residential lending and that the problems are so severe that the system cannot tolerate the buy-to-let guys taking a hiding and that as a consequence the government will actively support house prices. This is a claim you've completely failed to substantiate.

Secondly, you are now proposing that there is a problem with my claim that the system's leverage is lower and the absolute amount of capital is higher. You're contesting that claim using a source which says the stress tests are inadequate. This again shows that you don't know what you are talking about. The capital is higher and the stress tests almost certainly intentionally flatter to deceive. Both assertions are true, there is no contradiction.

The Kevin Dowd Adam Smith Institute report which supports your link is very interesting. I've only had time to skim the summary. I see that he offers his thanks to Anat Admati, co-author of The Bankers' New Clothes. (I really enjoyed it - have you had time to read it?)

Looking at Dowd's report you discover this section at the beginning of Chapter 8:

In previous chapters I went through the Bank of England’s stress tests and pointed out a number of fatal flaws with these exercises.

You might ask: how would you go about stress testing yourself?

I wouldn’t.

Stress testing is not just fatally flawed, but also satisfies the dictionary definition of superstition: it reflects an irrational belief in useless ritual implements, the stress test models, maintained despite all evidence that those ritual implements don’t actually work. The stress testers should therefore be laughed out of court and the practice of central bank stress testing should be abandoned as a failed experiment.

The thrust of the argument in The Banker's New Clothes is that capital levels at banks should be much, much higher, in essence that banks should be lending the money they got from their equity investors to the tune of 20% of their funding. I agree but it represents a very, very significant change to get there from where we started in 2009. My personal take is that Dowd's laudable ends mean he's rather over-egging the pudding in dismissing the stress tests.

Even if we accept that the system is weaker than we would like that does not mean that it is not much stronger than it was (as I claimed). Neither does it mean that the banking system is not strong enough to take a few buy-to-let cretins getting creamed by a house price crash, which is the idiocy you're pimping.

Also, the other point I've already made still stands. The government can watch the BTL guys get gutted like fish and then bail out the banks directly as and when losses hit and the need arises.

Your claim that the government has to support house prices is nonsense.

Edited August 3, 2016 by Ghost Bird

[Crumbless]

Also, the other point I've already made still stands. The government can watch the BTL guys get gutted like fish and then bail out the banks directly as and when losses hit and the need arises.

Your claim that the government has to support house prices is nonsense.

I don't claim the govt has to support house prices, i believe the govt. has to stop supporting house prices to create a functioning economy.

I am stating as fact the government have supported house prices and come up with never ending policies to do as much.

And if the govt can let BTL guys get gutted then why have they introduced S24 over 6 years, if they were not worried about the wider market S24 would have come in overnight, as clearly the govt need the tax revenue.

[Crumbless]

Too add, whilst the govt can jump in and bail out banks at anytime, it'll come at a vast political cost.

[Bland Unsight]

And if the govt can let BTL guys get gutted then why have they introduced S24 over 6 years, if they were not worried about the wider market S24 would have come in overnight, as clearly the govt need the tax revenue.

It's always seemed fairly obvious to me that no Chancellor would want to conduct or present policy in such a way as to be evidently responsible for precipitating a house price crash or enacting chaos in the housing market.

I can't really see the issue here.

If the government want to protect house prices at all costs, as you are arguing that they must, in order (again according to you) to protect the banks, then why introduce Section 24 at all? You've now shifted the ground to the government merely being "worried about the wider market" and are inferring from the phased introduction that this worry exists. But once again, that's all speculation from you and no facts or evidence. As discussed at the committee stages of the bill, given that it takes time to offload tenanted property, without delayed and then staged introduction there would have been a danger of this tax walking and talking as it was a retroactive amendment to the tax regime in place when 'investment' decisions were made.

I think it's worthwhile speculating about intentions, but you keep insisting that your sketchy guesses at what went on and why are how it was. I'm not buying it.

[Bland Unsight]

Too add, whilst the govt can jump in and bail out banks at anytime, it'll come at a vast political cost.

I'm dubious about that claim too. If you do it via things like the Special Liquidity Scheme I doubt that 9 voters in 10 would even understand that it had happened, much less understand what had happened. There are bailout and bailouts.

People never got that angry at the banks last time around and they certainly didn't stay angry. The pressure to rein in the banks has come largely from the technocracy.

[Crumbless]

If the government want to protect house prices at all costs, as you are arguing that they must, in order (again according to you) to protect the banks, then why introduce Section 24 at all?

I am not arguing they must i made that perfectly clear in my last email, please stop making things up to suit your argument. I am saying they have protected house prices at all costs.

And the reason they brought S24 in at all is because if landlords continued to buy up the property in the way they have been doing in the last 15 years and especially the last few under Osbornes stewardship the Tory party would not stand a chance in the future, and when it did go tits up it would do so in a spectacular way. Besides when one section of buyers get tax breaks its rather unfair.

You seem to be denying that the govt have completely rigged and controlled the market with constant schemes in the last 8 years whereas i am at the other end of the spectrum.