Jump to content
House Price Crash Forum
t1234

Buy-to-let crackdown will 'end the dreams' of middle-class investors

Recommended Posts

Interesting Telegraph article about affordability restrictions coming in for BTL. This bit shocked me though, 

Quote

For example, someone with a £200,000 interest-only mortgage borrowing at  1.79 pc would have monthly mortgage payments of £299.

However, as these repayments would rise to £917 if their rate of repayment interest rose to  5.5 per cent, they would need to prove they could charge rent of £1,146 a month to  be approved for the mortgage.

Are people really still able to borrow £200,000 for £300 a month ? No wonder we have such crazy prices.

http://www.telegraph.co.uk/news/2016/11/16/buy-to-let-crackdown-will-end-the-dreams-of-middle-class-investo/

 

 

Share this post


Link to post
Share on other sites

The middle class "dream". Cash in on two decades of rampant, unearned HPI to free enough money from your PR for a deposit on a BTL. Out-bid a prospective first time buyer when buying said BTL, and then get the same potential FTBs in as tenants so that they use spend 70% of their post-tax income to pay for your mortgage and your pension, whilst you reap all of the asset price appreciation in the BTL. You can see why some people don't want that to end, but it must.

Share this post


Link to post
Share on other sites

Haha at 'End the dreams of...'

If I was a psychiatrist, and someone came to me and told me they'd be dreaming about buying up houses by leveraging up on debt and packing 'em in, the most underlined words in my notes would be 'Probable Sociopath'.

Share this post


Link to post
Share on other sites
5 minutes ago, mattyboy1973 said:

The middle class "dream". Cash in on two decades of rampant, unearned HPI to free enough money from your PR for a deposit on a BTL. Out-bid a prospective first time buyer when buying said BTL, and then get the same potential FTBs in as tenants so that they use spend 70% of their post-tax income to pay for your mortgage and your pension, whilst you reap all of the asset price appreciation in the BTL. You can see why some people don't want that to end, but it must.

Well said. It is a diaboilical situation. People dont sell their homes anymore when they move. They rent them out. Every year, another x % go into BTL. There need to be a tax or financial penalty on this to stop this happening. It clearly isnt going the happen by cycles and market forces alone ie interest rates.

Share this post


Link to post
Share on other sites
Quote

Many have turned to buy-to-let to fund retirement income after being effectively barred from putting more money in to their pensions by the Government.

This can't be right... prior to BTL many were putting equivalent to > 40K into their pensions?

Share this post


Link to post
Share on other sites

The comments to this article as linked into the btlegraph's Facebook page are hilarious.

 

Lots of people with double barrelled names and horsey faces complaining that the govt needs to cut btl taxes to get the property market moving again.

Share this post


Link to post
Share on other sites
31 minutes ago, mattyboy1973 said:

The middle class "dream". Cash in on two decades of rampant, unearned HPI to free enough money from your PR for a deposit on a BTL. Out-bid a prospective first time buyer when buying said BTL, and then get the same potential FTBs in as tenants so that they use spend 70% of their post-tax income to pay for your mortgage and your pension, whilst you reap all of the asset price appreciation in the BTL. You can see why some people don't want that to end, but it must.

Nice but Telegraph dont do comments no more, upsets their natural constituent.

Share this post


Link to post
Share on other sites
7 minutes ago, This time said:

Isn't this just Basel III?

No. this is just the PRA affordability changes partly put in because of S24, mainly because they need to. This means that banks will now be lending less than they were going to and wanted to (looking at BM who were until this announcement yesterday planning to play fast and loose with the changes).

Basel III has a different impact - that increases the amount of capital required against the loan which will increase the margin (and so the interest rate) of BTL loan. As Spyguy stated elsewhere today it means that BTL loans are going to have to be treated as business loans and so will be more expensive.

You then have S24 and its dual impact - people are going to have to pay more tax and domare going to lose tax credits (some cases) and child benefit (others) as people's total income figure changes from salary + the negligible profit on their overleveraged people farms  investment properties to salary + monthly rent on said investment properties.

Then you have the very recent discovery by councils that they can keep some staff employed by requiring BTL property to be licenced. That's going to add £50 a month to most landlords costs as it rapidly rolls out over the country.

So no its not Basel III. They haven't noticed it yet and its way down the list of items deserving popcorn.

Edited by eek

Share this post


Link to post
Share on other sites
37 minutes ago, Bruce Banner said:

Yesterday, Sky News defined the middle classes as "Barristers, doctors and journalists".

Well, you need this high income to afford middle classes property. Of course with high mortgage on top of it.

Share this post


Link to post
Share on other sites
22 minutes ago, eek said:

No. this is just the PRA affordability changes partly put in because of S24, mainly because they need to. This means that banks will now be lending less than they were going to and wanted to (looking at BM who were until this announcement yesterday planning to play fast and loose with the changes).

Basel III has a different impact - that increases the amount of capital required against the loan which will increase the margin (and so the interest rate) of BTL loan. As Spyguy stated elsewhere today it means that BTL loans are going to have to be treated as business loans and so will be more expensive.

You then have S24 and its dual impact - people are going to have to pay more tax and domare going to lose tax credits (some cases) and child benefit (others) as people's total income figure changes from salary + the negligible profit on their overleveraged people farms  investment properties to salary + monthly rent on said investment properties.

Then you have the very recent discovery by councils that they can keep some staff employed by requiring BTL property to be licenced. That's going to add £50 a month to most landlords costs as it rapidly rolls out over the country.

So no its not Basel III. They haven't noticed it yet and its way down the list of items deserving popcorn.

Basel 3 has not come in yet.

I think banks have classified loans accorrding to basel 3. They have not finished raising the extra capital and raised the IR on those loans yet. Its coming.

Basically, basel3 *hates* leverage. And It hates leverage on property. And it hates an individual having a lot of leverage/debt.

To your list Id add the following, speculative but likely changes: removal of tax credits from non UK nationals, further reduction in LHA.

Share this post


Link to post
Share on other sites
32 minutes ago, eek said:

No. this is just the PRA affordability changes partly put in because of S24, mainly because they need to. This means that banks will now be lending less than they were going to and wanted to (looking at BM who were until this announcement yesterday planning to play fast and loose with the changes).

Basel III has a different impact - that increases the amount of capital required against the loan which will increase the margin (and so the interest rate) of BTL loan. As Spyguy stated elsewhere today it means that BTL loans are going to have to be treated as business loans and so will be more expensive.

You then have S24 and its dual impact - people are going to have to pay more tax and domare going to lose tax credits (some cases) and child benefit (others) as people's total income figure changes from salary + the negligible profit on their overleveraged people farms  investment properties to salary + monthly rent on said investment properties.

Then you have the very recent discovery by councils that they can keep some staff employed by requiring BTL property to be licenced. That's going to add £50 a month to most landlords costs as it rapidly rolls out over the country.

So no its not Basel III. They haven't noticed it yet and its way down the list of items deserving popcorn.

Ah, thank you. I knew it was something we've been talking about for months here. 

Share this post


Link to post
Share on other sites
1 hour ago, GreenDevil said:

Well said. It is a diaboilical situation. People dont sell their homes anymore when they move. They rent them out. Every year, another x % go into BTL. There need to be a tax or financial penalty on this to stop this happening. It clearly isnt going the happen by cycles and market forces alone ie interest rates.

Often people who each own (correction:  have mortgages on) a house will get married and then assume that they can just rent out the 'spare' house, with the old residential mortgage on it and not bother with any of the obligations like declaring taxable income or holding the deposit in a TDP. 

 

That has got to be a prime target for clampdowns, both by the government and the banks.  Also, council tax exemptions are often overly generous regarding voids.  There should be full tax payable by the owner on habitable properties if they are empty.  Either get a tenant in or sell it ASAP.

 

Share this post


Link to post
Share on other sites

The telegraph have a second article up now which goes into the details

http://www.telegraph.co.uk/investing/buy-to-let/buy-to-let-mortgage-crackdown-what-it-means-for-landlords/

There are bits I would argue about but there is 1 lovely statement.

Quote

Say you are paying a current best-buy rate of 1.6pc (this is offered for instance by Leeds Building Society). When that finishes in 2018, the cost reverts to 5.74pc - which will push your monthly repayments up dramatically. 

If this is the case for some standard variable rates at the moment all I can say is ouch and that the PRA figures being used aren't accurate. That 5.5% needs to be far nearer 8%.

Edited by eek

Share this post


Link to post
Share on other sites
8 minutes ago, eek said:

The telegraph have a second article up now which goes into the details

http://www.telegraph.co.uk/investing/buy-to-let/buy-to-let-mortgage-crackdown-what-it-means-for-landlords/

There are bits I would argue about but there is 1 lovely statement.

If this is the case for some standard variable rates at the moment all I can say is ouch and that the PRA figures being used aren't accurate. That 5.5% needs to be far nearer 8%.

Yes - this really going to be the kicker. I know there have been some noises about letting existing customers roll over onto new mortgages even if they don't hit the requirements, but will this play out in practice? That's an awful lot of tempting cash for the lenders, knowing as they do that the borrower cannot go elsewhere. Simply going onto SVRs at today's rates will kill a vast number of these parasites. Who knows what these rates are likely to be in a couple of years?

Share this post


Link to post
Share on other sites

I never had dreams of being a landlord, every Land Lord I've every known has had a nightmare with tenants. One of my best friends, and my sister, are both renting out their homes while they are working abroad - nothing but hassle and horrendous costs involved. Always hated the idea of an economy that thinks bricks should generate wealth, ridiculous, zero productivity. Bloody scum bags touting all this crap.

Share this post


Link to post
Share on other sites
45 minutes ago, spyguy said:

Basel 3 has not come in yet.

I think banks have classified loans accorrding to basel 3. They have not finished raising the extra capital and raised the IR on those loans yet. Its coming.

Basically, basel3 *hates* leverage. And It hates leverage on property. And it hates an individual having a lot of leverage/debt.

To your list Id add the following, speculative but likely changes: removal of tax credits from non UK nationals, further reduction in LHA.

You keep saying this and I wish it would happen but I just don't see why it would happen. The Government is wholely in favour of keeping all the props and they don't want to be seen as nasty (look how quickly they backtracked on the WTC changes last year!).

Share this post


Link to post
Share on other sites
1 hour ago, Bruce Banner said:

Yesterday, Sky News defined the middle classes as "Barristers, doctors and journalists".

lol! And these are the same fools who still don't understand what happened with the US election (or the UK referendum). They just don't get it.

Edited by Errol

Share this post


Link to post
Share on other sites

you're not middle class, you're working class with a shitload of DEBT. deal with it.

anyone who has to work for a living is working class in my book, having a new car (DEBT) or a new house or two (DEBT) doesn't change that

Share this post


Link to post
Share on other sites
13 minutes ago, fru-gal said:

You keep saying this and I wish it would happen but I just don't see why it would happen. The Government is wholely in favour of keeping all the props and they don't want to be seen as nasty (look how quickly they backtracked on the WTC changes last year!).

I know i keep saying it, with good reason.
The changes to WTC were kicked back by a load of Lab + LibDem peers, taking advantage of Giodts cockup in preparing the bill.

The cost of tax credits is off the scale.

UKGOV has not legal obligation to pay them to non nationals. At best, they are just not saying anything.

But the need to save money is huge - the UK is lumbered with a massive budget deficit. They could knock a good few billion off by stopping tax credits for non nationals.

Non nationals dont vote, they have not right to expect them, immigration is causing big problems.

Cutting non national tax credits is a total no-brainer.

Share this post


Link to post
Share on other sites
2 minutes ago, mattyboy1973 said:

Yes - this really going to be the kicker. I know there have been some noises about letting existing customers roll over onto new mortgages even if they don't hit the requirements, but will this play out in practice? That's an awful lot of tempting cash for the lenders, knowing as they do that the borrower cannot go elsewhere. Simply going onto SVRs at today's rates will kill a vast number of these parasites. Who knows what these rates are likely to be in a couple of years?

+1. Its also important to remember that until now it was very easy to meet the old criteria (nothing had changed for years so if you met the criteria last time around you met it next time around) but the new criteria is going to be far harder to meet and banks won't be able to ignore it if the BofE are looking over the bank's shoulder...

Going forward the really entertaining bit when it comes to remortgaging will be equity levels. Currently £500 a month rent allows you to buy a £120,000 property  with £30,000 and a loan £90,000. Under the new PRA rules you can only borrow £76,000. Given that your typical BTLer buying a new property won't want to find an extra £14,000 in equity to buy the property (and its btl which is driving house prices at the moment) I think its safe to say that prices could easily drop 10% to say £108,000.

Now a £90,000 loan on a property worth £108,000 means a 80% mortgage which few banks are going to be willing to lend. So you can't remortgage.

However it also means that the current loan has probably breached the equity conditions of the mortgage so the bank may be in its rights to ask you to find equity or just sell up.

Your typical leveraged BTLer is about to discover something all spreadbetters discover at least once. Leveraged investment is brilliant when the market is heading in your direction. The downside is that when the market goes against you the crunch point is far far earlier than you expected it to be.

The telegraph is correct to say that the market has turned against BTL. None of the articles however show exactly how much its turned against them - the picture its painting is far happier than how reality will play out.

Share this post


Link to post
Share on other sites
10 minutes ago, spyguy said:

I know i keep saying it, with good reason.
The changes to WTC were kicked back by a load of Lab + LibDem peers, taking advantage of Giodts cockup in preparing the bill.

The cost of tax credits is off the scale.

UKGOV has not legal obligation to pay them to non nationals. At best, they are just not saying anything.

But the need to save money is huge - the UK is lumbered with a massive budget deficit. They could knock a good few billion off by stopping tax credits for non nationals.

Non nationals dont vote, they have not right to expect them, immigration is causing big problems.

Cutting non national tax credits is a total no-brainer.

They can't do it until we leave the EU (there is a requirement to treat everyone equally and the UK is stupid enough to play fair with rules everywhere else ignores). I do suspect we will do something now Merkel is making it clear free movement means movement to work not claim credit.

12 months notice from next Wednesday would be perfect. We ain't going to see it though and outside of the structural budget deficit it doesn't matter. The train has finally come off its tracks.....

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • Next General Election   90 members have voted

    1. 1. When do you predict the next general election will be held?


      • 2019
      • 2020
      • 2021
      • 2022

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.