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fru-gal

Where will all the money that would have been invested in BTL go to now?

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If we are seeing the end of BTL and a reduction in the number of landlords, what do you think "investors" will put their money into now that BTL is not such an attractive option? Will the stock market become much more attractive? Just curious as to where people think the flow of money will divert to?

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I put all my savings into stocks and shares ISAs, mostly into cleantech companies (TSLA, etc).  All capital gains and dividends are tax free, and you can choose which shares you invest in to avoid management fees.  Hargreaves Lansdowne has a great platform which allows you to invest in the main overseas markets, and reasonable fees.

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1 hour ago, spyguy said:

What money?

Exactly. The 'money' was more like 15% money, 15% extracted equity, 70% debt. 

Now it will be more like 40% money, 5% extracted equity, 55% debt, but going into the regions rather than London. 

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1 hour ago, fru-gal said:

If we are seeing the end of BTL and a reduction in the number of landlords, what do you think "investors" will put their money into now that BTL is not such an attractive option? Will the stock market become much more attractive? Just curious as to where people think the flow of money will divert to?

The Dutch Tulip Bulb industry perhaps?

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Well if landlords sell up those that bought years ago (and didn't remortgage) will have a lot of money to invest elsewhere, whether we like it or not!

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1 hour ago, Patient London FTB said:

Exactly. The 'money' was more like 15% money, 15% extracted equity, 70% debt. 

Now it will be more like 40% money, 5% extracted equity, 55% debt, but going into the regions rather than London. 

 

....it is debt or imaginary wealth....;)

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Classic cars and bikes, wine, art, antiques and the like. Preferably something with a bit of middle class cachet. It's not just about getting a return, it's about the show of wealth.

The claim is that they don't trust the Government or the banks (I know...) so they want something tangible as an asset. You can't really whip out your share portfolio to show off to your mates at a dinner party, can you?

I'm in two minds whether I want them to rotate into the stock market; on one hand it will undoubtedly do my shares good, but on the other hand yields will plummet.

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1 hour ago, fru-gal said:

Well if landlords sell up those that bought years ago (and didn't remortgage) will have a lot of money to invest elsewhere, whether we like it or not!

I don't think it works like that.

If we mean by 'years ago' the point at which BTL mortgage volumes really started to beef up, then we're at 2003-ish. BTL mortgage rates at that point would have been about 6%.

If you bought in anywhere in London in 2003 at 85% LTV and just held then HPI today would mean that you were now at 35% LTV and you can easily get a re-mortgage at less than 2.5%.

On some fairly reasonable assumptions (rent inflation at 2% per annum, initial financing at a 6% gross yield on a purchase price of £200,000) your profit after mortgage interest but before all other costs in 2003 was £1,800 per annum. Today it would be almost £14,000 per annum. (This is the effect of gearing with interest-only mortgages at very low mortgage rates).

For someone with relatively low gearing section 24 will result in a slightly higher tax bill but the difference is not such a big deal. Before section 24 someone paying higher rate on that income before section 24 has a post-tax income on the BTL which goes from £8,200 to £7,800.

Now as the original investment was only £30,000 you've seen a capital gain of £300,000, and even after section 24 you're getting a return after interest and tax of 26% per annum on that £30,000.

If your only concern was the return from the investment you'd be flat out nuts to even think of selling.

Of course, in order to keep growing your portfolio you had to remortgage, and then by today you'd have a far greater rental income, much higher gearing and by September 2017 you'll probably be shut out of the cheap mortgage rates. Therefore section 24 has it's teeth firmly embedded in your nutsack. You have to sell, but once you pay off the mortgages and the CGT you owe, there may be almost nothing left to reinvest.

Edited by Bland Unsight

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18 minutes ago, Bland Unsight said:

Of course, in order to keep growing your portfolio you had to remortgage, and then by today you'd have a far greater rental income, much higher gearing and by September 2017 you'll probably be shut out of the cheap mortgage rates. Therefore section 24 has it's teeth firmly embedded in your nutsack. You have to sell, but once you pay off the mortgages and the CGT you owe, there may be almost nothing left to reinvest.

I wonder how many of the Scummers understand this? If they'd just bought one pukka London flat in the early 2000s, never pulled out any equity to buy more, then you'd have set yourself up with pretty decent addition to your income for chicken-feed and a colossal capital gain. However, by gambling on and on and on, they may well have bankrupted themselves and left themselves with no pension income whatsoever (they may have even given up a semi-decent career outside property). Two decades wasted impoverishing yourself whilst supposing that you were a property genius. It's no wonder they are so upset. Oh, well - life goes on.

Edited by Bland Unsight

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37 minutes ago, Bland Unsight said:

I wonder how many of the Scummers understand this? If they'd just bought one pukka London flat in the early 2000s, never pulled out any equity to buy more, then you'd have set yourself up with pretty decent addition to your income for chicken-feed and a colossal capital gain. However, by gambling on and on and on, they may well have bankrupted themselves and left themselves with no pension income whatsoever (they may have even given up a semi-decent career outside property). Two decades wasted impoverishing yourself whilst supposing that you were a property genius. It's no wonder they are so upset. Oh, well - life goes on.

How many landlords do you think remortgaged in London to buy more property?

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4 hours ago, fru-gal said:

If we are seeing the end of BTL and a reduction in the number of landlords, what do you think "investors" will put their money into now that BTL is not such an attractive option? Will the stock market become much more attractive? Just curious as to where people think the flow of money will divert to?

All just my opinion,but this is how i really see things playing out.

When we get a massive deflationary reset,probably starting sometime this year they will have no savings and be trapped (the BTLers).Banks will be rolling over again probably and re-mortgages will be a thing of the past.Central banks will panic and QE with helicopter money this time.They will monetize the debt on a massive scale to save the financial system.That will be what fuels the first reflation cycle since the late 70s/early 80s starting in 18/19.Inflation wont save them though (BTL/leveraged) because interest rates will be heading towards double figures so house prices will be falling as PE ratios on shares compress down to single digits as well.Equity markets will probably roll over first.

The young will then be able to buy assets again at decent/low prices after the biggest wealth destruction since the 20s.This is how i fully expect this to play out.Gold to $1500 maybe first then that will roll over as well down to $600.The only thing going up the next 18 months might be T bills.I must say however,after the bust, with a huge relationary cycle kicking in gold might go to $7000+ and the miners could be to 2020s what the tech stocks were to the late 90s.

A lot of people havent lived through,or cant remember what an inflationary cycle looks like.They are about to find out.All just my opinion.

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48 minutes ago, fru-gal said:

How many landlords do you think remortgaged in London to buy more property?

I reckon the more expensive the area, the more single property landlords.

 

It seems there are two questions and people are focusing on the first, but the second is probably more important until volumes increase significantly.

"Where will people invest the money they have accumulated from BTL?"

There aren't many selling yet, but those who do over the next few years will probably have a fair amount to withdraw. What are the highly leveraged landlords expected to do and what are they likely to do? At what point do the banks and HMRC realise they can't recover all the debt and taxes and then what happens?

"Where will people who might have considered BTL, but are put off by S24, SDLT surcharge, high prices and low yields etc. invest instead?"

For at least a year BTL has been a terrible idea. Equities are probably safer and more reasonably priced. Some people might just opt to buy bigger houses, spend more on extensions, or gift more to their children and grandchildren to allow them to buy.

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29 minutes ago, durhamborn said:

 

The young will then be able to buy assets again at decent/low prices after the biggest wealth destruction since the 20s.This is how i fully expect this to play out.Gold to $1500 maybe first then that will roll over as well down to $600.The only thing going up the next 18 months might be T bills.I must say however,after the bust, with a huge relationary cycle kicking in gold might go to $7000+ and the miners could be to 2020s what the tech stocks were to the late 90s.

 

Funny you mention tech stock. Do you envisage a tech bubble 2.0 crash?

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54 minutes ago, fru-gal said:

How many landlords do you think remortgaged in London to buy more property?

Once again the Scanlon & Whitehead report for the CML proves itself to be a treasure trove:

58e3b5904971b_Whiteheaddistributionfigure.png.75f1d009e5e42d82cce7c204a1ac8e4c.png

I see no reason to suppose that the London leveraged landlords don't reflect these figures, so that's about half of London BTLs being held by landlord likely to have to sell at least some of their property to cope with Section 24 and PRA SS13/16, i.e. to deal with cards that have already been played.

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They aren't the sharpest tool in the box. I reckon they will invent another pyramid scheme to invest such as Busta's time share holiday homes.

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1 minute ago, knock out johnny said:

Funny you mention tech stock. Do you envisage a tech bubble 2.0 crash?

Yes,in percentages,but much much bigger in wealth destruction.The only way out was always default and/or inflation.The problem is the can kicking has made sure before that we see a massive deflationary crash.Most people investing now have only seen a slow deflationary cycle.That means higher house prices,higher bond prices,higher PE ratios on shares,and lower dividend yields..Falls simply see new highs.Buy and hold.An inflationary cycle is nothing like that.In the 70s (the last one) PE ratios fell,even though inflation was high.Thats because interest rates are rising fast chasing the inflation.Im pretty certain we will see a huge debt deleverage as markets roll over,and several banks fail, followed by the helicopter money as central banks battle to save the financial system.That will kick off the inflationary cycle and deal with the rest of the debt.I think the financial crisis was only stage one of two.

The market and 99% of the population say im wrong on this,but il be buying their assets for peanuts in a few years.Just my opinion.

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23 minutes ago, Bland Unsight said:

Once again the Scanlon & Whitehead report for the CML proves itself to be a treasure trove:

58e3b5904971b_Whiteheaddistributionfigure.png.75f1d009e5e42d82cce7c204a1ac8e4c.png

I see no reason to suppose that the London leveraged landlords don't reflect these figures, so that's about half of London BTLs being held by landlord likely to have to sell at least some of their property to cope with Section 24 and PRA SS13/16, i.e. to deal with cards that have already been played.

I would bet that Scanlon & Whitehead under-reports for overseas-based landlords, because its an online survey of UK-based landlords.

Overseas landlords should be much more prevalent in London than elsewhere. Not sure how their tax reporting is affected by Section 24? Does it depend where their mortgage was issued? I did find out at some point that interest-only lending is not allowed on Singapore mortgages. 

A big effect that section 24 will have in London is restricting people's ability to climb the ladder by extracting equity from their existing property and renting it out. 

 

 

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1 hour ago, durhamborn said:

All just my opinion,but this is how i really see things playing out.

When we get a massive deflationary reset,probably starting sometime this year they will have no savings and be trapped (the BTLers).Banks will be rolling over again probably and re-mortgages will be a thing of the past.Central banks will panic and QE with helicopter money this time.They will monetize the debt on a massive scale to save the financial system.That will be what fuels the first reflation cycle since the late 70s/early 80s starting in 18/19.Inflation wont save them though (BTL/leveraged) because interest rates will be heading towards double figures so house prices will be falling as PE ratios on shares compress down to single digits as well.Equity markets will probably roll over first.

The young will then be able to buy assets again at decent/low prices after the biggest wealth destruction since the 20s.This is how i fully expect this to play out.Gold to $1500 maybe first then that will roll over as well down to $600.The only thing going up the next 18 months might be T bills.I must say however,after the bust, with a huge relationary cycle kicking in gold might go to $7000+ and the miners could be to 2020s what the tech stocks were to the late 90s.

A lot of people havent lived through,or cant remember what an inflationary cycle looks like.They are about to find out.All just my opinion.

So how are you preparing for this? Heavy in cash or gold? Selling out of equities and bonds?

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1 hour ago, durhamborn said:

All just my opinion,but this is how i really see things playing out.

When we get a massive deflationary reset,probably starting sometime this year they will have no savings and be trapped (the BTLers).Banks will be rolling over again probably and re-mortgages will be a thing of the past.Central banks will panic and QE with helicopter money this time.They will monetize the debt on a massive scale to save the financial system.That will be what fuels the first reflation cycle since the late 70s/early 80s starting in 18/19.Inflation wont save them though (BTL/leveraged) because interest rates will be heading towards double figures so house prices will be falling as PE ratios on shares compress down to single digits as well.Equity markets will probably roll over first.

The young will then be able to buy assets again at decent/low prices after the biggest wealth destruction since the 20s.This is how i fully expect this to play out.Gold to $1500 maybe first then that will roll over as well down to $600.The only thing going up the next 18 months might be T bills.I must say however,after the bust, with a huge relationary cycle kicking in gold might go to $7000+ and the miners could be to 2020s what the tech stocks were to the late 90s.

A lot of people havent lived through,or cant remember what an inflationary cycle looks like.They are about to find out.All just my opinion.

Sorry to be a thicko, but what does "monetize the debt" actually mean in practice?

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