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crow

61% of BTL paid for in cash?

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Pension freedoms will have freed up a lot of cash looking for yield.  On the face of it,  simply buying a house and waiting for the rent to roll in with a 5% yield looks like easy money.

EA charges,  voids,  repairs etc aren't always apparent at the outset.

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1 hour ago, crow said:

Spotted at the bottom of this article - https://www.ft.com/content/adb040ce-1959-11e7-a53d-df09f373be87

"according to estate agents countrywide, cash purchases reached 61%, the highest figure since records began in 2007"

 

 

Less landlords buying with a mortgage - % of cash purchases goes up, while actual number of properties bought shrinks.

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6 minutes ago, rantnrave said:

Less landlords buying with a mortgage - % of cash purchases goes up, while actual number of properties bought shrinks.

Ah ha! Hadn't thought of it that way, very true. Interesting though that all these landlords won't be affected by s24, and ploughed on in spite of the 3% extra stamp duty. 

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4 minutes ago, Bland Unsight said:

Worth a read: When cash buyers aren't.

Certainly is - interesting how they service those mortgages though, as they won't have deeds to loan the money against and the lyrics will far from getting a rental income if they are buying offplan. But then again I'm probably not appreciating the huge wealth that many of these people have and the will to get the money out of the country in any way possible! 

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6 minutes ago, crow said:

Interesting though that all these landlords won't be affected by s24, and ploughed on in spite of the 3% extra stamp duty. 

Wouldn't be a bubble if people didn't buy in! ;)

 

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13 minutes ago, Simon Taylor said:

Pension freedoms will have freed up a lot of cash looking for yield.  On the face of it,  simply buying a house and waiting for the rent to roll in with a 5% yield looks like easy money.

EA charges,  voids,  repairs etc aren't always apparent at the outset.

This has always been a massively dubious claim.

There's was a good FT piece putting it to the sword in 2015, google "Why pension freedoms won’t trigger a property boom", (link for subscribers). Only a small fraction of defined contribution pots are big enough to buy a house without leverage. The people with those pots probably already have a lot of their separate net wealth tied up in property. I worked the numbers during a lengthy (upheld) editorial complaint back in 2015 when the Today programme were talking b0llokcs about a wave of pension money flowing into property or some crap like that, and I reckon that about 6,000 unleveraged pension pot purchases a year was a reasonable guess for an upper bound.

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24 minutes ago, Bland Unsight said:

This has always been a massively dubious claim.

There's was a good FT piece putting it to the sword in 2015, google "Why pension freedoms won’t trigger a property boom", (link for subscribers). Only a small fraction of defined contribution pots are big enough to buy a house without leverage. The people with those pots probably already have a lot of their separate net wealth tied up in property. I worked the numbers during a lengthy (upheld) editorial complaint back in 2015 when the Today programme were talking b0llokcs about a wave of pension money flowing into property or some crap like that, and I reckon that about 6,000 unleveraged pension pot purchases a year was a reasonable guess for an upper bound.

Or, in proper figures, about 5 transactions /UK town >10,000 population.

p1ss in the ocean.

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2 hours ago, crow said:

https://www.ft.com/content/adb040ce-1959-11e7-a53d-df09f373be87

 

This link might work if the above is pay walled for you. 

http://www.mansionglobal.com/articles/53853-record-number-of-u-k-landlords-paying-in-cash

This figure has been bandied about for a while.

1 hour ago, Bland Unsight said:

Worth a read: When cash buyers aren't.

Worth noting that if foreign buyers source foreign mortgages for UK properties, they show up as a cash purchase.Could well be, as R&R points out below,foreign purchases rising as a proportion of total sales as transactions,particularly in London,are at low levels historically.

 

1 hour ago, rantnrave said:

Less landlords buying with a mortgage - % of cash purchases goes up, while actual number of properties bought shrinks.

 

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4 hours ago, Bland Unsight said:

Worth a read: When cash buyers aren't.

This

Imagine Chinese investor with 30-60 million £ placed it through HK/Singapore and maxed it up to over 100m for purchasing uk commercial and residential property.

Why not it only goes up ;-)

And when it comes into the UK why not create a company with some nice English lads and go 60/40 leverage on a hotel or 70/30 on residential.

In this scenario a few US interest rate rises can turn seemingly unlimited money to negative toute suite.

 

Edited by Fromage Frais

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The amateur landlords, and by that I mean the ones who actually hold down a job as well are likely remortgaging the main home for their it's me pension second property. They can borrow at low home owner borrowing rates and won't have to present a business case to a lender. 

I know one such couple in my village, bought a house for £350,000 10 years ago and now worth  £800,000 and they were able to equity release at their very low tracker rate to purchase a 2 bed in the nearest town for £140k ... I think they took a little bit more as the guy bought a new 7 series BMW and they are extending  (planning permission requested) their kitchen and putting a basement games room in with club grade boogie boogie dance floor and a bar. 

On paper at least they'll have been cash buyers.

 

Edited by longtomsilver

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Perhaps some smaller scale BTLers are selling up due to tax changes and their properties are being bought by larger BTL concerns for cash? The governbankment might want more BTL tax from people in case they think about retiring early with their BTL "pension" and stop paying income tax. 

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7 hours ago, Democorruptcy said:

Perhaps some smaller scale BTLers are selling up due to tax changes and their properties are being bought by larger BTL concerns for cash? The governbankment might want more BTL tax from people in case they think about retiring early with their BTL "pension" and stop paying income tax. 

The big Btl'ers I know, won't be buying until there's blood on the proverbial streets 

Edited by Saving For a Space Ship

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7 hours ago, longtomsilver said:

The amateur landlords, and by that I mean the ones who actually hold down a job as well are likely remortgaging the main home for their it's me pension second property. They can borrow at low home owner borrowing rates and won't have to present a business case to a lender. 

I know one such couple in my village, bought a house for £350,000 10 years ago and now worth  £800,000 and they were able to equity release at their very low tracker rate to purchase a 2 bed in the nearest town for £140k ... I think they took a little bit more as the guy bought a new 7 series BMW and they are extending  (planning permission requested) their kitchen and putting a basement games room in with club grade boogie boogie dance floor and a bar. 

On paper at least they'll have been cash buyers.

Similarly portfolio BTL landlords can fund "cash" purchases by increasing borrowing against their existing portfolio. Once they've purchased their latest property if / when they then take out a BTL loan against it, it will show up in the remortgaging figures and not the purchasing figures, as will any mortgage equity withdrawal from their existing BTLs. That financing can then be used for their next "cash" purchase, etc, etc.

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Landlords are ripping equity out of their main residence to pay off BTL mortgages because it's more tax efficient. Seems to make sense, but rather them than me!

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12 hours ago, Drummer said:

Landlords are ripping equity out of their main residence to pay off BTL mortgages because it's more tax efficient. Seems to make sense, but rather them than me!

By paying down the leverage on a BTL you always increasing the tax cost, even after section 24 is fully tapered in, because of the s24 relief.

It seems to me that the consequence of increasing the debt on your own home and decreasing the debt on your BTL are

  1. you increase the interest expense associated with the mortgage on your own home
  2. you increase the tax expense on the BTL (because you reduce the interest expense and therefore reduce the amount of s24 relief)
  3. you decrease the interest expense associated with the BTL mortgage.

In order for this strategy to work the magnitude of the interest saving on the BTL (item 3, which we'll call B needs to be greater than the sum of the magnitude of the new tax expense on your own home (item 1, H) and the magnitude of implicit cost of the lost relief (item 3, R)

Hence order for it to work

B > H + R

Now as all of the defined quantities are positive then it follows that if B > H + R, it must have separately been the case that B > H (i.e. it must be true that it was cheaper to finance your debt on your house than on the BTL).

Hence what is really happening is that prior to section 24 people could reduce the taxable profits on their BTL by shifting debt from their own home to the BTL. Now, post-section 24, people are motivated to increase the taxable profits on their BTL by moving debt in the other direction. As the debt on the PPR has no tax consequences this tactic which you label as "tax efficient" increases taxes.

I am all in favour of buy-to-let investors doing this because:

  • it increases the equity available to pay CGT should there be a presently unforeseen forced sale of the BTL
  • increasing the equity means a BTL lender is more likely to quickly repossess in the event of arrears on the BTL
  • the BTL investor pays more tax
Edited by Bland Unsight

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5 minutes ago, Bland Unsight said:

By paying down the leverage on a BTL you always increase the tax cost, even after section is fully tapered in, because of the s24 relief.

It seems to me that the consequence of increase the debt on your own home and decreasing the debt on your BTL are

  1. you increase the interest expense associated with the mortgage on your own home
  2. you increase the tax expense on the BTL (because you reduce the interest expense and therefore reduce the amount of s24 relief)
  3. you decrease the interest expense associated with the BTL mortgage.

In order for this strategy to work the magnitude of the interest saving on the BTL (item 3, which we'll call B) needs to be greater than the sum of the magnitude of the new tax expense on your own home (item 1, H) and the magnitude of implicit cost of the lost relief (item 3, R)

Hence order for it to work

B > H + R

Now as all of the defined quantities are positive then it follows that if B > H + R, it must have separately been the case that B > H (i.e. it must be true that it was cheaper to finance your debt on your house than on the BTL).

Hence what is really happening is that prior to section 24 people could reduce the taxable profits on their BTL by shifting debt from their own home to the BTL. Now, post-section 24, people are motivated to increase the taxable profits on their BTL by moving debt in the other direction. As the debt on the PPR has no tax consequences this tactic which you label as "tax efficient" increases taxes.

I am all in favour of buy-to-let investors doing this because:

  • it increases the equity available to pay CGT should there be a presently unforeseen forced sale of the BTL
  • increasing the equity means a BTL lender is more likely to quickly repossess in the event of arrears on the BTL
  • the BTL investor pays more tax

Wether this was intended or not by the architect of the S24. But it's clearly "one silver bullet"

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23 hours ago, Simon Taylor said:

Pension freedoms will have freed up a lot of cash looking for yield.  On the face of it,  simply buying a house and waiting for the rent to roll in with a 5% yield looks like easy money.

EA charges,  voids,  repairs etc aren't always apparent at the outset.

I know quite a few people who did just this.One even pulled the lot out of his pension and paid the tax.They all have housing benefit tenants,so if HB/LHA is ever cut they will be stuffed,but if it isnt the taxpayer cash just rolls in.

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25 minutes ago, durhamborn said:

I know quite a few people who did just this.One even pulled the lot out of his pension and paid the tax.They all have housing benefit tenants,so if HB/LHA is ever cut they will be stuffed,but if it isnt the taxpayer cash just rolls in.

Did they pull out enough to buy without a property free and clear with no mortgage or did they pull out enough to stump up a deposit for a buy-to-let mortgage?

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