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SarahBell

BTL don't sell.. there's a solution

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https://www.taxinsider.co.uk/1675-Buy_To_Let_Property_Too_Costly_To_Sell.html
 

In this scenario, Philip faces a dilemma. If he sells that one property now, he will be roughly £32,000 out of pocket – although he will save himself £1,600 a year of increased tax cost, indefinitely. But if he can afford to suffer the additional tax cost of finance, and he believes that the property will ultimately claw back the value lost in the last few years, then he could be better off biding his time

 

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15 minutes ago, SarahBell said:

https://www.taxinsider.co.uk/1675-Buy_To_Let_Property_Too_Costly_To_Sell.html
 

In this scenario, Philip faces a dilemma. If he sells that one property now, he will be roughly £32,000 out of pocket – although he will save himself £1,600 a year of increased tax cost, indefinitely. But if he can afford to suffer the additional tax cost of finance, and he believes that the property will ultimately claw back the value lost in the last few years, then he could be better off biding his time

 

Genius,  House prices at an all time high, London falling off a cliff, Economic and Political turmoil aplenty and they think "the property will ultimately claw back the value lost in the last few years"

 

As venger would say, these morons deserve all they get.

Nothing short of mass repossessions and a firesale will bring reality back to the UK housing market

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2 hours ago, TheCountOfNowhere said:

Genius,  House prices at an all time high, London falling off a cliff, Economic and Political turmoil aplenty and they think "the property will ultimately claw back the value lost in the last few years"

 

As venger would say, these morons deserve all they get.

Nothing short of mass repossessions and a firesale will bring reality back to the UK housing market

Indeed, it's only HPI++++ to infinity and mad gainz innit.

I can't wait for these ***** to get gutted in the fire.

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7 hours ago, SarahBell said:

But if he can afford to suffer the additional tax cost of finance, and he believes that the property will ultimately claw back the value lost in the last few years, then he could be better off biding his time

If enough people hold this view it may be a long time before there is a big wave of supply forcing prices down.

I expect this is what Osborne predicted: People will hold property, only gradually selling their BTLs. So we can tax them heavily, but this will only slightly increase housing supply and decrease demand, so prices won't move much. But many of his calculations proved to be spectacularly inaccurate...

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55 minutes ago, Muddlehead said:

If enough people hold this view it may be a long time before there is a big wave of supply forcing prices down.

Aye, but all it'll take is a few recognizing that decreasing rents and S24 means their investments are not only failing to cover their costs but facing capital depreciation and saying 'f**k it' and cashing in.

For years BTL & cheap credit has driven prices upwards, and FTB's have come along for the ride due to fear of missing out and watching a house of their own get further and further out of reach. Sentiment has been orientated towards growing prices.

Most of the indicators currently point towards buyers noticing more properties coming on the market and holding their nerve (or being completely priced out the market altogether), so a few more 'motivated'  sellers will lower their asking price to attract a buyer and *bang* that's the new market value. A few more headlines outlining downward trends and a few more landlords deciding to cash in, and the sentiment is in the other direction.  Now the fear of missing out will be landlords wanting to maximize their capital gains, and they'll chase the market down.

 

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1 hour ago, Muddlehead said:

If enough people hold this view it may be a long time before there is a big wave of supply forcing prices down.

If the burden of the finance gets too much (tax, interest rate increases,void) and the rent cant cover this nor can they top up the shortfall then the decision will be taken out of their hands. 

 

The banks could force a sale if they feel the investment is not washing it face. The BTLer doesnt have the full decission to hold.

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50 minutes ago, anonlymouse said:

Aye, but all it'll take is a few recognizing that decreasing rents and S24 means their investments are not only failing to cover their costs but facing capital depreciation and saying 'f**k it' and cashing in.

For years BTL & cheap credit has driven prices upwards, and FTB's have come along for the ride due to fear of missing out and watching a house of their own get further and further out of reach. Sentiment has been orientated towards growing prices.

What happened in 2008? I suppose a lot of landlords decided to wait rather than panicking. On a more positive note, people didn't started piling in after prices fell a little. But this suggests many will wait more than a year before selling.

 

40 minutes ago, Monkey said:

If the burden of the finance gets too much (tax, interest rate increases,void) and the rent cant cover this nor can they top up the shortfall then the decision will be taken out of their hands. 

 

The banks could force a sale if they feel the investment is not washing it face. The BTLer doesnt have the full decission to hold.

Will many landlords face trouble before the taper is finished? Will many be defaulting on their loans as soon as the taper has finished? If not, then it may be into the 2020s before banks act.

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12 minutes ago, Muddlehead said:

What happened in 2008? I suppose a lot of landlords decided to wait rather than panicking. On a more positive note, people didn't started piling in after prices fell a little. But this suggests many will wait more than a year before selling.

The difference between 2017 and 2008 is that the longer they wait the greater the impact of S24 will be.

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34 minutes ago, anonlymouse said:

The difference between 2017 and 2008 is that the longer they wait the greater the impact of S24 will be.

True, but landlords as a rule believe prices will rise. Surely those who don't think prices will rise have already sold.

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Quote

Philip is a 40% taxpayer, and has a small property portfolio. He bought his first property 20 years ago, for £60,000. It has accumulated in value over the years, and he has re-mortgaged on several occasions to finance further property business acquisitions. At its peak in 2008, the property was worth £225,000, and Philip had borrowed £180,000 against it, on an interest-only mortgage. 

Quote

If we assume that the interest cost is £8,000 annually, then by 2020/21, when the interest is fully disallowed, it will cost him £8,000 x (40% - 20% basic rate tax relief still allowed) = £1,600 a year.

Philip either has a mortgage with a 13% interest rate, or he is claiming tax deductions for an amount beyond the original purchase price of the property (180k), which I believe is illegal.

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8 minutes ago, mattyboy1973 said:

Philip either has a mortgage with a 13% interest rate, or he is claiming tax deductions for an amount beyond the original purchase price of the property (180k), which I believe is illegal.

Not if the funds were used to finance other property as stated.

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Philip isn't me by the way?

Fundamentally I have been really close to being a 118'er (hopefully without the entitlement or ranty letters)....skirting along the edges of interest only and depriving others of property ownership. 

The main difference was selling to reinvest or repay loans. Already disclosed in these forums I bought, built and repaired property that was a struggle to finance (subsidence/uninsured/100% retentions). I then sold and paid tax, estate agent fees etc. 

To spread tax I held some and let them....not 'accidentally' as many 118'ers describe themselves as having no choice...but deliberately. I intend to sell as they fall empty. The CGT allowance of £11k each is generous enough. 

And this is the genuis of S24 for me. It alters my plan a bit...I may repay my mortgages (obviously I have the cash to do so)....and certainly stops me letting ever again.

But if you have MEW'd and expanded a portfolio then S24 is beautifully pointed at making them sell. Interest rates a crazy low so CGT should be a doddle even if there is not enough equity with lots of rental profit at the moment which a LL could use to pay their tax. If they rely on rent to live on abd are spending it then they are knackered already. Rent was a holding investment return not an income for me....so builds into cash reserves. Again not the model of a full time MEW'er who spend rent and does not work. 

Those MEW'ers that don't sell are locking themselves in for loss generating 'business' when rates rise again....and with an infinite term of a IO mortgage then rates will rise. Oh, and no way out other than earning money elsewhere. 

S24 beautifully impacts almost proportionately to the mess each BTL'er has got themselves into. For an highly paid HTR employee with one property....it will niggle, for me it will make me repay outstanding mortgages and sell when right for the tenant, for someone with 7 houses and little debt they maybe sell a few....and for the MEW'd up debt ridden 118'er who needs the rent to fund their life, well they are in bother. They always were but S24 just moves things along a little quicker. 

It's a genuine piece of beauty. 

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Sell the whole portfolio and repay all leaverage debt including any owner occupied mortgage......should easily cover all taxes and fees and leave a small surplus, debt free best way to be..... What's the problem?;)

Edited by winkie

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9 hours ago, Muddlehead said:

True, but landlords as a rule believe prices will rise. Surely those who don't think prices will rise have already sold.

It's a bit premature to be talking about what landlords will do given that that awareness of section 24 doesn't appear particularly widespread, at least according to the bits and pieces of survey data I've seen.

Added to that, knowledge about PRA SS13/16 rules on lending to portfolio borrowers which come into play until September 2017 seems even less widespread. We also don't yet know how the lenders are going to respond it SS13/16. Will portfolio landlords be forced into the arms of specialist lenders charging more expensive rates? Will some portfolio borrowers be unable to remortgage at all and see mortgages reverting to sky high SVRs?

It's just way too early to make blanket statements about how landlords will respond, and their anticipation of supposedly inevitable capital gains is IMO unlikely to be the determining factor.

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Obviously calling 5% "sky high" is a bit of a joke, but the pain is relative to the gearing once section 24 is fully tapered in, so 5% will  be tough for some portfolio landlords.

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11 hours ago, Muddlehead said:

What happened in 2008? I suppose a lot of landlords decided to wait rather than panicking. On a more positive note, people didn't started piling in after prices fell a little. But this suggests many will wait more than a year before selling.

 

Will many landlords face trouble before the taper is finished? Will many be defaulting on their loans as soon as the taper has finished? If not, then it may be into the 2020s before banks act.

I dont know, i was just pointing out that a BTLer who has a mortgage against his rental property may not have the last word. 

 

I would imagine just having 1 BTLer reposessed, forced sell/Margin Call would be enough to spook the heard

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1 hour ago, Monkey said:

I dont know, i was just pointing out that a BTLer who has a mortgage against his rental property may not have the last word. 

I would imagine just having 1 BTLer reposessed, forced sell/Margin Call would be enough to spook the heard

Given the lack of knowledge amongst landlords of the upcoming tax changes how are they going to find out about one repossession?

2 hours ago, Pumpkin Muad'Dib said:

It's a bit premature to be talking about what landlords will do given that that awareness of section 24 doesn't appear particularly widespread, at least according to the bits and pieces of survey data I've seen.

Added to that, knowledge about PRA SS13/16 rules on lending to portfolio borrowers which come into play until September 2017 seems even less widespread. We also don't yet know how the lenders are going to respond it SS13/16. Will portfolio landlords be forced into the arms of specialist lenders charging more expensive rates? Will some portfolio borrowers be unable to remortgage at all and see mortgages reverting to sky high SVRs?

It's just way too early to make blanket statements about how landlords will respond, and their anticipation of supposedly inevitable capital gains is IMO unlikely to be the determining factor.

I wasn't talking about "what landlords will do." I said "it may be." I think it's interesting to consider what Osborne expected the outcome of the policy to be. They were obviously clever enough to come up with the policy, yet there seemed little admission from him or other policymakers of the extent of the impact.

15 hours ago, Muddlehead said:

If enough people hold this view it may be a long time before there is a big wave of supply forcing prices down.

I expect this is what Osborne predicted: People will hold property, only gradually selling their BTLs. So we can tax them heavily, but this will only slightly increase housing supply and decrease demand, so prices won't move much. But many of his calculations proved to be spectacularly inaccurate...

 

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38 minutes ago, Muddlehead said:

Given the lack of knowledge amongst landlords of the upcoming tax changes how are they going to find out about one repossession?

 

Mainstream media, forums, social media, word of mouth etc, bad news travels fast...... 

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6 minutes ago, Monkey said:

Mainstream media, forums, social media, word of mouth etc, bad news travels fast...... 

There has been lots in the media about S24, but apparently this isn't travelling particularly fast

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1 hour ago, Muddlehead said:

Given the lack of knowledge amongst landlords of the upcoming tax changes how are they going to find out about one repossession?

I wasn't talking about "what landlords will do." I said "it may be." I think it's interesting to consider what Osborne expected the outcome of the policy to be. They were obviously clever enough to come up with the policy, yet there seemed little admission from him or other policymakers of the extent of the impact.

 

When their BTL mate in the pub/golf club/Masons gets made bankrupt by HMRC.

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On 4/25/2017 at 11:12 AM, SarahBell said:

https://www.taxinsider.co.uk/1675-Buy_To_Let_Property_Too_Costly_To_Sell.html
 

In this scenario, Philip faces a dilemma. If he sells that one property now, he will be roughly £32,000 out of pocket – although he will save himself £1,600 a year of increased tax cost, indefinitely. But if he can afford to suffer the additional tax cost of finance, and he believes that the property will ultimately claw back the value lost in the last few years, then he could be better off biding his time

 

It's an investment decision which might be right or it might be wrong.  If it goes wrong he shouldn't expect to be bailed out by others.  

 

Quote

 

http://www.investopedia.com/articles/stocks/08/capital-losses.asp

One of the most enduring sayings on Wall Street is "Cut your losses short and let your winners run." Sage advice, but many investors still appear to do the opposite, selling stocks after a small gain only to watch them head higher, or holding a stock with a small loss, only to see it worsen.

 


Other enduring sayings:

Never wager more money than you can afford to lose and the market can stay irrational longer than you can stay solvent.

It's his responsibility.

Edited by billybong

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1 hour ago, Muddlehead said:

There has been lots in the media about S24, but apparently this isn't travelling particularly fast

Is "lots" to be assessed on a relative or absolute basis? Lots about Brexit, a little about the SDLT surcharge, very little about section 24.

Fortunately self-assesment forms will improve awareness, in due course.

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34 minutes ago, billybong said:

the market can stay irrational longer than you can stay solvent.

It's his responsibility.

Perhaps the pwoperdee hoarders can stay irrational longer than they can stay solvent too. A correction in prices and an upward trend in IRs would suggest a return to rationality. 

Totally his responsibility :)

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