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Fairyland

Reverse Propaganda - from £600 monthly profit to £200 loss BTL tax bite

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Just an year ago the propaganda machinery(PM) was busy ramping up prices. After the April 6th deadline gears have reversed. PM has done a full U turn. Media is full of anti BTL, ant HPI and falling prices. Is this a (engineered)bust in making? How long will it last ?

Telegraph : In charts: from £600 monthly profit to £200 loss - how the buy-to-let tax is biting

Quote

Previously, higher-rate taxpayers could deduct their mortgage interest from their rental income before calculating the tax due. Now, they will be taxed on the entirety of their rental income. Many landlords will pay more tax as a result. In a worse case scenario, some will be taxed on non-existent profits, making a loss. 

Will this really happen? What percentage of LLs will make loss?

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It's an interesting idea and one i've thought about a few times, but I just cant see it.,  

They are all up to their necks in property and this is where their wealth is stored.

Nothing the establishment has done since 1995 indicates that they wont just keep supporting house prices at all costs.

The only thing that gives me any glimour of hope is this

https://www.theguardian.com/politics/2016/oct/18/william-hague-attacks-bank-of-england-over-ultra-low-interest-rates

William Hague attacks Bank of England over ultra-low interest rates

The torys clearly know what is going on and what the solution is.  

Whether or not they are willing to take the actions necessary is another thing, nothing I see right now, in previously, says that they are.

Edited by TheCountOfNowhere

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14 minutes ago, TheCountOfNowhere said:

The article has this line from Carney:  “We are not going to take instruction on our policies from the political side.”

A Spectator columnist recently asked: "What's the difference between independent and unelected?".

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1 hour ago, TheCountOfNowhere said:

It's an interesting idea and one i've thought about a few times, but I just cant see it.,  

They are all up to their necks in property and this is where their wealth is stored.

Nothing the establishment has done since 1995 indicates that they wont just keep supporting house prices at all costs.

The only thing that gives me any glimour of hope is this

https://www.theguardian.com/politics/2016/oct/18/william-hague-attacks-bank-of-england-over-ultra-low-interest-rates

William Hague attacks Bank of England over ultra-low interest rates

The torys clearly know what is going on and what the solution is.  

Whether or not they are willing to take the actions necessary is another thing, nothing I see right now, in previously, says that they are.

We need more influential groups to voice this. Fall of living standards is indeed a serious issue.  Which party is addressing this in their election manifesto?

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2 hours ago, Fairyland said:

Just an year ago the propaganda machinery(PM) was busy ramping up prices. After the April 6th deadline gears have reversed. PM has done a full U turn. Media is full of anti BTL, ant HPI and falling prices. Is this a (engineered)bust in making? How long will it last ?

Telegraph : In charts: from £600 monthly profit to £200 loss - how the buy-to-let tax is biting

Will this really happen? What percentage of LLs will make loss?

All the leveraged IO BTL ones basically.

Here's how I see IO BTL panning out:

1) Removal of offsetting IR payment agianst rental income. This should have never been allowed. Chalked his up to the genius of Brown + Ball.

2) Requirement of bank with IO mortgages to hold a lot more capital, efficiently banning them, forcing existing IO loans to move to repayment. This is basically how I see basel3 affecting the UK. IO mortgages are a total non-no in regulated banking. AN IO BTL loans is effectively a never ending commercial bridging loan, and should be be charged as one - 10%+.

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46 minutes ago, buckers said:

My own take is that HMRC wanted this change BADLY before interest rates went up (assuming they do) - otherwise you'd have been able to offset high mortgage costs and potentially have no tax bill.

This sounds very promising. If Its rise then leveraged BTL will be toast.

What about older BTLs? The flats that come up for £450K ish, in West London, zone 3, were bought for £100K ish in the late 90s. I would imagine the BTLer has already paid of the mortgage or a significant chunk of it. Will they come out unscathed ? Mind you IRs were high till 2007 and BTL mortgage is IO. Don't know the exact math. Probably the banks have it. A percentage of affected LLs should summarise this.

Edit: cross posted with spy guy's post above.

Edited by Fairyland

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9 minutes ago, spyguy said:

All the leveraged IO BTL ones basically.

Here's how I see IO BTL panning out:

1) Removal of offsetting IR payment agianst rental income. This should have never been allowed. Chalked his up to the genius of Brown + Ball.

2) Requirement of bank with IO mortgages to hold a lot more capital, efficiently banning them, forcing existing IO loans to move to repayment. This is basically how I see basel3 affecting the UK. IO mortgages are a total non-no in regulated banking. AN IO BTL loans is effectively a never ending commercial bridging loan, and should be be charged as one - 10%+.

Is there any information about basel3 ? I am completely unaware of it. How will brexit impact Basel3?

Edited by Fairyland

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2 minutes ago, Fairyland said:

Is there any information about basel3 ? I am completely unaware of it. How will brexit impact Basel3?

Google Basel3.

Basically, non amortising loans are a no no.

Riskier loans = much higher capital i.e. BTL == commercial = riskier than OO.

Basel is international, unaffected by Brexit.

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2 minutes ago, spyguy said:

Basel is international, unaffected by Brexit.

Basel is international but countries can decide to apply them or not, the US are talking about walking out of it.

So the UK could decide to not apply them. Of course the EU would not just let this happen without imposing restrictive measures on service provided from the UK.

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6 minutes ago, Freki said:

Basel is international but countries can decide to apply them or not, the US are talking about walking out of it.

So the UK could decide to not apply them. Of course the EU would not just let this happen without imposing restrictive measures on service provided from the UK.

If you walk out of basel your banks will be isolated.

US could probably do that, or pick + choose.

UK cannot.

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The political parties either don't understand or can't explain the problems caused by low rates. I mean raising rates must be bad right... wrong...

The landlord tax thing could end up setting house prices as prices are normally set in the margins. The other impact I believe is it will push a few landlords into the higher tax bracket.

One more thing, most will have to remortgage every 2 years or they move onto the SVR. Unfortunately the guidelines now require a lower LTV otherwise they have to pay a higher rate.

A lot of them will do the calculations and assume the house will continue to rise in value, so the LTV will take care of itself. But what if prices don't keep on rising ?

Many won't realise what's going on until it's too late and will lose money.

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Well raising interest rates still creates the massive headache at the government level of servicing a debt. Aside of Germany and some other small EU countries, France, the UK, Italy, Spain, the US and the list can keep on going the public debt has ballooned. But the repayment cost has been kept low thanks to low IR. 

As soon it kicks back up, well you know what will happen to the public finance.

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4 minutes ago, Freki said:

Well raising interest rates still creates the massive headache at the government level of servicing a debt. Aside of Germany and some other small EU countries, France, the UK, Italy, Spain, the US and the list can keep on going the public debt has ballooned. But the repayment cost has been kept low thanks to low IR. 

As soon it kicks back up, well you know what will happen to the public finance.

BoE base rate != UK Gilt yield.

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58 minutes ago, buckers said:

You've posted this before, surely it's a pretty safe bet because there's an asset underpinning the loan which has a decent LTV on it? What is being bridged?

I'd rather lend my money against 75% of a house/flat then (say) a new Audi A1 !

 

No. A safe bank loan is one where the debt is covered by another asset too.

The non amortising bit is the worry. On a repayment loan, the risk decreases over time. IO you are lumbered with it til the magic day 20 years down the line.

Regulated banks should not be doing non amortising loans. Full stop.

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2 hours ago, frederico said:

The political parties either don't understand or can't explain the problems caused by low rates. I mean raising rates must be bad right... wrong...

The landlord tax thing could end up setting house prices as prices are normally set in the margins. The other impact I believe is it will push a few landlords into the higher tax bracket.

One more thing, most will have to remortgage every 2 years or they move onto the SVR. Unfortunately the guidelines now require a lower LTV otherwise they have to pay a higher rate.

A lot of them will do the calculations and assume the house will continue to rise in value, so the LTV will take care of itself. But what if prices don't keep on rising ?

Many won't realise what's going on until it's too late and will lose money.

deffo agree on your LTV point. We're buying at 85% LTV and remortgage after 2 years. We know what we will pay off (4% of purchase price) and save (10% of purchase price) over that two year period. If prices fell to such an extent that after 2 years I had a higher LTV (after pouring savings in) then we'd suffer a much higher rate. At the moment the difference between 85% and higher (fir us anyway) is 1.54% for 85% but 85.1% it's 2.19% , or over £100/month. If it went to over 90% then I think the rate would really start to grate. 

This effect would accelerate falls should falls become more pronounced. 

We're banking on the value of the house being unchanged in 2 years and that's with some improvements done. 

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3 hours ago, Fairyland said:

What about older BTLs? The flats that come up for £450K ish, in West London, zone 3, were bought for £100K ish in the late 90s. I would imagine the BTLer has already paid of the mortgage or a significant chunk of it.

Well, provided they haven't remortgaged to expand their property empires... oh dear.

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6 hours ago, spyguy said:

All the leveraged IO BTL ones basically.

Here's how I see IO BTL panning out:

1) Removal of offsetting IR payment agianst rental income. This should have never been allowed. Chalked his up to the genius of Brown + Ball.

2) Requirement of bank with IO mortgages to hold a lot more capital, efficiently banning them, forcing existing IO loans to move to repayment. This is basically how I see basel3 affecting the UK. IO mortgages are a total non-no in regulated banking. AN IO BTL loans is effectively a never ending commercial bridging loan, and should be be charged as one - 10%+.

I agree,and worse for the leveraged i see huge downside in prices pushing most into low/negative equity.They will be trapped with their current lender then unable to re-mortgage.I fully expect five years from now as interest rates crank up in the next cycle a lot of BTLers will lose their little empires and also their own homes.

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4 minutes ago, durhamborn said:

I agree,and worse for the leveraged i see huge downside in prices pushing most into low/negative equity.They will be trapped with their current lender then unable to re-mortgage.I fully expect five years from now as interest rates crank up in the next cycle a lot of BTLers will lose their little empires and also their own homes.

Given the current interest on most bank's Standard Variable Rates it won't require interest rates to crank up for the pressure to be applied. It simply requires banks to stop being so generous with re-mortgages... For many BTLers it may already be the case based on the rules that are starting to be applied...

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1 hour ago, buckers said:

I'm not up to speed, were there IO mortgages offered that were 100% LTV? Or are you saying that you think there's a chance that houses bought using an IO mortgage might not actually fetch 75% or 85% of their purchase price after 25 years? I still don't see where the risk is for the bank compared to (say) a car loan that would warrant a punitive interest rate.

 

 

https://www.timeout.com/bristol/blog/18-expressions-youll-hear-a-born-and-bred-bristolian-babble-073115

Number 10 on this list.

 

Sadly Broke in Bradley Stoke.

Quote
 

Definition: Bradley Stoke (location)

What seems like a clever harmless rhyme for Bradley Stoke, has actually quite a sad history. The residential area in north Bristol was made infamous for hindering first-time buyers on shared-ownership schemes during the property price crash in the late '80s to early '90s. Many people did indeed become sadly broke.

 

Edited by Lord D'arcy Pew

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I am struggling to see how a BTL offloads if he or she is at a £200 a month loss? The greater fool ? I guess he or she just tries to find the extra from other income. 

Edited by Ash4781

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1 hour ago, monkeyprojects said:

Given the current interest on most bank's Standard Variable Rates it won't require interest rates to crank up for the pressure to be applied. It simply requires banks to stop being so generous with re-mortgages... For many BTLers it may already be the case based on the rules that are starting to be applied...

Indeed it wont take much,but i think we are going to get a lot.Here in the north east i know lots of southern BTLers bought terraced houses in 2003/4 that is now worth the same or less.The voids and rents on those would see break even before the new tax laws id expect with interest rates on the mortgage of 3%/4%.With the new tax laws they will be slightly loss making and with a rising interest rate cycle soon very loss making.

Of course a lot might of bought cash etc.

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12 hours ago, buckers said:

 

My question was about why BTL IO should attract a premium interest rate? How much risk is there to an 85% LTV loan against property over a 25 year period? It's not like you can hand the keys back and walk away - they'll get what they can for the property and come after you for the rest. Most BTL IO lending required the buyer to already have existing property so these aren't the kind of people who can Lord Lucan.

 

 

BTL mortgages are higher risk and have higher defaults and this is reflected in the pricing. Typically BTL mortgages have been about 1% higher than owner occupier mortgages. 

And remember that if a house is repossessed it is likely to be sold at auction and therefore be sold at a discount. The 15% equity you mention above will be gone, if not more. 

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15 hours ago, buckers said:

I'm not up to speed, were there IO mortgages offered that were 100% LTV? Or are you saying that you think there's a chance that houses bought using an IO mortgage might not actually fetch 75% or 85% of their purchase price after 25 years? I still don't see where the risk is for the bank compared to (say) a car loan that would warrant a punitive interest rate.

 

 

Im not sure about 100% but there was 90%.

The recent BTL mortrgage - post 2011ish have required  a hefty deposit and the backup of equity in the OO.

The IO BTL 2000-2008 were nuts. Withdraw equity from OO, buy a few BTL at 90% lloans, draw more equity out of those to buy more.

There's a hefty number of BTLer who own 6+ houses, all IO, all with equity extracted. Its like an insane, overleveraged. Zenga stack. A lot of BTL is in the North so there's no equity/negaztive equity.

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13 hours ago, buckers said:

" made infamous for hindering first-time buyers on shared-ownership schemes during the property price crash in the late '80s to early '90s "

Anything with 'shared ownership' label is nonsense - anyone who bought these was asking for trouble. Not sure you'd get a commercial BTL IO loan on one? :)

My question was about why BTL IO should attract a premium interest rate? How much risk is there to an 85% LTV loan against property over a 25 year period? It's not like you can hand the keys back and walk away - they'll get what they can for the property and come after you for the rest. Most BTL IO lending required the buyer to already have existing property so these aren't the kind of people who can Lord Lucan.

 

 

Christ. Have a read of the LL forum.

There's so much that can go wrong with letting out property - Vietnamese cannbisfarm, tenants goes on dirty protest, tenant stops paying and needs a court eviction, pikeys strip the house of all copper and fittings.

Its commercial lending not an OO mortgage FFS!

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