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Where are the general stories of landlords in distress? I don't see any?


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HOLA441
41 minutes ago, Mikhail Liebenstein said:

Normally with Cults this is the point the drink the Jim Jones coolaid :

https://en.m.wikipedia.org/wiki/Jonestown

May be some landlords reckon they'll get raptured, or picked up by the spaceship behind the comet.

My recollection is that the classic studies on cognitive disonance were done with a cult where there was a definite predicted date (and time) for the end of the world - which, to the cult, was in some sense to be a positive event, as it would consummate their beliefs and they would be the lone survivors.

The ways that people who are totally invested in the truth of a cult cope with the no-show are quite various. You would have thought that "the aliens didn't show up" would be definitive proof that the cult was poppycock, but surprisingly, the human mind is more flexible than that. Instead, cult members may believe that their fervent prayers have either averted or delayed the cataclysm (so, in the latter case, there is a new date in the future to aspire to); or they may believe that it actually has happened, but invisibly, and we are now living in the post-apocalypic world. Lastly, and this is harder the more deeply invested they are, they may laugh it off and return to a "normal" life.

I think you are right that small-scale BTL has aspects of an apolcalypic cult, but the "day of rapture" is not so clearly defined time-wise: it is simply that, at some point, they will have a pension, or better yet, a passive income (or pay-out) big enough never to have to worry about their finances again. In that sense, the cognitive dissonance as those dreams recede (if they do!) will be less severe, and I think it's clear that the initial reaction will simply be that the pension will come, but a year or two later than they hoped (a bit like me, reading HPC, when I still cared).

If someone gets to the point where they actually go bankrupt, or HMRC definitively eviscerates them, then I don't think they will suffer from cognitive dissonance: HMRC is simply less flexible than fantastical aliens (maybe that should be their departmental motto). The cultists had the freedom to invent a new framework of ideas, whilst it's harder (Injin notwithstanding) to invent a healthy bank account. In that sense, the mental (but not financial) recovery of these people, in the event of a crash or tax crack-down, will be quicker, and a surer bet than that of HPCers if the government pulls off a blinder again. 

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HOLA442
19 minutes ago, Ballyk said:

It's perfectly true, read the act.  It you are a standard rate taxpayer you can still write off the interest portion as usual; it's only if you a higher rate taxpayer that you are affected, as you can only write off interest to the same extent as a 20% taxpayer.  

Admittedly it does mean that a very large % of landlords are affected, as so many of them are higher rate taxpayers AND have mortgages.  So S24 will incentivise leveraged landlords to de-leverage, which in most cases means reducing their portfolios.  But a large number of 'accidental' and cautious landlords will be entirely untouched by S24, as well as the poorer ones on lower incomes.

Nope, I still smell bullsh1t.

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HOLA443
22 minutes ago, Ballyk said:

It's perfectly true, read the act.  It you are a standard rate taxpayer you can still write off the interest portion as usual; it's only if you a higher rate taxpayer that you are affected, as you can only write off interest to the same extent as a 20% taxpayer.  

Admittedly it does mean that a very large % of landlords are affected, as so many of them are higher rate taxpayers AND have mortgages.  So S24 will incentivise leveraged landlords to de-leverage, which in most cases means reducing their portfolios.  But a large number of 'accidental' and cautious landlords will be entirely untouched by S24, as well as the poorer ones on lower incomes.

But it is incorrect to state that all lower rate tax payers are unaffected because S24 might turn them into higher rate tax payers without any change in rental income.

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HOLA444
23 minutes ago, Toast said:

My recollection is that the classic studies on cognitive disonance were done with a cult where there was a definite predicted date (and time) for the end of the world - which, to the cult, was in some sense to be a positive event, as it would consummate their beliefs and they would be the lone survivors.

The ways that people who are totally invested in the truth of a cult cope with the no-show are quite various. You would have thought that "the aliens didn't show up" would be definitive proof that the cult was poppycock, but surprisingly, the human mind is more flexible than that. Instead, cult members may believe that their fervent prayers have either averted or delayed the cataclysm (so, in the latter case, there is a new date in the future to aspire to); or they may believe that it actually has happened, but invisibly, and we are now living in the post-apocalypic world. Lastly, and this is harder the more deeply invested they are, they may laugh it off and return to a "normal" life.

I think you are right that small-scale BTL has aspects of an apolcalypic cult, but the "day of rapture" is not so clearly defined time-wise: it is simply that, at some point, they will have a pension, or better yet, a passive income (or pay-out) big enough never to have to worry about their finances again. In that sense, the cognitive dissonance as those dreams recede (if they do!) will be less severe, and I think it's clear that the initial reaction will simply be that the pension will come, but a year or two later than they hoped (a bit like me, reading HPC, when I still cared).

If someone gets to the point where they actually go bankrupt, or HMRC definitively eviscerates them, then I don't think they will suffer from cognitive dissonance: HMRC is simply less flexible than fantastical aliens (maybe that should be their departmental motto). The cultists had the freedom to invent a new framework of ideas, whilst it's harder (Injin notwithstanding) to invent a healthy bank account. In that sense, the mental (but not financial) recovery of these people, in the event of a crash or tax crack-down, will be quicker, and a surer bet than that of HPCers if the government pulls off a blinder again. 

 

Nicely written. Good to see a well structured argument.

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HOLA445
2 hours ago, Ballyk said:

The thing about S24 is that it only affect landlords who are BOTH leveraged AND higher rate taxpayers.

If you're a higher rate taxpayer with no debt on your rental property, then you are entirely unaffected.  Similarly, if you are leveraged, but only a basic rate taxpayer, then you are completely untouched.  The unfairness of this is often pointed out by leveraged landlords, who complain that rich landlords who have no mortgages are unaffected.  But the answer is not to let up on S24, but to clamp down on the others in some other way.

That's not true at all. Those Muppets who are leveraged and basic rate payers would be hard hit when thier tax credits disappear. 

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HOLA446
1 hour ago, Ballyk said:

It's perfectly true, read the act.  It you are a standard rate taxpayer you can still write off the interest portion as usual; it's only if you a higher rate taxpayer that you are affected, as you can only write off interest to the same extent as a 20% taxpayer.  

Admittedly it does mean that a very large % of landlords are affected, as so many of them are higher rate taxpayers AND have mortgages.  So S24 will incentivise leveraged landlords to de-leverage, which in most cases means reducing their portfolios.  But a large number of 'accidental' and cautious landlords will be entirely untouched by S24, as well as the poorer ones on lower incomes.

So the main changes as I understand are 

1) all rental income is considered taxable income. So before you could ignore that which was offset by interest but now you can't. So someone who had £10k rent and 10k mortgage payments and 0 income before but will now have 10k extra income

2) Everyone can still offset 20% of the tax. So higher rate payers only pay 20% tax and lower rate pay nothing on this income. So arguably it is still quite a generous tax break 

I suppose 'accidental' landlords (e.g. Married couple moving in together) could be unaffected if say the one who owns the property isn't highly paid.

Edited by Richmond
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HOLA448
3 hours ago, jiltedjen said:

i don't see interest rate rises. At worst case its back to 0.5% so basically irrelevant. And even then there will be loads of 'we are thinking of putting it back to 0.25%' to make sure people away that its not the sign of interest rates heading on an upwards direction.  

Regardless of interest rates, S24 is going to be a big deal. But at the same time the HTB ISA's etc are slowly pumping to FTB's (like myself + and my partner). So personally i see slightly cheaper prices, a huge conversion of BTL to FTB, with FTB paying MMR restricted borrowing prices with HTB pumping. I also see rents increasing, but this is purely down to a short-term transition, as houses will take a long time to sell. I think the housing market will be a mess short to medium term (next 2-3 years), i know that the houses get sold to people, and don't disappear, but there will be a time lag, and thats going to be painful for renters. The choice will disappear also, not ever mug will be trying to rent out their houses anymore. 

The dates and timing is a little harder to know for sure. There is a final payment date in January 2019, thats for the weakest of reductions of tax relief, but easily enough to sink thousands into bankruptcy.  But there are loads of other mechanisms at play prior to this, the media for example will be ramping up about whats coming all through 2018. Banks will also see whats coming, and realise they suddenly no longer trump all other creditors when the HRMC come knocking.

We are already seeing banks crack down on BTL lending. 

Basically whats important is:
1. BTL wont expand anymore in 2018
2. BTL will Shrink
3. prices will reduce slightly
4. short to medium term rents will increase
5. All those smug late to the party BTL morons will be toast

 

In my view the biggest threat for BTL is end of Term funding scheme. BOE publishes the details of the lending data of all the banking groups that participate in this scheme. Co incidentally all the "Challenger banks"(balls deep in BTL lending) appears to be the top beneficiaries of this scheme. I vaguely recall someone raising the point of the sales volume not matching the CML's Mortgage numbers. If investor is taxed more, normally they tend to save the cost by reducing the expenses in this case mortgage interest. 

By Feb 2018 the scheme ends. Then the banks that drawn money out of this scheme has to find funds to repay the BOE. The banks has a choice of issuing covered bond or RMBS. Either the case there will be a cost for raising capital (0% now). This cost has to passed on to the borrowers , so no more cheap money to lend. When the term funding ends the IR for discounted rate (fixed 2 years) will be higher than what it is now.

The Muppets who borrowed at the peak (Mar 2016) to avoid SDLT surcharge will see thier 2 year fixed ending  on mar 2018 and the lender gets a freedom to take advantage of the borrowers inability to meet the new PRA(ICR test) requirements to remortgage with another lender. On April 2018 those borrowers will be shell shocked when they 1 letter from thier accountant about the tax bill and an annual mortgage  review from the lender. Most lenders allow the existing borrowers to switch to cheaper rate products for a cost of 2k average. 

Note that the RMBS bond market is pretty much dried since the term funding. I wouldn't be surprised if the banks puts pressure on borrowers to keep the loan book to look nicer for the bond investors.

 

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HOLA4410
43 minutes ago, hi5lo5 said:

In my view the biggest threat for BTL is end of Term funding scheme. BOE publishes the details of the lending data of all the banking groups that participate in this scheme. Co incidentally all the "Challenger banks"(balls deep in BTL lending) appears to be the top beneficiaries of this scheme. I vaguely recall someone raising the point of the sales volume not matching the CML's Mortgage numbers. If investor is taxed more, normally they tend to save the cost by reducing the expenses in this case mortgage interest. 

By Feb 2018 the scheme ends. Then the banks that drawn money out of this scheme has to find funds to repay the BOE. The banks has a choice of issuing covered bond or RMBS. Either the case there will be a cost for raising capital (0% now). This cost has to passed on to the borrowers , so no more cheap money to lend. When the term funding ends the IR for discounted rate (fixed 2 years) will be higher than what it is now.

The Muppets who borrowed at the peak (Mar 2016) to avoid SDLT surcharge will see thier 2 year fixed ending  on mar 2018 and the lender gets a freedom to take advantage of the borrowers inability to meet the new PRA(ICR test) requirements to remortgage with another lender. On April 2018 those borrowers will be shell shocked when they 1 letter from thier accountant about the tax bill and an annual mortgage  review from the lender. Most lenders allow the existing borrowers to switch to cheaper rate products for a cost of 2k average. 

Note that the RMBS bond market is pretty much dried since the term funding. I wouldn't be surprised if the banks puts pressure on borrowers to keep the loan book to look nicer for the bond investors.

 

I wasn't aware of a lot of that; thanks for posting! 

It's starting to look like the debt-junkie BTL "entrepreneurs" have been played like a fiddle! Victims of their own avarice :-D

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HOLA4411
1 hour ago, Richmond said:

So the main changes as I understand are 

1) all rental income is considered taxable income. So before you could ignore that which was offset by interest but now you can't. So someone who had £10k rent and 10k mortgage payments and 0 income before but will now have 10k extra income

2) Everyone can still offset 20% of the tax. So higher rate payers only pay 20% tax and lower rate pay nothing on this income. So arguably it is still quite a generous tax break 

I suppose 'accidental' landlords (e.g. Married couple moving in together) could be unaffected if say the one who owns the property isn't highly paid.

Yes - the killer bit is that as all rental income is now considered taxable income you and that 10k of additional income moves you into the next inconvenient tax region say losing tax credits as your income isn't 24k but is now 34k on the tax credits form  or now £60k rather than £50k so you lose Child Benefit...

Equally £45k is now £55k and that means you are paying 40% on that £10,000. Granted you get a 20% tax credit on the interest but you are still paying £2000 in tax when previously it was zero and granted you are only paying 25% of that £2000 this year but its still £500 that the landlord wasn't expecting to pay in tax... 

 

Edited by Houdini
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HOLA4415
8 hours ago, Ballyk said:

I'm afraid it's all yours ;)

I suggest you read into it,  you're embarrassing yourself.

Under s24 your whole rental income becomes part of your taxable income, in addition to your salary. So you start paying higher rate on the income over the higher rate threshold. And you also lose tax credits. That's what I mean.

You're probably very nice and I have no reason to pick a fight, so this is my point now I have the time to make it.

 

:)

 

 

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HOLA4416
9 hours ago, Houdini said:

Yes - the killer bit is that as all rental income is now considered taxable income you and that 10k of additional income moves you into the next inconvenient tax region say losing tax credits as your income isn't 24k but is now 34k on the tax credits form  or now £60k rather than £50k so you lose Child Benefit...

Equally £45k is now £55k and that means you are paying 40% on that £10,000. Granted you get a 20% tax credit on the interest but you are still paying £2000 in tax when previously it was zero and granted you are only paying 25% of that £2000 this year but its still £500 that the landlord wasn't expecting to pay in tax... 

 

You, plus several others are bang on here. Whilst S24 may not fully kick in for 4 years the tax returns next year (ie 18/19) will create a stir. 

So if rent is £10k and mortgages are £9k then the whole tax return issue is a simple £1k add....and with some poetic licence many won't have even bother because they are making little or no money (despite tax returns currently being required...it's easier to claim ignorance when non submission is not hugely material). 

Suddenly there is £10k to place on a tax return...the whole investment becomes really transparent to HMRC and also the BTL'er. 

And if someone was a non tax payer (eg £1k profit and little other income...because other partner earns the employee money) then the whole business starts to say they are earning £10k this, as you suggest, impacts on all sorts. It becomes a lot of work for very little money...that is currently the case but this shines a light in it and many may even start to employee accounts for £350 a year to just help with returns. Easier to take any gain in HPI and get out. 

Another thing is many may not be affected but those that are definately affected will be holding multiple properties and therefore the number of properties (and potential sales generating a crash) is higher than the number of landlords effected. 

All of this based on 0.25% too....when rates lift slightly it could cause panic and if they raise properly to say a historical modest of 4% then many of the leveraged are doomed when combined with S24. 

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HOLA4418
18 hours ago, A third of everything said:

Thanks to whoever recommended Property118 for cheer ☺

https://www.property118.com/hmo-liverpool-advice-please/

I suppose he's restricting those options to ones relating to the property - if I were him, I'd probably be considering NOT retiring at 56! But that means he has to go on working, oh, imagine the horror and degradation.

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HOLA4419
30 minutes ago, North London Rent Girl said:

I suppose he's restricting those options to ones relating to the property - if I were him, I'd probably be considering NOT retiring at 56! But that means he has to go on working, oh, imagine the horror and degradation.

Isn't he just covering the options relating to that property - where he has already demonstrated that he knows nothing about running a business - hint he was screwed before he began when he bought the property at the asking price... 

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HOLA4421
9 minutes ago, Option5 said:

Presumably landlords aren't shouting if they're in distress because:

1)   They don't want to admit that they may have been wrong.

2)   They want to get out quick before all the others catch on.

Answers on a postcard please..............

I think Toast said it perfectly. Many are waiting for the rapture.

Others are unaware there is a problem.

Others are in it for the "long game" so they are not afraid of anything that comes their way.

Others simply have no other ideas and so are paralysed.

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HOLA4422
16 hours ago, Richmond said:

2) Everyone can still offset 20% of the tax. So higher rate payers only pay 20% tax and lower rate pay nothing on this income. So arguably it is still quite a generous tax break

This is a point worth making forcefully and repeatedly to the relevant people (Mr Hammond, your own MP, David Gauke, ConservativeHome website, etc).  Even when S24 is fully implemented, unincorporated landlords will still be getting a generous tax break which is not available to owner-occupiers.  The logic of continuing to reduce the tax relief until it is withdrawn altogether is very strong.  I think that the only reason "Osbourne" framed his legislation to run only to 50% withdrawal in 2020 is that Parliament is not allowed to bind its successors, and in 2015 the Parliamentary term was due to run out in 2020.  Now of course there has been another election and the new Parliament runs until 2022.  An ideal opportunity for a Chancellor who urgently needs to raise tax revenue to extend the operation of S24 maybe by two more successive reductions of 10% each year.

Edited by Dyson Fury
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HOLA4423
11 minutes ago, Dyson Fury said:

This is a point worth making forcefully and repeatedly to the relevant people (Mr Hammond, your own MP, David Gauke, ConservativeHome website, etc).  Even when S24 is fully implemented, unincorporated landlords will still be getting a generous tax break which is not available to owner-occupiers.  The logic of continuing to reduce the tax relief until it is withdrawn altogether is very strong.  I think that the only reason "Osbourne" framed his legislation to run only to 50% withdrawal in 2020 is that Parliament is not allowed to bind its successors, and in 2015 the Parliamentary term was due to run out in 2020.  Now of course there has been another election and the new Parliament runs until 2022.  An ideal opportunity for a Chancellor who urgently needs to raise tax revenue to extend the operation of S24 maybe by two more successive reductions of 10% each year.

Good point and I remember reading elsewhere today that Mr Hammond is looking for tax raising ideas. 

I'm sure I've seen a few economic papers that show the impact tax deductible interest has on other markets - I'll try and find some links tonight... 

 

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HOLA4425
1 hour ago, Sawitcoming said:

I think Toast said it perfectly. Many are waiting for the rapture.

Others are unaware there is a problem.

Others are in it for the "long game" so they are not afraid of anything that comes their way.

Others simply have no other ideas and so are paralysed.

I think it's very simple. 99% of BTL have no clue what's happening, the tax bill will be a massive massive shock. 

I have spoken personally to about 10 landlords, who think I'm talking ********. And they also know say another 3 landlords each, so roughly 30 people with say 75 houses in Plymouth alone are in for a rather large shock.

these are not smart people, they don't see all the other mechanisms at play.

honestly all I hear is 'houses only ever go up, I don't have a pension, it's my pension' 

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