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apom

Btl, If It Is Dead In London Please Explain..

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http://www.timesonline.co.uk/newspaper/0,,...2206071,00.html

It is becoming increasingly difficult to find viable buy-to-let investments in central London, according to Knight Frank. The estate agency says prices of flats and houses in prime central London —

Now a four bedroom new build rot-pile horror of a town house in devon sold for £360,000 two years ago..

Rents out for £1000 a month.

of £12,000 a year.

at 5% interest you need only to have borrowed £240,000 to break even on interest alone..

No maintainence, no capital repayments.. nothing but interest and that is with no voids.

In London I can rent a studio flat for £800 a month, it would cost £160,000 to buy.

that would be able to cover a £192,000 mortgage at 5% (interest only..)

Now in London it is tight.. exeter is only financial suicide..

Edited by apom

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http://www.timesonline.co.uk/newspaper/0,,...2206071,00.html

It is becoming increasingly difficult to find viable buy-to-let investments in central London, according to Knight Frank. The estate agency says prices of flats and houses in prime central London —

Now a four bedroom new build rot-pile horror of a town house in devon sold for £360,000 two years ago..

Rents out for £1000 a month.

of £12,000 a year.

at 5% interest you need only to have borrowed £240,000 to break even on interest alone..

No maintainence, no capital repayments.. nothing but interest and that is with no voids.

In London I can rent a studio flat for £800 a month, it would cost £160,000 to buy.

that would be able to cover a £192,000 mortgage at 5% (interest only..)

Now in London it is tight.. exeter is only financial suicide..

I just had a look on findaproperty wrt Exeter

Typ 2 bed terrace (modern) =£150k

Typ rent on above £675pm

Buy at auction for £140k (probably less)

put down £70k deposit

io mortgage = £3.5k pa

rent = £8.1k pa

taxable rent = 8100-3500-maintenance and wear and tear and insurance. (approx 8100-3500-1200-810)

= £2500 taxable at 40% (assume LL pays high rate tax) = maybe £1k pa gone in tax (assuming that the landlord declares and pays the tax) which leaves £3600 pa to the landlord.

Of this maybe £1500 will go on maintenance etc which leaves just over £2k 'profit' pa.

If you simply stuck the £70k in the bank you would get about £2.1k interest 'profit' after tax.

which will perform best in the long term? bank or BTL?

Note: if the landlord didn't properly declare/pay tax and also skimped on maintenance he could pocket most of the £4600pa rent left over after paying the IO loan. This easily beats the bank and also probably explains why some newbie BTL LLs get a bad name as they try to squeeze out every last £ every month at the expense of the property and the tenant.

Edited by Without_a_Paddle

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I just had a look on findaproperty wrt Exeter

Typ 2 bed terrace (modern) =£150k

Typ rent on above £675pm

Buy at auction for £140k (probably less)

put down £70k deposit

io mortgage = £3.5k pa

rent = £8.1k pa

taxable rent = 8100-3500-maintenance and wear and tear and insurance. (approx 8100-3500-1200-810)

= £2500 taxable at 40% (assume LL pays high rate tax) = maybe £1k pa gone in tax (assuming that the landlord declares and pays the tax) which leaves £3600 pa to the landlord.

Of this maybe £1500 will go on maintenance etc which leaves just over £2k 'profit' pa.

If you simply stuck the £70k in the bank you would get about £2.1k interest 'profit' after tax.

which will perform best in the long term? bank or BTL?

Trust me... you can rent for much cheaper then that round here... friends have a three bed bungalow overlooking the sea for £600

2 bed terrace can be had for £500 or less.... if you look.. too many stood empty

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Capital appreciation can make up for the rent being inadequate. Provided that the person who bought the £360K property believes that the price will go up, they may still believe that it's a good deal.

Billy Shears

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Capital appreciation can make up for the rent being inadequate. Provided that the person who bought the £360K property believes that the price will go up, they may still believe that it's a good deal.

Billy Shears

Trouble is this is £360,000 in Exeter...

6 times £60,000.... :):lol:

for people to actually earn enough to borrow that much is not going to happen.. not in enough cases..

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Trust me... you can rent for much cheaper then that round here... friends have a three bed bungalow overlooking the sea for £600

2 bed terrace can be had for £500 or less.... if you look.. too many stood empty

Fair enough, I just went by the rental prices here:

http://www.findaproperty.com/area.aspx?are...salerent=1&sp=0

I also looked quickly on other lettings search engines and they came up with £600-£700pm for modern two bed properties in Exeter.

But to counter your argument you can also buy property much cheaper at auction etc.

So I'm afraid there will still be people going into BTL for some time yet. (but maybe not as many as recently)

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Trouble is this is £360,000 in Exeter...

6 times £60,000.... :):lol:

for people to actually earn enough to borrow that much is not going to happen.. not in enough cases..

The following reason from the viewpoint of an extreme BTL'er.

Lie to buy mortgage with 60K deposit. With a 4.78% introductory IO mortgage, that's about £1200pcm interest payments. The rent covers £1K of that, leaving £200pcm for the landlord to cover. After two years when the landlord expects the value to have gone up by 15%, that would be a 54K increase in value, which has cost the landlord 200 * 24 = £4800 in additional payments to subsidise the mortgage. Assume that other costs have bumped the outlay to £10K. So, they're still 44K in credit, a 73% ROI for their 60K investment over two years.

Another viewpoint could be someone who wants to live in that house in a few years time.

House prices have steadily increased. The price of their dream home is getting close to unaffordable. So what do they do? Buy the house now, and rent it out. In a few years time they wait for an AST to end, and then live in the house themselves. They have effectively frozen the price of the house at 2006 levels, plus the additional £2400 per year to service the mortgage. If the buyer's expect HPI to be more than this, then they've won.

I'm not saying these approaches are sensible, I'm just trying to figure out what people are thinking when they buy a £360K house and rent it for £1K per month.

Billy Shears

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Fair enough, I just went by the rental prices here:

http://www.findaproperty.com/area.aspx?are...salerent=1&sp=0

I also looked quickly on other lettings search engines and they came up with £600-£700pm for modern two bed properties in Exeter.

But to counter your argument you can also buy property much cheaper at auction etc.

So I'm afraid there will still be people going into BTL for some time yet. (but maybe not as many as recently)

sorry.. looking at it from the renters point of view..

We all on here know that there are as many gtood deals to rent as you could wish for..

Still,. its the "executive end.. where the rents are miles from the purchase

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just to clear up the sums a little, where did the 70,000 deposit come from.

My thoughts exactly, how do the numbers work with a 10K deposit, or virtually no deposit?

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just to clear up the sums a little, where did the 70,000 deposit come from.

Lots of people have this kind of money to invest.

I did allow the comparision with sticking the £70k in the bank instead of the BTL...

(so the £70k injection wasn't 'free' in the calcs)

The alternative is to stick the £70k in the stock market and maybe get 8-10% growth each year.

You would have to careful to minimise you capital gains tax bill when you sell up in 20 years though.

The BTL option is still attractive (but risky) as you can use the net rent to invest in a capital repayment vehicle (like an endowment) to try and pay off as much capital as possible at the end of 20yrs. Over the years the rental income just goes up with wage inflation...

In a way you are comparing HPI on a £150k house against £70k in the stock market over 20-25 years.

(also don't forget the monthly rent will be a HUGE bonus wrt the IO mortgage payments in 15-20yrs)

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My thoughts exactly, how do the numbers work with a 10K deposit, or virtually no deposit?

For an interest only mortgage with no deposit, at a really low 4.78% introductory rate, the interest is £1434 per month. At 5%, it would be £1500, and at 6% it would be £1800. Working with the 5% figure: If the landlord has to subsidise the mortgage @£500 per month, then that's £6000 per year. The capital appreciation to make up for this is 1.66'%. Or, the property needs to appreciate at 1.66'% just to keep the owner where they started in nominal terms.

Edit: Wait a second, that only works for the first year. For subsequent years, provided that the interest paid and rent stays the same, and assuming that the property's value appreciated in the previous year, the amount of appreciation required to cover the gap between the rent and the interest payments goes down slighltly.

Billy Shears

Edited by BillyShears

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My thoughts exactly, how do the numbers work with a 10K deposit, or virtually no deposit?

Without the big deposit it makes the LL more vulnerable to voids as the whole of the IO mortgage has to be funded by the LL during voids.

In this case that would be on a £140k mortgage. :(

Also there is no (immediate) tax relief on things like the maintenance etc because the rent won't cover these costs in the early years. So these costs come direct from the LL wallet.

However, the LL can self cert these losses to the Inland Revenue and offset them against tax in the future for when the rent starts to exceed the IO mortgage.

The same applies to voids.

Also, there would be no net rental income to put towards capital repayments for several years so the BTL would probably not be able to 'own' all the property at the end of the term. However, I would guess he would still get a LOT more than £140k when he sold it so it would still be a good investment after 25 years based on a £10k deposit.

Any net losses incurred (recent voids etc) could be used to offset capital gains tax when he sells.

I think you would have to be pretty brave to go >90% LTV in the current market. Anyway, I thought you had to be around 80% LTV for BTL these days?

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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