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Buy-to-let Market May Not Add Up

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Guest wrongmove

Buy-to-let market may not add up

"One of Britain’s biggest residential landlords is predicting price falls of 20 per cent across the UK housing market amid rising interest rates.

Andreas Panayiotou, chairman of the Ability Group – a private company which has developed about 2,500 flats around London – says the maths on buy-to-let no longer make sense.

“Investors are joining in because people say that residential is great, but they are not experienced enough,” he warns.

Investors are pouring money into the buy-to-let market. Landlords took out 171,800 buy-to-let loans in the six months to June, taking the total to 940,000 mortgages, according to the Council of Mortgage Lenders.

Mr Panayiotou said that over the long term investors would still make money. But thousands would be squeezed by the widening gap between yields and borrowing costs. ..........."

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Landlords took out 171,800 buy-to-let loans in the six months to June, taking the total to 940,000 mortgages, according to the Council of Mortgage Lenders.

OMG!!!! What!

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Guest wrongmove
OMG!!!! What!

Yep, 30k pcm. Knock that of the approvals figs and they would look a bit different.....

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OMG!!!! What!

Yes, and I bet they are still buying up all the so called traditional FTB properties.

The whole system is corrupt and I am getting more and more angry, why has someone not done something about it? They could at least tax the b*stards properly and bring in some decent regulation to protect tenants.

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That works out as more than 1 in 4 mortgages being BTL - thats outrageous - the government should be doing something to stop this.

Why?

It's a free market.

As long as the government doesn't bail them out when it all goes TU there isn't a problem.

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"One of Britain’s biggest residential landlords is predicting price falls of 20 per cent across the UK housing market amid rising interest rates.

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Why?

It's a free market.

As long as the government doesn't bail them out when it all goes TU there isn't a problem.

It's demonstrably a loaded market in favour of those who already have equity, and who presumably can satisfy the BTL lender of the potential yield or alternative ability to service a mortgage. If I MEWed tomorrow I could take 100K and put 50% down on a starter house (this even if I only had a McJob, and don't tell me the lenders wouldn't jump to give me money at that LTV).

In doing so I might well deny or outbid a genuine FTB that same house.

If as in this example access to necessary credit is based on equity already owned (rather than ability to pay or need), is that really a 'free market' ? It's at the very least a very unfair market - perhaps we should strive for 'free and fair' instead of just free.

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Why?

It's a free market.

As long as the government doesn't bail them out when it all goes TU there isn't a problem.

Absolutely.

The government shouldn't do anything until after the crash.

Then it can act and prevent the next bubble.

Stupid is as stupid does.

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It's demonstrably a loaded market in favour of those who already have equity, and who presumably can satisfy the BTL lender of the potential yield or alternative ability to service a mortgage. If I MEWed tomorrow I could take 100K and put 50% down on a starter house (this even if I only had a McJob, and don't tell me the lenders wouldn't jump to give me money at that LTV).

In doing so I might well deny or outbid a genuine FTB that same house.

If as in this example access to necessary credit is based on equity already owned (rather than ability to pay or need), is that really a 'free market' ? It's at the very least a very unfair market - perhaps we should strive for 'free and fair' instead of just free.

It's free in the sense that there is nothing to stop you mewing your equity and jumping on the gravy train. Sure it's not entirely fair, but then again you could say that the whole capitalist system is demonstrably loaded in favour of those with access to capital. I mean why can't I borrow enough money to buy Boot's pharmacist?

The whole point is you pay your money, you take your choice. As long as the government doesn't step in when it all (inevitably) goes pear shaped I have no problem with BTL.

In the same way as striking prison officers are only trying to look out for themselves so are BTL. They are not the enemy.

Edited by frozen_out

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i wouldnt have any objections to BTL investors if they actually had the cash to invest.

but they are simply taking out loans before the FTBs are ready or too young, leaving nothing but corrupted housing and overblown prices for the scraps left.

anyway, ill remember all this free market stuff when it comes to pension time for the generation above.

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Guest An Bearin Bui
Why?

It's a free market.

As long as the government doesn't bail them out when it all goes TU there isn't a problem.

It isn't a free market if there are tax advantages attached to it: at the moment you can have numerous BTL properties and evade every penny of the tax on them if you have a savvy accountant. Look at it this way:

If I have 200K and invest it in a trust fund, I pay tax on the monthly dividend income and also capital gains on any growth in the fund's value. If I withdraw anything more than 3,500 from the fund in one year, then I'm taxed on it as additional income. If I take out a chunk of cash from it and put it in a savings account (not an ISA) I'm taxed on the interest on the savings.

If I own a 200K property outright, I pay no tax on the capital gains if I sell up for 500K. If I MEW to buy, say, 3 BTL properties with a 30K deposit on each, I pay no tax on the 90K "equity" I've extracted. I get tax relief on the interest portion of my three BTL mortgages and I'm allowed about £4,500 per year in rental income without paying tax (more than my TFA). If I accumulate some maintenance costs etc then I can add those to the 4,500 to evade more tax. If all three flats double in value while I own them (e.g. from 100K to 200K) I can arrange things so that I pay no CGT on the gains either (just put one in the wife's name, pretend she lived there for a while, one in the son's name, pretend he lived there for 6 months etc). Oh yeah, and if I leave all three properties vacant as holiday homes, I pay reduced council tax.

EDIT: And another thing: I can boot my tenants out when I like as long as I give 2 months notice and they have very few rights compared to my rights as landlord

Now if that's a free market then it's the funniest looking one I've ever seen. Tax and investment laws are heavily weighted in favour of property as an asset. Looking at it from the outside, you'd think the govt wanted people to be BTL landlords as there are so many incentives you'd have to be crazy (or priced-out) not to get in on the act. I think that should change and some constructive things that the government could do would be to abolish interest payment tax relief and the allowance for rental income and also crack down on people evading CGT. It would be a lot more effective than waiting for the free market to crash itself as that'll hurt FTBs as well as rapacious investors.

Edited by An Bearin Bui

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In the same way as striking prison officers are only trying to look out for themselves so are BTL. They are not the enemy.

Trying to look out for themselves... I can understand a bit of shoving and pushing if people are genuinely concerned (eg. over pensions) and rushing for the financial lifeboats.

But BTLs are not so stupid that they don't know their business involves kicking away ladders from others once they've got their own comfy OO in place. Sorry but in a market of restricted supply I don't buy that transparent excuse for greed. <_<

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Why?

It's a free market.

As long as the government doesn't bail them out when it all goes TU there isn't a problem.

....yep...BTL is a free market subsidised by us the tax payers......!.....we are paying to off-set the tax due on their rental income against interest on the IO mortgage and other expenses.....imagine you are trying to get on the ladder as young FTB and you are paying for these guys to bid you out of "house and home".........the justice of the Brown years and all things NuLabour....!......No!... Mr Cameron it's not a "Green Issue" but every bit as important........ :lol::lol::lol::P

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....yep...BTL is a free market subsidised by us the tax payers......!.....we are paying to off-set the tax due on their rental income against interest on the IO mortgage and other expenses.....imagine you are trying to get on the ladder as young FTB and you are paying for these guys to bid you out of "house and home".........the justice of the Brown years and all things NuLabour....!......No!... Mr Cameron it's not a "Green Issue" but every bit as important........ :lol::lol::lol::P

but i thought the general consensus on here was that renting is cheaper than owning, so BTL landlords are subsidising tennants. So by the logic on here, the tax payer is subsidising landlords who are subsidising people who rent???

To the comment above about tax benefits of BTL - "pretending that your wife lived there" is not a tax benefit, this is breaking the law. Yes they may get away with it, just like there are many businesses who do cash in had or put through loads of expenses not strictly related to their business...we know it happens but don't claim that they are tax advantages.

Any any business can go to a bank and arrange to take out a loan to invest in their business...and they can claim the cost of that loan as a business expense.

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Yes they may get away with it, just like there are many businesses who do cash in had or put through loads of expenses not strictly related to their business...we know it happens but don't claim that they are tax advantages.

Any any business can go to a bank and arrange to take out a loan to invest in their business...and they can claim the cost of that loan as a business expense.

Advice please from any Lawyers or accounts, I've been encouraged almost hounded weekly now by my employer, a very very large American company in this country to be very very economical with the truth about my time sheet booking times, I'm on a fixed rate so am not benefiting from this and can only assumes it all down to the company benefiting by claiming back corporate tax from the Government for Research and Development. Is this normal practice.

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but i thought the general consensus on here was that renting is cheaper than owning, so BTL landlords are subsidising tennants. So by the logic on here, the tax payer is subsidising landlords who are subsidising people who rent???

Most BTL landlords have till now either been making a profit through rental alone or by rental plus capital gain. To that end the renters are always subsidising the BTLers purchase of property.

Even if you allow that the latest entrys to the BTL scam may be numpties who will lose even taking into account long-term capital gain, they are still not 'subsidising' their tenants. If the rent is a market rent, and the renter has a choice of properties to choose, it is absolutely clear that in economic terms NO SUBSIDY for the tenant is taking place.

Now subsidy from the taxpayer to the BTLer may be a different argument, but I'll leave that to someone else...

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This smacks of Panayiatou getting p*ssed off by other BTLers driving down his yields through over-supply. He's just trying to shake out some of the amateur players so there is less competition for him.

The fact that he is probably correct is incidental.

This pricing out of FTB thing. If they were thinking straight they would see that this is to their advantage in the long run not their disadvantage. Don't buy at inflated prices - How many times....

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It isn't a free market if there are tax advantages attached to it: at the moment you can have numerous BTL properties and evade every penny of the tax on them if you have a savvy accountant. Look at it this way:

If I have 200K and invest it in a trust fund, I pay tax on the monthly dividend income and also capital gains on any growth in the fund's value. If I withdraw anything more than 3,500 from the fund in one year, then I'm taxed on it as additional income. If I take out a chunk of cash from it and put it in a savings account (not an ISA) I'm taxed on the interest on the savings.

If I own a 200K property outright, I pay no tax on the capital gains if I sell up for 500K. If I MEW to buy, say, 3 BTL properties with a 30K deposit on each, I pay no tax on the 90K "equity" I've extracted. I get tax relief on the interest portion of my three BTL mortgages and I'm allowed about £4,500 per year in rental income without paying tax (more than my TFA). If I accumulate some maintenance costs etc then I can add those to the 4,500 to evade more tax. If all three flats double in value while I own them (e.g. from 100K to 200K) I can arrange things so that I pay no CGT on the gains either (just put one in the wife's name, pretend she lived there for a while, one in the son's name, pretend he lived there for 6 months etc). Oh yeah, and if I leave all three properties vacant as holiday homes, I pay reduced council tax.

EDIT: And another thing: I can boot my tenants out when I like as long as I give 2 months notice and they have very few rights compared to my rights as landlord

Now if that's a free market then it's the funniest looking one I've ever seen. Tax and investment laws are heavily weighted in favour of property as an asset. Looking at it from the outside, you'd think the govt wanted people to be BTL landlords as there are so many incentives you'd have to be crazy (or priced-out) not to get in on the act. I think that should change and some constructive things that the government could do would be to abolish interest payment tax relief and the allowance for rental income and also crack down on people evading CGT. It would be a lot more effective than waiting for the free market to crash itself as that'll hurt FTBs as well as rapacious investors.

You are wrong on a few things here. You are not allowed £4500 tax free rental income at all; what you may be refering to here is the rent-a-room scheme where if you rent a room in a house you live in, you get £4500 of rent that you don't need to declare. That is not buy-to-let; the two are different. If you have a BTL, you take your rent, subtract the costs and you are taxed on the resulting figure. If a BTL investor is paying no tax at this point, the real issue should be about the financial acumen of the investor. There's no evasion of tax, it's just the way it works. If someone deliberately tells fibs, that's different and that's fraud and that can occur in any business; not just BTL.

On the costs issue, properties require maintaining and so it's fair to charge such items as a cost of providing a place for someone to live. In making repairs, the BTL investor makes less profit but pays less tax. So what? Tax will have been paid by those providing the service. This is how business works.

And on CGT, you are taking a rather extreme view based on a fantasy scenario. What you are describing is once again fraud which is not confined to BTL businesses.

I agree that tax fraud is not right but there is nothing fundamentally wrong with BTL except that some people's distorted views suggest large chips on shoulders.

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You are wrong on a few things here. You are not allowed £4500 tax free rental income at all; what you may be refering to here is the rent-a-room scheme where if you rent a room in a house you live in, you get £4500 of rent that you don't need to declare. That is not buy-to-let; the two are different. If you have a BTL, you take your rent, subtract the costs and you are taxed on the resulting figure. If a BTL investor is paying no tax at this point, the real issue should be about the financial acumen of the investor. There's no evasion of tax, it's just the way it works. If someone deliberately tells fibs, that's different and that's fraud and that can occur in any business; not just BTL.

On the costs issue, properties require maintaining and so it's fair to charge such items as a cost of providing a place for someone to live. In making repairs, the BTL investor makes less profit but pays less tax. So what? Tax will have been paid by those providing the service. This is how business works.

And on CGT, you are taking a rather extreme view based on a fantasy scenario. What you are describing is once again fraud which is not confined to BTL businesses.

I agree that tax fraud is not right but there is nothing fundamentally wrong with BTL except that some people's distorted views suggest large chips on shoulders.

Nice post.

Quick question:

If BTL is so great why not do it? Same argument as I used for people who like to class public-sector workers as overpaid scum with lavish benefits. It's not a closed shop.

If you can access the capital and BTL has so many perks compared to other assets, do it.

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Nice post.

Quick question:

If BTL is so great why not do it? Same argument as I used for people who like to class public-sector workers as overpaid scum with lavish benefits. It's not a closed shop.

If you can access the capital and BTL has so many perks compared to other assets, do it.

BTL is not a good investment at the moment at all unless you happen upon a hugely underpriced place that is extremely rentable. For BTL to get profitable you have to see prices fall. The best way to see how much a place is overvalued is to calculate the IO charge for a property deduct the rent that you would get for the property and divide by the IO charge. So if IO = 1400 and the rent is 1000, the property has to fall by 28% to make sense in order to cover the mortgage. The price has to fall even more to make a profit. Those numbers above are real by the way: scary or what?

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BTL is not a good investment at the moment at all unless you happen upon a hugely underpriced place that is extremely rentable. For BTL to get profitable you have to see prices fall. The best way to see how much a place is overvalued is to calculate the IO charge for a property deduct the rent that you would get for the property and divide by the IO charge. So if IO = 1400 and the rent is 1000, the property has to fall by 28% to make sense in order to cover the mortgage. The price has to fall even more to make a profit. Those numbers above are real by the way: scary or what?

No need to explain, I agree completely.

If you look at my original point in this thread it was simply pointing out that the government shouldn't be stepping in as long as they don't step in when the inevitable happens and it all comes apart.

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Guest mSparks
to evade more tax

Tax Avoidance does not equal Tax Evasion

Avoidance is legal

Evasion comes with a 'go straight to jail' card.

Tax Avoidance becomes tax evasion when to many people are doing it.

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No need to explain, I agree completely.

If you look at my original point in this thread it was simply pointing out that the government shouldn't be stepping in as long as they don't step in when the inevitable happens and it all comes apart.

I miss-read the tone; we are in agreement. No bail-out whatsoever: harsh but tough sh!te.

In the tech-boom, when your gardener started giving you tips, it was time to sell. The same is true now. Jonny-come-lately will get hurt.

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Guys I am consistently amazed that otherwise financially savvy sounding people (& publications - the GUardian) can bleat on about unfair tax advantages for BTL. As a few others have posted above there is no concession over and above what any other business would receive. It sounds like some of you want to tax BTL on turnover not profit - this would be the end of BTL overnight which admittedly is what most of you seem to want but this is not how any business works or could work. You must remember that the AST was introduced as an incentive for people to let due to a shortage of properties - you could just be happy that renting is so cheap currently and take advantage of it like they do in many other countries. If you really want to see cheap rents & tax payer subsidised BTL look at Australia, from where I write this - negative gearing means you can offset a loss in BTL against income tax. What this means of course is even cheaper rents and more expensive properties. If you think its expensive to buy in the UK (compared to average earnings) you should check out Sydney.

matt

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