Tuesday, January 9, 2007

Buy to let ‘rules’ ripped up

Buy to let mortgage gauntlet thrown down by GMAC-RFC

GMAC-RFC has unveiled a new buy-to-let tracker that it predicts will force other lenders to compete, or risk losing market share. The lending giant has launched the product in response to the widening gap between purchase prices and achievable rents, which GMAC-RFC says is increasingly becoming a problem for landlords. The buy-to-let product offers investors a lower rate of interest than competitors and existing products in the market, and requires 27% less rental income enabling the landlord to purchase or remortgage more properties with GMAC-RFC.

Posted by converted lurker @ 12:42 AM (943 views)
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15 thoughts on “Buy to let ‘rules’ ripped up

  • <<"To put this into perspective, for a landlord with seven (!) properties at this average loan size, they could save £12,375.72 per year against the next best rate product currently available. >>

    Reading the article I couldn’t help feeling sick. It had nothing to do with the financial product in question (after all it’s trying to compete in a particular niche of the market).It’s the perverse nature in which the present climate punishes the sensibles ( regarded as gutless sloths with no ambition) to incourage gamblers, whose paper wealth will not provide a solid base on which the Economy will be able to ride storms.
    My question is why can’t we discourage multiple ownership with taxes which increase exponentially and progressively after the first and maybe second property purchase.I have asked this question before on this blog, and I would genuinely appreciate if someone could explain it to me ( I’m ignorant by my own admission), even if it means playing Devil’s Advocate. Would a move like this damage vote counts, create a suddenpanic amongst mortgaged-to-the-hilt individual ( with consequent HPC)?
    I am not rooting for a HPC, but I’d like to see more social justice. If unethical investment is your game, then there are plenty oligarchies and totalitarian states , in which loads more money can be made, trouble is when things go wrong there your life is on the line and not only your preposterous Dinner-parties pride. Phew! I feel a lot better now.

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  • Problem may be that property owners are probably not making any accounting profit to tax at the moment. The only way would be to disallow the deduction of excessive “interest” payments.

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  • This looks like a high risk product with high LTVand low interest coverage. Could be a recipe for disaster!

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  • Magnifico

    No UK politican wants low house prices – the value of homes is seen to be linked to economic competence. Can you recall the “lack of the feel good factor” which adversely effected the PM, John Major, in the years between 1994 and 1997. The legacy of the ejection from the ERM was a HPC and voters thought the Troy Government incompetent at handling the economy. Personally, I don’t think much has changed for the Tories since then.

    No Government will risk electroal suicide by falling to honour the idol of “High House Prices.” High house prices also bring in a reasonable amount of tax revenue in a way that is acceptable to the Public. Should high house prices fall, then the tax will have to be gathered different ways, which will be less acceptable to the public – recall the Poll Tax riots.

    In the long and apathetic history of the general public, the only thing which has caused the average Joe to rebel is the imposition of high taxes – take away liberty, justice etc and no one bats an eyelid.

    Your suggestion is reasonable but it will never happen. As for social justice, do you really expect any modern Government to stand for social justice? This will cost key floating seats. Remember power in the UK depends upon relatively few marginal seats and these tend to be in areas opposed to a Government taking their hard earned cash and giving it to people who don’t deserve it. We call it Middle England.

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  • As policy I think it would be bad for any party to try and suggest that now. they would have to wait until a HPC and then even people who have lost money and maybe houses would up for more regulation in the number of properties people can own. In the same way that Labour changed laws on landlord in 1997 to tape over the failer of public housing (caused by the Tories selling off all the council houses)

    Although there are also lots of loopholes in the current system too, someone I know of has many properties and as he has sold them off he’s avoided paying CGT on them using various techniques. Thing is that these properties are worth ~20 million. I can imagine there being loopholes for multi ownership limits too.

    But do agree there should be a law that states you pay a second property tax when you buy a second property in this country. Although I can imagine prices in other countries going up due to the English buying up property overseas to avoid tax.

    Personally I think there are a number of simple steps, the first of which would be to charge stamp duty on the sale of a property not the purchase of one. But I guess this is a major vote loser currently.

    A few more;

    Charging a tax on the commercial loan of the property, or VAT on rent.
    Stamp Duty and Council Tax relief on energy efficient homes (so when people buy a place to do it up, they use energy efficient products reducing our energy needs in the long term).
    Proper, legally binding home information packs provided by the seller. The fact that the buyer has to do this current just doesn’t make sense. It’s a waste, as two buyers of the same property would both get individual surveys.

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  • I don’t think BTL is inherently a bad thing. For a lot of people renting is actually a better solution, and although there’s one less property on the market there’s also one less buyer.

    I’d agree that second homes should be taxed more though. For a start they should get rid of stamp duty discounts for second homes and council tax discounts for unoccupied properties.

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  • In the current climate many FTBs are forced to rent. One small change could be to change the retal agreement so landlords would have to give 6 months notice to evict tennets rather than the current 2 on a rolling basis. This would firstly make landlonds more relucnt to let property (increseing FTB supply) and secondly make life more predictable for the tennent.

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  • Rich – ” For a lot of people renting is actually a better solution, and although there’s one less property on the market there’s also one less buyer.”

    For the majority, though (particularly those with children who need to stay in a stable home with local community and closeness to their kids’ schools) buying makes more sense. Now, let it occur to you that some of us would actually like the choice about whether we can become a buyer or stay as a renter.

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  • No thank you, magnifico & rich. You can keep your tax on second homes. I like renting at the moment as it suits me here and now. Punitive taxes over and above the income and capital gains taxes (on resale) would discourage my landlord from providing this facility. I rented a lovely seaside cottage over Christmas which would otherwise not have been available to me and I’d have been forced into shabby Fawlty-esque accomodation.

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  • I’m with Monty on this one and quite happy for my landlord to continue supporting me financially. I could not maintain my current comfortable lifestyle if I was forced to buy, and its nice to see all money left over at the end of the month going into my account rather than to the bank. I just wonder at what stage all these johnny-come-lately BTL investors will realise the figures just don’t add up. A 4-bed detached new-build in our local village was recently taken off the market at £269,000 (after 12 months un-sold) and is now advertised for rent at £550 – no takers so far. Based on the original asking price, a typical interest-only mortgage would start at around £1150 rising to £1600 over a few years (Alliance & Leicester figures). Throw in maintenance costs and I cannot see how any sane person can think it is in their interests to make this sort of “investment”.

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  • The market will continue for as long as possible to be talked up and encouraged because so many businesses depend on it and many have made a packet over the last ten years. Trouble is it’s clearly reaching a peak (and not just with first time buyers, I would like to move to a bigger home but quite frankly I’m not prepared to put another huge millstone round my neck having worked hard to reduce my mortgage to a very low level and I know of several others in the same situation) and the only people left are those who haven’t spotted that BTL has had it’s day. As has been said on here several times in the last few months, there has to be a string of ridiculous new products to try to keep the whole BTL ball rolling. As regards your comments on reckless gamblers. I couldn’t agree more. It makes me very annoyed that we have a Government that has propped this whole economy up on the back of paper money and irresponsible lending and I’m sure that it will end in tears. When it does I wouldn’t be at all surprised to see a series of scandals not dissimilar to endowments.

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  • Someone mention tax? That’s woken me up!

    I have to agree that the electorate view high house prices with economic success. Weired psychology, but that’s the way people seem to think. There’s a demographic time bomb here, however. There will come a tipping point when the number of young, aspirational people trying to own their own home (that’s what you must do to be successful, yes?) becomes large enough that they become a political force. We are not there yet, but I think another five years, if there is no HPC, and we will be.

    As for social housing I think we should restart the state housing building programme, and build more council owned (or, if you don’t like those nasty socialists being back in control, qango owned — ie Housing Association owned) properties. A shortage of houses is the problem. I believe strongly that governments are there for redistribution, so they should get their fingers dirty and interfere in essential markets such as the housing market.

    We live in a middle class society. The voting system is archaic (sorry, should read ‘best in the world’), and until such constitutional changes occur politics will remain, dull, bland and unadventurous.

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  • tyrellcorporation says:

    When the dream of capital growth grinds to a halt and possibly goes into reverse there will be soiled underpants across the land! I’m about to rent a newish 4 bed townhouse (read: Terrace) for 950 a month. To buy would set me back 1800 a month.

    Without capital growth these AmLans are finished cos the rent just aint there for them! It will take time for reality to sink in though…

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  • I myself can’t see the problem with BTL as long as there is a tenant living in it and concu with Uncle Chris and Monty. After all it is a roof over someone or some families head. The problem in my view is the large number of empty properties especially new ones lying empty at the moment and the disproportionately large number of new build apartments that are going up at the moment especially targetted at the BTL / Investment market.

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  • A tax on second homes seems more like a more socialist/gov controlled move to me. This flavour of policy has put us here to start with, I think. The councils control the number of homes built in an area. Because of that, land values and house prices have gone up as there is a shortage. The government’s excuse for this level of control is that it has to supply infrastructure. Now if the whole thing were determined by the forces of the free market; firstly there would be no question of the government trying to prop up house prices to support their voters, secondly the availabillity of infrastructure would have an impact on the value of homes, thereby self regulating the number of homes built in an area.

    Less control, more competition 🙂

    Hoo raahhh!!!!!!!

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