Debate House Prices
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The average BTLer has a 21% mortgage and 500% rental cover at 5%
westernpromise
Posts: 4,833 Forumite
According to the CML, the total amount of outstanding BTL finance at the end of 2015 was £214 billion on 1.8 million properties.
https://www.cml.org.uk/policy/policy-updates/all/buy-to-let/
CML also says that the value of these properties is about £1 trillion and that the yield is about £45 billion
http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11622748/Value-of-buy-to-let-properties-about-to-top-1-trillion.html
So on average in the sector, BTLers owe about 21% of the value of their property and have 79% equity. The gross return on equity is 5.6%. At 5% interest rates they have about 500% rental cover.
What am I missing? Does anyone know the source of this oft-heard myth that BTL landlords borrow 75% of the property's value?
https://www.cml.org.uk/policy/policy-updates/all/buy-to-let/
CML also says that the value of these properties is about £1 trillion and that the yield is about £45 billion
http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11622748/Value-of-buy-to-let-properties-about-to-top-1-trillion.html
So on average in the sector, BTLers owe about 21% of the value of their property and have 79% equity. The gross return on equity is 5.6%. At 5% interest rates they have about 500% rental cover.
What am I missing? Does anyone know the source of this oft-heard myth that BTL landlords borrow 75% of the property's value?
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Comments
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In other shock news the people on the average income can't afford to purchase houses at the average price in many parts of the country.
Or as most (some?) people eventually come to realise it is at the margin where prices are set not the mean.I think....0 -
In other shock news the people on the average income can't afford to purchase houses at the average price in many parts of the country.
Or as most (some?) people eventually come to realise it is at the margin where prices are set not the mean.
But in most the country the average full time working couple can easily afford the average terrace.
That is before you even consider the £200 billion or so gifted to the younger generations from the older ones0 -
LTVs drop rapidly in a rising market. If a person bought a flat in london with 80% LTV on an interest only basis five years ago it now has a LTB closer to 40% simply die to rising prices.
And since only about 3% of homes transact each year that would mean in London at least 85% of BTLs and Owner purchases are now at most 40% LTV0 -
Or as most (some?) people eventually come to realise it is at the margin where prices are set not the mean.
I think he is trying to point out to the crash cheerleaders that the view that landlords are en mass on high LTV mortgages is wrong.
If you do a simple model it will be something like this for London.
3% of BTL on 75% LTV (those purchased this year)
3% of BTL on 65% LTV (purchased last year at75%LTV +15% HPI)
3% of BTL on 57% LTV (75% LTV purchase 2years ago +2yr @ 15%hpi)
3% of BTL on 49% LTB (75%LTB purchased 3yeara ago +3yr @15%HPI)
So we would see that 88% of landlords have no more than 49% LTV in London this is asssumibg they don't pay any capital down which a lot will
The same applies for owners.0 -
this is asssumibg they don't pay any capital down which a lot will
It may be different since April, but before budget changes, why would landlords pay down mortgages?
Surely it's tax efficient to offset as much interest as you can and if you have spare money to invest it somewhere else instead of paying off your mortgage.0 -
It may be different since April, but before budget changes, why would landlords pay down mortgages?
Surely it's tax efficient to offset as much interest as you can and if you have spare money to invest it somewhere else instead of paying off your mortgage.
why do you think it is tax efficient to not pay down the debt?
I suspect for most landlords (since most landlords only own 1 or 2 rental properties) they have no other personal investments so the choice is to keep it in the current account @0% or pay down a mortgage at 3%
There is also an incentive to get to lower LTV bands, eg I paid down three of mine this year to get to lower bands and the effective return on the sums I paid down were 10-15% annual which is risk free and a good deal higher return that I would expect elsewhere0 -
why do you think it is tax efficient to not pay down the debt?
I suspect for most landlords (since most landlords only own 1 or 2 rental properties) they have no other personal investments so the choice is to keep it in the current account @0% or pay down a mortgage at 3%
There is also an incentive to get to lower LTV bands, eg I paid down three of mine this year to get to lower bands and the effective return on the sums I paid down were 10-15% annual which is risk free and a good deal higher return that I would expect elsewhere
Many use B2L as a revenue generating business, like any other, and certainly have no compunction to pay down debt. They live on the revenue just as a Lawyer lives on her fee revenue. They save the revenue to buy further property. My mortgages are generally around 2.5% - so £100k paid off saves me £208.33 pm, but that £100k re-invested generates both more rent and capital growth.
Your point about LTV bands is not really relevant - one typically soon finds their equity increasing by capital growth alone - and will thus qualify for better deals in just 2 years (my actual experience)
I will see how the income tax thing pans out - but rents are fast rising to accommodate the tax increases anyway
Landlords often have more property than official stats would indicate, for example spouses may have 3 each, which in reality means 6 each (for all intents they retire having 6 properties worth of household rental income0 -
Most BTL'ers only have the odd house or two and are regular people. Regular people pay off mortgages even if they'd be better off holding the debt because they feel better with a smaller mortgage.0
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Because landlords can offset mortgage interest against income (until April 2017 when that starts to be reduced). I thought that was conventional wisdom.why do you think it is tax efficient to not pay down the debt?
I understand the argument about psycology (but can't spell it).
I stooze my (0.74%) mortgage but psychologically I'd rather pay it off.
There are sometimes good reasons not to do what's mathematically best (as I told my husband regarding him putting money into my pension).0 -
westernpromise wrote: »
What am I missing? Does anyone know the source of this oft-heard myth that BTL landlords borrow 75% of the property's value?
You didn't read the entire article.
Of the £990bn buy-to-let property universe, property worth £643bn is entirely mortgage-free.
There remains a huge chunk of highly indebted newbies. These are the people that could tip the scales for everyone. In the same way that it only takes around 15% of businesses in the UK to have a downturn to create a recession.0
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