Buy to Let collapse - Now Chelsea Building Society

Kenny4315

Gorgeous_George wrote: »

Herein lies the problem.

The taxman should come up with something better. I suggest removing the requirement for the LL to pay income tax and replace it with a flat rate tax on the rent - say 10%.

Tax on gross rent makes no business sense, your going to get the profit not the gross rent. Why would BTL be different from every other business.

chucky

lynzpower wrote: »

only if there is mooeny left for you to buy at the bottom of the market! clearly Chelsea dont have enough to lend hence the ERC clause above.

it's the LL's extra cash that he hasn't used to pay off capital on another investment property, not the lenders money.

stevetodd

Gorgeous_George wrote: »

You think saving 20% of the interest is better than not paying the interest?

Assuming you have the cash to clear the mortgage

Take a £100K loan at 5%.
Interest £5K
Tax saved £1K (at 20%) or £2K (at 40%)

£100K in the bank earning 5% gross
Interest earned £4K (20%) or £3K (40%)

If the interest for the savings account is less than 5% gross (as is normal), you are spending more servicing the mortgage than you are earning from the savings account


GG

Well there are a number of points in your example which means that I do not agree with you:

I pay only about 2% (not 5%) for my mortgages

There are no savings accounts paying 5% (that are open for investment today)

I have other things to do with cash rather than keep it in savings accounts, granted at the moment I have reasonably sized sums parked temporarily in savings accounts, but this is only because we are in a bad recession andthe optum moment to invest is still some time ahead IMO

Gorgeous_George

stevetodd wrote: »

I pay only about 2% (not 5%) for my mortgages

Making the tax benefit almost worthless. 20% of 2% of mortagge amount.

stevetodd wrote: »

There are no savings accounts paying 5% (that are open for investment today)

The lower the available savings rates, the less benefit to not paying the mortgage down. Martin's mantra - clear the debts first (althouigh the tax needs to come into the reckoning).

With some business the taxman allows them to have a flat rate of VAT (was 12% for takeaways for example) rather than the hassle of doing a more complicated VAT return. Something similar as an option for the BTL LL would, IMHO, be attractive. I'd be happy to pay 10% of the rent for my single BTL - no hassle and cheaper than employing an accountant. No need to maintain records.

GG

stevetodd

Gorgeous_George wrote: »

Making the tax benefit almost worthless. 20% of 2% of mortagge amount.



The lower the available savings rates, the less benefit to not paying the mortgage down. Martin's mantra - clear the debts first (althouigh the tax needs to come into the reckoning).

With some business the taxman allows them to have a flat rate of VAT (was 12% for takeaways for example) rather than the hassle of doing a more complicated VAT return. Something similar as an option for the BTL LL would, IMHO, be attractive. I'd be happy to pay 10% of the rent for my single BTL - no hassle and cheaper than employing an accountant. No need to maintain records.

GG

You are missing the point! The opportunity cost of capital is worth much more to me than paying off my mortgages! withe the 40% off I am effectively only paying 1.2% interest. It's not the tax benefit its the fact I would be giving up my capital to pay off a mortagage that I am only currently paying about 2% gross (1.2% net)and when rates go back up still only paying 0.5% over base.

By your arguement of "making the tax benefit almost worthless. 20% of 2% of mortgage amount". Then an interest free loan would be totally worthless and should be paid off immediately! Are you sure about this line of arguement?

baby_boomer

Steve, you're a lucky lad to have a 2% mortgage. Well done!

You're not typical.

stevetodd

baby_boomer wrote: »

Steve, you're a lucky lad to have a 2% mortgage. Well done!

You're not typical.

I know it's a real blessing, it's not something that I am ungrateful for, to be honest I was just lucky to have trackers without any floors (although one has a 0.5% floor, but that's good not bad). It was something I did not pay attention to when taking out the mortgage (although I would have if it had an unreasonably high interest floor of course) but has of course become ultra important recently.

Thrugelmir

brit1234 wrote: »

http://www.moneymarketing.co.uk/cgi-bin/item.cgi?id=179284&d=340&h=341&f=342

Yet another provider wanting to get rid of its toxic buy to let toxic debt. I believe that the weakness in buy to let will permit faster and bigger property falls.

Is there any one here still getting buy to let mortgages now (not re mortgages)?

I predict the demise of buy to let purchases will result in the failure of the big property builders especially as they are not dropping prices.

:eek::eek::eek::eek:

Chelsea Building Society are fundamentally returning to their original business of lending plain old residential mortgages. The lack of wholesale funds to lend, means they have to resort to the more traditional route of attracting savers to deposit with them. Thereby contracting their ability to lend.

The large property building groups are unlikely to fail. They are merely bunkering down at the moment. The gross profit margin on house building has been excessive over the past few years. It will return to a more realistic margin in the longer term.

stevetodd

lynzpower wrote: »

only if there is mooeny left for you to buy at the bottom of the market! clearly Chelsea dont have enough to lend hence the ERC clause above.

I'm not sure that the Chelsea ever really welcomed their BTL customers with open arms, I remember in the late 90's I approached them for a potential BTL loan (speaking in principle only as I wanted to sort out my finance in principle before looking at specific properties). At the time i had 4 BTL properties (with LTV less than 50%) was single, had had a savings acount with them for a few years and I was working as a chartered surveyor. But they said they wouldn't lend to me because my salary did not cover all the BTL properties so if all my tenants moved out at the same time I could not service the mortgages from just my salary. Which was of course a ridicleous statement to make, bearing in my mind my equity, the fact I could half the rents and still service the mortgages and of course the highly improbable (bordering on impossible) event that all tenants would move out and no others to be found all at the same time.

I am not criticising them they certainly acted with better sense than Northen Rock and Bradford and Bingley but I was amazed at their attitude and over caution. Perhaps they moved away from this cautious stance and ended up lending as daft as NR and BB did, does anyone know? After that experience I obviously never approached them again.

brit1234

Thrugelmir wrote: »

The large property building groups are unlikely to fail. They are merely bunkering down at the moment. The gross profit margin on house building has been excessive over the past few years. It will return to a more realistic margin in the longer term.

Infact their profits are going negative, there land stock values have plummeted, there sales have collapsed, they are moth balling sites and producing huge amounts of redundancies.

Hardly bunkering down to pre boom levels they are going bankrupt, just watch the share value falls over the last 18 months. Now short trading is back they are going to be heavily shorted and true weakness exposed.