Housing benefit cuts deter landlords from letting

JonnyBravo

Thrugelmir wrote: »

Extract from CML Table CM1

Number of BTL mortgages and % of total mortgages

1999 44,400 3.5%
2000 48,400 4.3%
2001 72,200 5.5%
2002 130,000 9.3%
2003 187,600 15%
2004 217,700 17.5%
2005 223,800 22%
2006 330,300 28.9%

Havent looked at any links sorry. Is that a running total or the % for each year?

As an aside I wonder whether this 86% that "cant afford" to cut rents is just looking at those supplying to the rental market who depend on benefits? Anyone know?
Anyhow seems most likely that, as already presumed, its a bogus number with people trying to influence any future cuts decisions. What's better, eg keep it on at £700/pm and have it empty or put it on at £600/pm and have a tenant.

Brallaqueen

I can understand LHA LL not being able to reduce rent - they incur higher costs for insurance and rent guarantees etc because LHA tenants are seen as more risky. I'd also hazard that this is because LHA tenants are more likely to get into arrears or damage the property, which needs to be factored in.

I think what we will see is a move away from renting to LHA but my guess is that an LHA property is not going to be of the same standard as a private rented one. Students are another option, but they are about to be hit by higher fees and not everyone is located close to a university town. Eastern Eurpoeans were a good bet at one time but not so much after the credit crunch.

So what will they do?

ninky_2

well if they can't afford to reduce their rents the house will ultimately be repossessed and sold for a more realistic asking price - thereby providing a more affordable home for someone. tenants are used to the insecurity of short term tenancy anyway. so the only losers are btl investors who didn't think things through. can't say i'm shedding too many tears.

laurel7172

As an aside, can somebody explain to a very naive investor how so-called "tax-efficiency" works?

For example, I rent out a house at £10,000 pa, I pay £10,000 in interest.

I make no profit and pay no tax.

I rent out a house at £10,000 pa, I pay £9,500 in interest.

I make profit of £500, and am left with the profit minus tax.

I find it hard to see how I am better off under the first scenario. But that seems to be the thinking behind non repayment BTL mortgages. What am I missing?

Wee_Willy_Harris

Brallaqueen wrote: »

I can understand LHA LL not being able to reduce rent - they incur higher costs for insurance and rent guarantees etc because LHA tenants are seen as more risky. I'd also hazard that this is because LHA tenants are more likely to get into arrears or damage the property, which needs to be factored in.

I think what we will see is a move away from renting to LHA but my guess is that an LHA property is not going to be of the same standard as a private rented one. Students are another option, but they are about to be hit by higher fees and not everyone is located close to a university town. Eastern Eurpoeans were a good bet at one time but not so much after the credit crunch.

So what will they do?

But there is no such thing as an "LHA house", so when the rental rates fall for LHA, they fall for all as it's an open market.

JonnyBravo

laurel7172 wrote: »

As an aside, can somebody explain to a very naive investor how so-called "tax-efficiency" works?

For example, I rent out a house at £10,000 pa, I pay £10,000 in interest.

I make no profit and pay no tax.

I rent out a house at £10,000 pa, I pay £9,500 in interest.

I make profit of £500, and am left with the profit minus tax.

I find it hard to see how I am better off under the first scenario. But that seems to be the thinking behind non repayment BTL mortgages. What am I missing?

You're missing nothing.
It is better to pay off your BTL mortgage.
I'm guessing some posters are getting at the fact that some places being rented are probably only bringing in enough rent to pay the interest part of a mortgage and therefore perhaps arent paying off any of the capital. They were relying on capital appreciation to make money. More fool them.

vivatifosi

LydiaJ wrote: »

So what happened in the mid-90s to trigger this change?

Thrugelmir wrote: »

Some would say the Building Society Act 1986. Which was in response to building societies concerns of being unable to compete with banks. Although it was some years later before the major societies became PLC banks ( Abbey 1989 and the remainder 94/99). In order to compete with the established banks they expanded lending aggressively. Around 57% of Bradford and Bingleys total mortgage book was BTL at the point it collapsed. Reflected now in its worse than average mortgage arrears figures and slow reduction in capital debt owed.

Could it also be to changes in the rules regarding Assured Shorthold Tenancy that came in with the Housing Act revisions of 1996?

I don't know much about ASTs btw as I bought one house and that was for me to live in, but the timing does seem a bit coincidental.

Jimmy_31

ninky wrote: »

well if they can't afford to reduce their rents the house will ultimately be repossessed and sold for a more realistic asking price - thereby providing a more affordable home for someone. tenants are used to the insecurity of short term tenancy anyway. so the only losers are btl investors who didn't think things through. can't say i'm shedding too many tears.

Me neither, maybe a few tears of joy though:)

Generali

HAMISH_MCTAVISH wrote: »

AFAIK only around 55% of rented properties have a mortgage, and the LTV distribution is similar to residential. So around half have less than a 50% LTV.

It's not an interest rates issue for most.

More a "screw you I'm not lowering the rents because little Fiona's riding lessons are expensive" issue.

Maximum LTV was 85% for most products I think. It would take a particularly dumb businessman to work out that you're better off with a 2 month void than a tenant paying 10% less than they'd prefer.

Maybe the survey sample was collated from an old Inside Track client list. ;-)

TBH I can't see how vast numbers of BTL LLs would be failing to make a profit. Even on the wee poor yields that my old LL in the UK used to get, with current interest rates and a small mortgage they'd be making a little bit.

chewmylegoff

HAMISH_MCTAVISH wrote: »

No.

12%.

http://www.guardian.co.uk/money/2011/mar/18/cost-of-renting-rises

Landlords suffered setbacks in the shape of increased tenant arrears, with 12.6% of all UK rent unpaid or late by the end of February – an increase from 11% the previous month.

this may be supposed to mean that 12.6% of tenants are in arrears, but that is not what it actually says. it could mean that 100% of tenants are in arrears - but are paying most of the rent due every month.