Financial Transaction Tax - Does it make property more attractive to investors?

DervProf

shortchanged wrote: »

But aren't the majority of BTL's taken out on IO mortgages?

To be fair, they don't have to be, but I don't know the proportion that are.

I suspect that RM would pay down the amount borrowed.

What I`ve always been concerned about is that people like RM, who is obviously in a financial position to be able to consider a BTL for pension planning, there are currently very good reasons for him to do so. I think more government intervention is required to steer the country forwards towards individual home ownership at affordable prices. While it is attractive for the relative minority to buy up housing stock for investment purposes, this simply lines the pockets of the relatively well off and makes life harder for future generations.

DervProf

RenovationMan wrote: »

These are the reason so many people have looked at BTL for retirement income in the past and why I feel an increasing number will look to it in the future. Where else can you invest an ever reducing amount of disposible income and hope to have enough to retire comfortably on?

The problem with this situation is that it is unsustainable. There is a limit to the amount of money that working people will be able to hand over to retired people.

shortchanged_2

RenovationMan wrote: »

These are the reason so many people have looked at BTL for retirement income in the past and why I feel an increasing number will look to it in the future. Where else can you invest an ever reducing amount of disposible income and hope to have enough to retire comfortably on?

Yes RenoMan, in the past even I could see the attraction of BTL when you had rampant HPI for those few years. Property was an easy way to make money for actually very little effort. There was the attraction that your investment was going up in value year on year so it actually was low risk.

How would you explain the boom in BTL's over the past decade or so?

However if you think about it now, it certainly doesn't have the attraction it did back then. Stagnant prices (London aside) make it far less appealing with no obvious signs of any major growth in house prices in the future.

Actually it would be interesting, I don't know if there is any info available as to the number of BTL mortgages taken out now compared to the boom years, although this could be skewed a little at present due to reluctant landlords who are only doing it because they can't sell their properties and need to move.

Generali

RenovationMan wrote: »

These are the reason so many people have looked at BTL for retirement income in the past and why I feel an increasing number will look to it in the future. Where else can you invest an ever reducing amount of disposible income and hope to have enough to retire comfortably on?

I can see why BTL is attractive to many people: you don't have to deal with a spiv investment banker who will do to your finances what the Allies did to Dresden; and people 'get' housing whereas shares and stuff are complicated.

There are 2 problems that I can see. Firstly for most people, a home and a BTL or two will see a huge proportion of their net worth in a single asset class. That is an incredibly risky position to be in. What happens if, for example, a future Government introduces security of tenure and regulated rents? If all these predictions of A Generation Priced Out etc are true (I have my doubts) then there may be an awful lot of political pressure for a 'fair deal for renters' or some such.

Also, while property returns have been good over the past decade or so, if you take most periods then BTL returns have been negative post-inflation (no link, sorry, you can take my word for it or not). Now that covers long periods when rents were controlled to a greater or lesser extent so things may well be different now.

There's other stuff too like what happens if some beggur builds a nightclub next to your BTL or that it's a hugely illiquid investment (although less so than a pension). However returns have undeniably been good for a lot of investors and as they say, Cash is Truth, everything else is just speculation.

RenovationMan

Generali wrote: »

I can see why BTL is attractive to many people: you don't have to deal with a spiv investment banker who will do to your finances what the Allies did to Dresden; and people 'get' housing whereas shares and stuff are complicated.

There are 2 problems that I can see. Firstly for most people, a home and a BTL or two will see a huge proportion of their net worth in a single asset class. That is an incredibly risky position to be in. What happens if, for example, a future Government introduces security of tenure and regulated rents? If all these predictions of A Generation Priced Out etc are true (I have my doubts) then there may be an awful lot of political pressure for a 'fair deal for renters' or some such.

Also, while property returns have been good over the past decade or so, if you take most periods then BTL returns have been negative post-inflation (no link, sorry, you can take my word for it or not). Now that covers long periods when rents were controlled to a greater or lesser extent so things may well be different now.

There's other stuff too like what happens if some beggur builds a nightclub next to your BTL or that it's a hugely illiquid investment (although less so than a pension). However returns have undeniably been good for a lot of investors and as they say, Cash is Truth, everything else is just speculation.

I agree with your point about risk, putting a large proportion of retirement cash into an illiquid asset. It has been my position for many years now as I argued against BTL. However, as an increasing amount of regulation and taxation is hitting the traditional pensions industry I just think that perhaps the benefits are starting to outweigh the risks?

It would be interesting to see a comparison between the investment gain you coul receive from, say, £30k invested today into a pension plan and £30k invested into a BTL (i.e. as a deposit) and then to futher compare the retirement income that your pension could provide via an annuity and the retirement income from a mortgage free BTL property.

If you keep your money in cash, then it will be eroded by inflation.

DervProf

Generali wrote: »

Also, while property returns have been good over the past decade or so, if you take most periods then BTL returns have been negative post-inflation (no link, sorry, you can take my word for it or not). Now that covers long periods when rents were controlled to a greater or lesser extent so things may well be different now.

I think there is, or certainly has been a "you can't go wrong with property" attitude, that has been perpetuated by large HPI, property !!!!!! and people like the Wilsons. As a few of us are saying, there is no doubt that BTL investment looks pretty safe, but there are no guarantees (as there shouldn't be) and future returns don't look as promising as what we have witnessed over the past decade or so.

Often the best longer term investment returns are in things that are currently not doing so well, not in things that are, or have recently been booming.

RenovationMan

DervProf wrote: »

The problem with this situation is that it is unsustainable. There is a limit to the amount of money that working people will be able to hand over to retired people.

Given the choice, would a working person prefer to hand over money via taxation to provide retirement income via state pensions or hand over money via rent to put a roof over his family's head (and incidently provide retirement income)?

The government has a proven track record in changing the goal posts in respect to state and private pensions (retirement ages & amounts) whereas income held outside a pension framework is subject to far less government meddling.

DervProf

RenovationMan wrote: »

However, as an increasing amount of regulation and taxation is hitting the traditional pensions industry I just think that perhaps the benefits are starting to outweigh the risks?

At the moment.

You need to ask yourself why is taxation and regulation hitting the traditional pensions industry, and could similar taxation and regulation not hit the BTL pension industry at some point in the future ?

JonnyBravo

Generali wrote: »

I can see why BTL is attractive to many people: you don't have to deal with a spiv investment banker who will do to your finances what the Allies did to Dresden; and people 'get' housing whereas shares and stuff are complicated.

There are 2 problems that I can see. Firstly for most people, a home and a BTL or two will see a huge proportion of their net worth in a single asset class. That is an incredibly risky position to be in. What happens if, for example, a future Government introduces security of tenure and regulated rents? If all these predictions of A Generation Priced Out etc are true (I have my doubts) then there may be an awful lot of political pressure for a 'fair deal for renters' or some such.

Also, while property returns have been good over the past decade or so, if you take most periods then BTL returns have been negative post-inflation (no link, sorry, you can take my word for it or not). Now that covers long periods when rents were controlled to a greater or lesser extent so things may well be different now.

There's other stuff too like what happens if some beggur builds a nightclub next to your BTL or that it's a hugely illiquid investment (although less so than a pension). However returns have undeniably been good for a lot of investors and as they say, Cash is Truth, everything else is just speculation.

Excellent and balanced post as usual.
Clearly it's not quite as black and white shortchanged makes out.
It clearly is harder to make it work than 10 years ago. It can still work though and does.

Yes most BTL's are IO only but that doesn't mean some people dont pay off capital. You don't need to worry what the average yield is, or whether the average LL pays off capital or whether the average LL is in fear of interest rate rises.
You don't have to act as the average does.

As regards exposure, yes it's a large chunk to have tied up in "one basket" but then so is my final salary pension. Lord alone knows how much of that I'll ever see, it's been shut to new entrants for years but is still going for those of us left in.
When I look at it's projected worth it's surprising that my BTL (a house worth £200k with a £120k mortgage) isn't the largest provision for my retirement. The pension is.
No doubt not many of the people moaning about BTL's will worry about my over-exposure there though.

DervProf

RenovationMan wrote: »

The government has a proven track record in changing the goal posts in respect to state and private pensions (retirement ages & amounts) whereas income held outside a pension framework is subject to far less government meddling.

Do you not think that if more and more people start "saving" in property investment, rather than traditional pensions, that the government might see a reduction in revenue from taxes on those investments and look where the money is now being invested ?