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Financial Transaction Tax - Does it make property more attractive to investors?
Comments
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JonnyBravo wrote: »Yes most BTL's are IO only but that doesn't mean some people dont pay off capital. The pension is.
are there actually any stats to suggest that most BTLs are interest only? i know that some people think that it's really clever and more tax efficient to pay interest that you actually don't need to pay, because you can deduct it against tax, but they are the sort of people who should be chucked down a well.No doubt not many of the people moaning about BTL's will worry about my over-exposure there though.
my point about concentration was not really to do with too much of a portfolio being invested in property as a sector, but that if you only have one BTL, then if something goes wrong with it (e.g. tenant stops paying rent) then you really feel the sting. thus i would rather have e.g. 2 x £100k houses than 1 x £200k house, assuming the rental yield was approximately the same. (although all in all i'd rather have 0 BTLs and £200k of cash to invest in something else that doesn't contain tenants)0 -
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 ?
One of the risks of BTL is that it might be a 'crowded trade', that is a lot of people that have entered into it at the same time are likely to want out at the same time.
Most BTLers through the last decade were 40-50 (according to the stats) and had probably had their fingers and pension funds badly burned by the dot com bust and at the same time been stitched up pretty bad about their mortgage endowments or had mates in that position (due to their age and what had happened financially around that point in their lives).
That could mean that in about 10-15 years time there will be a lot of people looking to exit the trade at the same time, if my guess is correct. At about the same time, there will be, IMO, a lot of people realizing that they should have looked a bit more closely at their pensions and find themselves living on baked beans in a half-a-million quid house. If house prices rise at 3% pa for the next 15 years then this place would be worth about that:
http://www.alandemaid.co.uk/buy/property/3-bedroom-semi-detached-house-in-beckenham,br3-for-gbp-320,000-ref-1243319/
3 bed semi in ok outer suburb of SE London.
My guess is in about 15 years time there will be a lot of motivated sellers: 65 y/os with fading health and no sign of much of a living pension for another 5 years. (Hope that doesn't sound too bleak but I think you can see what I mean).
My 2 problems is becoming a bit of a list!0 -
One of the risks of BTL is that it might be a 'crowded trade', that is a lot of people that have entered into it at the same time are likely to want out at the same time.
Most BTLers through the last decade were 40-50 (according to the stats) and had probably had their fingers and pension funds badly burned by the dot com bust and at the same time been stitched up pretty bad about their mortgage endowments or had mates in that position (due to their age and what had happened financially around that point in their lives).
That could mean that in about 10-15 years time there will be a lot of people looking to exit the trade at the same time, if my guess is correct. At about the same time, there will be, IMO, a lot of people realizing that they should have looked a bit more closely at their pensions and find themselves living on baked beans in a half-a-million quid house. If house prices rise at 3% pa for the next 15 years then this place would be worth about that:
http://www.alandemaid.co.uk/buy/property/3-bedroom-semi-detached-house-in-beckenham,br3-for-gbp-320,000-ref-1243319/
3 bed semi in ok outer suburb of SE London.
My guess is in about 15 years time there will be a lot of motivated sellers: 65 y/os with fading health and no sign of much of a living pension for another 5 years. (Hope that doesn't sound too bleak but I think you can see what I mean).
My 2 problems is becoming a bit of a list!
why would you need to exit at 65? i would have thought that an asset paying an return which is (probably) proportional to inflation would be quite a useful thing to own as a pensioner, especially when you're young enough to continue to manage it yourself. even when you get a bit older and physically can't and/or can't be bothered to manage it, you can still pay someone to manage it for you and keep most of the income.
if you sell it you've just got to find some other asset that pays an inflation proofed income to support you. and if annuity rates keep following their current trend, in 15 years time you'll have to pay someone else an income when you buy an annuity from them!!0 -
chewmylegoff wrote: »why would you need to exit at 65? i would have thought that an asset paying an return which is (probably) proportional to inflation would be quite a useful thing to own as a pensioner, especially when you're young enough to continue to manage it yourself. even when you get a bit older and physically can't and/or can't be bothered to manage it, you can still pay someone to manage it for you and keep most of the income.
if you sell it you've just got to find some other asset that pays an inflation proofed income to support you. and if annuity rates keep following their current trend, in 15 years time you'll have to pay someone else an income when you buy an annuity from them!!
You are right, you don't need to sell a BTL. A OO place that you need/want to downsize then you do.
The inflation proofed income is subject to political risk. Rents have been controlled before and may be again for example.0 -
chewmylegoff wrote: »are there actually any stats to suggest that most BTLs are interest only? i know that some people think that it's really clever and more tax efficient to pay interest that you actually don't need to pay, because you can deduct it against tax, but they are the sort of people who should be chucked down a well.
IO - I'm not sure. I've got in my mind that someone has shown it. I suspect it to be true hence my statement.
For an individual of course it matters not one jot.
We actually overpay our BTL mortgage (its actually a residential IO mortgage) and I don't care much for those who say it's tax inefficient. It's risk efficient and for us that's what we've chosen.chewmylegoff wrote: »my point about concentration was not really to do with too much of a portfolio being invested in property as a sector, but that if you only have one BTL, then if something goes wrong with it (e.g. tenant stops paying rent) then you really feel the sting. thus i would rather have e.g. 2 x £100k houses than 1 x £200k house, assuming the rental yield was approximately the same. (although all in all i'd rather have 0 BTLs and £200k of cash to invest in something else that doesn't contain tenants)
Yep, sorry, I did understand your point and given the choice I'd rather have 2x£100k but of course whilst that does increase your likelihood of avoiding a 100% loss of rent at any point it also increases your likelihood of getting less than 100%. Averages eh? :cool:0 -
One of the risks of BTL is that it might be a 'crowded trade', that is a lot of people that have entered into it at the same time are likely to want out at the same time.
Most BTLers through the last decade were 40-50 (according to the stats) and had probably had their fingers and pension funds badly burned by the dot com bust and at the same time been stitched up pretty bad about their mortgage endowments or had mates in that position (due to their age and what had happened financially around that point in their lives).
That could mean that in about 10-15 years time there will be a lot of people looking to exit the trade at the same time, if my guess is correct. At about the same time, there will be, IMO, a lot of people realizing that they should have looked a bit more closely at their pensions and find themselves living on baked beans in a half-a-million quid house. If house prices rise at 3% pa for the next 15 years then this place would be worth about that:
http://www.alandemaid.co.uk/buy/property/3-bedroom-semi-detached-house-in-beckenham,br3-for-gbp-320,000-ref-1243319/
3 bed semi in ok outer suburb of SE London.
My guess is in about 15 years time there will be a lot of motivated sellers: 65 y/os with fading health and no sign of much of a living pension for another 5 years. (Hope that doesn't sound too bleak but I think you can see what I mean).
My 2 problems is becoming a bit of a list!
Isn't the whole idea behind BTL that you don't sell the properties - you use the rental income to fund your retirement? In this scenario then HPI is irrelevent because the financial aim is for the BTL mortgage to be paid off by tenants during your working life and take the full income in retirement.
If you sell the properties then you have capital gains tax reducing the lump sum and you still have the problem of how to invest it to pay a secure retirement income.0 -
RenovationMan wrote: »Isn't the whole idea behind BTL that you don't sell the properties - you use the rental income to fund your retirement? In this scenario then HPI is irrelevent because the financial aim is for the BTL mortgage to be paid off by tenants during your working life and take the full income in retirement.
If you sell the properties then you have capital gains tax reducing the lump sum and you still have the problem of how to invest it to pay a secure retirement income.
Possibly.
There are plenty of options of course.
Our old house which became our rental entered at near the peak of the market. It's possible we end up with the mortgage paid off with only modest capital appreciation over the "cost" when set up as a BTL. There may not be all that much CGT to pay if we then sold.
Or of course we may just keep it.
Options, options. No decision is needed today!0 -
JonnyBravo wrote: »Possibly.
There are plenty of options of course.
Our old house which became our rental entered at near the peak of the market. It's possible we end up with the mortgage paid off with only modest capital appreciation over the "cost" when set up as a BTL. There may not be all that much CGT to pay if we then sold.
Or of course we may just keep it.
Options, options. No decision is needed today!
If there is zero HPI over the next 25 years as shortchanged suggests then there is no issue as far as capital gains is concerned. The issue of what to do with a lump sum still remains though and as chewmylegoff correctly points out, if annuity rates keep falling then they'll be practically worthless as an investment vehicle (much like endowments are now).
It's good to be in the position where you actually have options available. Many people will have saved in pensions and have no choice* but to buy an annuity at a crappy rate or to keep working in the hope that annuity rates increase.
* A minimum of £50k pension pot is required for drawdown, though £100k is generally the recommended minimum.0 -
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 ?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 ?
You always 'nay say' discussions we have on investing with the above argument "What if this happens" or "what if that legislation comes in". The retort from many on here is "well you generally base your investment strategy on exiting legislation/events, not on things you may think will happen".
Serious question.
Where do you invest your money for retirement? If you apply the same 'what if' logic to your own financial decisions, do you not find yourself stymied and frozen into indecision/inaction because of all the possible future permutations that may or may not happen?0 -
RenovationMan wrote: »If there is zero HPI over the next 25 years as shortchanged suggests
Just to put the record straight I'm not saying there is going to be zero HPI over the next 25 years,
just that I feel there may well only be small growth such as that in line with inflation, that is if banks keep lending quite strict.
Which is why I don't really see property as the great 'investment' it was since 2005 ish onwards.0
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