1 in 8 mortgages now BTL

Graham_Devon

wotsthat wrote: »

Add cost to a supply chain whether it be baked beans, energy or housing and eventually it'll find it's way to the consumer. I have a choice whether I buy baked beans - if they go up I might stop buying them so there's a chance that the retailer and producer might (grudgingly) take a margin reduction.

In the current rental market there's limited scope for just walking away. Increased costs will quickly find their way to the tenant.

I'm on the side of the renter - I made a couple of suggestions how the costs of renting could be reduced.

You can't see the woods (the real world) for the trees (your desire to 'punish' BTL's).

Come on, you are still not getting it.

If a prospective BTL landlord has to buy a product (repayment mortgage) that's going to give a much lower yield compared to the current market, from this point forward, they will have to make a choice.

If they decide it's still worth going ahead, then they will go ahead. They will likely be looking long term. But they won't be able to get a customer if they decide to simply pass the higher costs of their repayment mortgage onto the renter.....as their rent will be higher than all other competitors around them.

This isn't retrospective. It's not putting any costs on existing stock or existing landlords. It's putting costs on new stock, and new landlords but making them compete against people who can offer lower costs to the buyer.

At that point, you'd likely have only long term landlords willing to step in and buy houses, which ticks two of my original boxes. It's not hard and I don't get why you keep pretending it will put all costs up for everyone and then saying I don't understand business.

wotsthat

the_flying_pig wrote: »

that's a bit simplistic.

as you say, cost that affects one supplier only, in a market with lots of choice, won't be passed through... e.g. if the 'going rate' to rent a 3-bed semi is £200pw then if one landlord tries to ask £300 because he's had to spend a load of money on repairs after a big tree toppled over onto his roof, trashing it, he'll fail.

but something that affects all suppliers is a bit more subtle. suppliers can't just charge whatever they like - some choices are available, e.g. more housesharing, more owner-occupation,.... basically i'd expect the burden of something like this to be shared between landlords & tenants.

It's simplistic just to make the point that when one part of a supply chain faces an increased cost there will be a desire to pass it on.

Of course, you're right, real life is more subtle but your examples make the same point. If a landlord tries to increase rents above the market price his tenant may well disappear. If the market price increases then they don't have that option although others exist such as buying.

I'd expect increased costs to be shared between landlord and tenant too. However, the split would be very much dependent on the strength of each parties negotiating position and the options available to them that they can realistically choose to take.

I'd suggest now isn't a good time to add costs to the rental market expecting it to be borne by the landlord.

Percy1983

Parnott wrote: »

Aren't people having to rent out their original property in order to buy the next place and move up the ladder because they simply can't sell in the current climate?

It would be nice to do things in the right order but that's not always possible I guess.

Interestingly I have witnessed this with a women at work saying, "I can't get what its worth so I might rent it out".

Funny how she is happy to buy the next house at its newly decreased value but can't see how her house has also decreased in value.

I will say Graham makes a lot of sense on this one, ie, if I wanted an 'investment' property for my children but had to pay the mortgage down, it may end making a loss every month. On the flipside after 25 years it would be making a straight profit or if sold at that point I have got a house for £100 a month (picking a figure for the loss) which still means I got the house for £30k which I guess would still be much less than its worth.

Now I do believe people miss a single point, every single property which goes to BTL essentially increases the prices for FTB's, the higher the price for FTB's the more need to rent, the more that need to rent the more BTL's want a slice... and circle keeps going.

wotsthat

Graham_Devon wrote: »

If a prospective BTL landlord has to buy a product (repayment mortgage) that's going to give a much lower yield compared to the current market, from this point forward, they will have to make a choice.

If they decide it's still worth going ahead, then they will go ahead. They will likely be looking long term. But they won't be able to get a customer if they decide to simply pass the higher costs of their repayment mortgage onto the renter.....as their rent will be higher than all other competitors around them.

I can see that requiring all BTL mortgages to be on a repayment basis might attract investors with a longer term view. (it might just deter investors but I get the point).

What I can't see is why you think someone on a repayment mortgage has greater costs they'd want to pass to a renter. The costs are, give or take, the same - what changes is the business model - it becomes less about an income game and more about equity. (That's why it might deter income seeking investors).

The tax treatment becomes subtly different - mortgage interest is tax deductible so repayment payers might have a disadvantage as their loans are reducing compared to IO. Not sure how significant that becomes over time but remortgaging periodically would take care of that.

Graham_Devon

wotsthat wrote: »

What I can't see is why you think someone on a repayment mortgage has greater costs they'd want to pass to a renter. The costs are, give or take, the same - what changes is the business model - it becomes less about income game and more about equity. (That's why it might deter income seeking investors).

Hasn't your whole point, up until now, been the very fact that these increased costs will be passed onto tenants? (and having a pop at something I never said regarding restrospective action).

And now you ask why I think someone on a repayment mortgage would have greater costs?

Sound to me as if you are in quite a muddle. Or do you really not get the monthly cost difference between remortgage and interest only loans? Orrrr, are you just trying to come up with something, anything, to have a go and suggest I don't understand business?

wotsthat

Graham_Devon wrote: »

Hasn't your whole point, up until now, been the very fact that these increased costs will be passed onto tenants? (and having a pop at something I never said regarding restrospective action).

And now you ask why I think someone on a repayment mortgage would have greater costs?

You had quite a long list of ideas. I agree that they were cost additive EXCEPT the requirement for BTL mortgages to be on a repayment basis - you think that's cost additive and would put new BTL's at a disadvantage - I asked you to clarify - I'm not so sure for the reasons I gave.

If you're correct and repayment mortgages DO put repayment BTL's at a competitive disadvantage then, in the short term, they may not be able to pass on the costs easily. However over the long term IO mortgages will have to be paid at due dates and presumably won't be rolled over. At some point in your future all BTL mortgages would be on a repayment basis, the competitive advantage would disappear and, depending on the market conditions at the time, the BTL may or may not be able to increase their margin.

Increased costs, even in just one part of the market, will lead to increased price pressure. Our repayment BTL puts up his rents so people look for landlords with IO mortgages - those lucky bleeders can increase their rents without even seeing an increase in costs.

Over time the market evens things out.

Graham_Devon wrote: »

Sound to me as if you are in quite a muddle. Or do you really not get the monthly cost difference between remortgage and interest only loans? Orrrr, are you just trying to come up with something, anything, to have a go and suggest I don't understand business?

As far as I can see, apart from subtle tax treatment, there is no difference. With IO profits go in the back pocket but with repayment profit is used to build equity. Different business model that's all but no difference in cost between them.

IveSeenTheLight

Graham_Devon wrote: »

Will anything ever be done? Don't forget, BTL landlords are on much more favourable terms now over the FTB....they still have IO loans.

From a lenders perspective, I would believe they would prefer BTL loans as opposed to residential loans.

BTL usually have : -

1. Higher deposits
2. Higher interest rates compared to residential

These two simple points mean it's a lower risk to lend to BTL with a higher return.

Can't agree that BTL is more favourable than FTB loans from a lendee perspective as they are paying more for the same funds.

IveSeenTheLight

Graham_Devon wrote: »

Interest rates which are indeed, tax deductable, unlike a residential mortgage.

Do you understand why it is tax deductable?
There is no profit made on the Interest part of the mortgage.

If it wasn't, I would presume many landlords would increase the rents to cover the tax.

Is this what you would prefer?

Pay the lenders more in interest and pay the government more in tax.

Ask yourself as a business, who covers these costs?

Conrad

As I've been trying to point out for years, FSA regulation has detrimented millions of would be owners. 'TCF' rules mean millions of perecftly capable borrowers are frozen out.

From April 2014 the TCF rules are being considerably tightened. For example every Bank has to give advice which means even more people will end up without a mortgage because in the real world not every client ticks every rule box.

Way to go!

Awaits the usual reposte of "says a VI like you..."

CLAPTON

Percy1983 wrote: »

Now I do believe people miss a single point, every single property which goes to BTL essentially increases the prices for FTB's, the higher the price for FTB's the more need to rent, the more that need to rent the more BTL's want a slice... and circle keeps going.

If the supply of house is fixed then there may be a case that every sale to a rental business is one that doesn't go to an owner occupier.

However, for new builds this is not so. Rental businesses may well finance new building that owner occupiers will not, so increasing the total supply of properties.
It's equally obvious that there are knock on effects if rental businesses by an existing property where that owner then buys a new build.