Buy-to-let is danger to UK economy, warns Bank

kinger101

Thrugelmir wrote: »

You are assuming that the property is generating a good income. For some investors it won't be.

If it wasn't generating a good income, they should have probably disposed of it before any crash. The reason they didn't before is probably CGT and the costs of disposing of property. But losing capital isn't the best way of reducing CGT.

Thrugelmir wrote: »

I find the notion that one simply buys a property, collects rent and watches the asset rise in value somewhat lacking.

I do to, but sadly there are many amateurs who can only be doing this for the increase in capital value, as the rental yields you see on many of the property !!!!!! programmes are poor considering it's not a passive investment. On homes under the hammer, they get excited about 6% gross yields.

I suspect the only thing that makes it work is the leverage that they wouldn't be able to get if they rolled up at the bank wanting to invest in stocks and shares.

wotsthat

kinger101 wrote: »

I do to, but sadly there are many amateurs who can only be doing this for the increase in capital value, as the rental yields you see on many of the property !!!!!! programmes are poor considering it's not a passive investment. On homes under the hammer, they get excited about 6% gross yields.

As an avid viewer of Homes Under The Hammer my reading is that whereas you might think 6% is poor considering the risk taken the 'entrepreneurs' are delighted with it. They want capital gains of course but they're comparing interest on cash with that 6% and, I think, assuming a similar risk.

I can sell and buy back £150k of United Utilities for £770 fees, stamp duty plus £4500 spread so I need to be very clever or lucky to turn a profit. A similarly priced house would cost even more to turn around - I'd need to be even luckier or even cleverer.

If someone is very lucky or clever when it comes to house prices (or anything else for that matter) they should buy a house to live in and use housing proxies to make a fortune with less going in fees/ tax and without the inconvenience of holding the underlying asset.

They wouldn't have to die to avoid CGT either.

Jonbvn

wotsthat wrote: »

As an avid viewer of Homes Under The Hammer my reading is that whereas you might think 6% is poor considering the risk taken the 'entrepreneurs' are delighted with it. They want capital gains of course but they're comparing interest on cash with that 6% and, I think, assuming a similar risk.

I can sell and buy back £150k of United Utilities for £770 fees, stamp duty plus £4500 spread so I need to be very clever or lucky to turn a profit. A similarly priced house would cost even more to turn around - I'd need to be even luckier or even cleverer.

If someone is very lucky or clever when it comes to house prices (or anything else for that matter) they should buy a house to live in and use housing proxies to make a fortune with less going in fees/ tax and without the inconvenience of holding the underlying asset.

They wouldn't have to die to avoid CGT either.

The major advantage that property offers is gearing. I've never been brave (or stupid?) enough to borrow to invest in S&S.

Thrugelmir

Jonbvn wrote: »

The major advantage that property offers is gearing.

A double edged sword.

chucknorris

kinger101 wrote: »

I do to, but sadly there are many amateurs who can only be doing this for the increase in capital value, as the rental yields you see on many of the property !!!!!! programmes are poor considering it's not a passive investment. On homes under the hammer, they get excited about 6% gross yields.

The initial gross yield doesn't actually tell you much about the profitability, it is usually only used as a comparative measure between competing properties, you need a more sophisticated spreadsheet approach to measure the profitability, rather than rely upon the initial gross yield.

However 6% is a good initial gross yield, but the incoming tax changes are a 'game changer' for higher rate tax payers, the profitability will be significantly affected for purchases with larger percentage mortgages, particularly in the early years.

Property is a long term investment, and in the past, our properties typically have shown little profit in the early years, but we invested for the long term, and we are get very good returns from our properties.

I'm not against equities though, I have also invested in them, and I will be investing more in the future. Dividend income will play a significant role in our retirement income.

Garethgrew

CLAPTON wrote: »

one thought their job was to do something to stop it destabilising the financial system

Let house prices correct back down slowly over several years

socrates

Generali wrote: »

A BTL is about twice as likely to be repossessed than a OO property and a LL that gets repossessed is likely not to have been maintaining the place. Your points are good though, IMHO.

I absolutely disagree - they will fight tooth and nail to keep the BTL property that they have paid the mortgage for over the last 15 years.

A small turn in the market on interest rates and 1 million owner occupiers will be in trouble

I would have agreed that a LL is twice as likely to sell than an OO if the market turns bad

But not experienced LL's who have a decent well maintained portfolio - they may have hung on through 2 or 3 recessions

The flat they bought in North London is now possibly worth 5 times as much - and there is no shortage of renters

wotsthat

Jonbvn wrote: »

The major advantage that property offers is gearing. I've never been brave (or stupid?) enough to borrow to invest in S&S.

For BTL owners gearing is only an advantage if property prices are rising. I see no real difference between investing in property or company shares other than it's mainstream to borrow money to invest in one asset class and not the other.

To date property has been a great investment for a long time and so I completely understand why people underestimate risk, and IMO, foolishly compare BTL investment with cash savings. If the hazards never materialise then either the risk is low or the investor has been lucky.

Of course for most people who want to own their own house to live in then gearing is the only realistic route to ownership.

You might think gearing to buy shares is mad but if they never went down why wouldn't you? 20 years into a bull market with mainstream lending to buy shares you'd probably be able to get tips from 'shares under the hammer'.

I might just be sore I didn't gear up on property.

Generali

socrates wrote: »

I absolutely disagree - they will fight tooth and nail to keep the BTL property that they have paid the mortgage for over the last 15 years.

A small turn in the market on interest rates and 1 million owner occupiers will be in trouble

I would have agreed that a LL is twice as likely to sell than an OO if the market turns bad

But not experienced LL's who have a decent well maintained portfolio - they may have hung on through 2 or 3 recessions

The flat they bought in North London is now possibly worth 5 times as much - and there is no shortage of renters

Statistically speaking a BTL LL is twice as likely to be repossessed than an OO. Admittedly I can't remember whether that figure comes from the RBA (Aus) or BoE (UK).

wotsthat

Generali wrote: »

Statistically speaking a BTL LL is twice as likely to be repossessed than an OO. Admittedly I can't remember whether that figure comes from the RBA (Aus) or BoE (UK).

From the CML based on 2014 data.

The number of repossessions fell to 21,000 in 2014 - 26% fewer than the 28,900 in 2013, and the lowest number since 2006, according to latest data from the Council of Mortgage Lenders. At 0.19%, the repossession rate was also lower in 2014 than at any time since 2006.

Out of the 21,000 total number of repossessions, 16,100 were on owner-occupied properties, and 4,900 were on buy-to-let properties.

At 0.3%, the repossession rate on buy-to-let mortgages was higher than the 0.17% on owner-occupier loans, despite the fact that the underlying arrears rate was lower on buy-to-let lending than on home-owner lending. This is unsurprising, as lenders offer extended forbearance to owner-occupiers to help them get through periods of financial difficulty without losing their home.

https://www.cml.org.uk/news/press-releases/4129/

Lenders are nicer to owner occupiers than BTL owners when things go t**ts up.

Plus, of course, it seems very unlikely a BTL owner will fight to keep an investment property as much as they would when it comes to keeping a roof over their head.

Not seen that press release before - grim reading for the doom mongers.