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

chucknorris

wotsthat wrote: »

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.

That is of course true, but (certainly when talking about funds rather than specific shares) the yield is higher from property and is enough to fund the loan payments, although right now in this very low interest environment dividend income might do that, but I don't think that argument would stand the test of time. But there are 2 important caveats:

1. Property isn't a passive investment so you are 'earning' that extra yield.
2. The new tax rules will extend the period that it takes higher rate tax payers to start making profit (on larger percentage loans).
3. You could perhaps argue that there is also a third consideration, and that would be the risk. I think that this is very a valid point, but others (not me) might argue that shares also come with their own equally high risks too.

I'm not against shares, they offer advantages that property doesn't (which is why I also have invested in equities too):

1. You can easily mitigate capital gains tax by annual bed and breakfasting your shares.
2. You can avoid tax by using ISA and pension wrappers.
3. They are far more liquid than property.
4. They frequently dip which allows investors to invest at lower values.
5. Dividend income is taxed at a lower rate than property income.
6. They are a more passive investment which means that they tend not to be intrusive into your lifestyle.
7. More diverse than holding property.

wotsthat

chucknorris wrote: »

That is of course true, but (certainly when talking about funds rather than specific shares) the yield is higher from property and is enough to fund the loan payments, although right now in this very low interest environment dividend income might do that, but I don't think that argument would stand the test of time. But there are 2 important caveats:

1. Property isn't a passive investment so you are 'earning' that extra yield.
2. The new tax rules will extend the period that it takes higher rate tax payers to start making profit (on larger percentage loans).
3. You could perhaps argue that there is also a third consideration, and that would be the risk. I think that this is very a valid point, but others (not me) might argue that shares also come with their own equally high risks too.

I'm not against shares, they offer advantages that property doesn't (which is why I also have invested in equities too):

1. You can easily mitigate capital gains tax by annual bed and breakfasting your shares.
2. You can avoid tax by using ISA and pension wrappers.
3. They are far more liquid than property.
4. They frequently dip which allows investors to invest at lower values.
5. Dividend income is taxed at a lower rate than property income.
6. They are a more passive investment which means that they tend not to be intrusive into your lifestyle.

I don't disagree with any of that. In fact you're comparing the risks of BTL against share ownership which I think is the correct comparison.

My view however is BTL investors are comparing the risks of BTL against cash, underestimating risk and forgetting, as you say, that some of the yield is earned income.

If the risks of BTL never manifest then either the risks are comparable with cash (and I'm wrong and sore) or BTL investors have been lucky (and I'm just sore).

Generali

Cheers whatsthat, I was almost certain that I was talking about the UK but couldn't find the link.

The key advantage of shares over property for me is diversification, it's the only free lunch. Of course if you're very rich then property can be a means of diversification but for us mere mortals that should mean buying into British Land or a REIT.

Plus, as alluded to, the chairman of BP is highly unlikely to call you on Xmas Day to complain that his boiler has stopped working.

socrates

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).

I suggest you make sure and then re-post otherwise it is extremely misleading - almost Daily Mail-ish

And I do not class accidental LLs as Buy to Let LLs - someone who is about to lose their house and rents it out to try and pay the mortgage - never bought it to let it...

Generali

socrates wrote: »

I suggest you make sure and then re-post otherwise it is extremely misleading - almost Daily Mail-ish

And I do not class accidental LLs as Buy to Let LLs - someone who is about to lose their house and rents it out to try and pay the mortgage - never bought it to let it...

In your haste to criticise you didn't see my subsequent post.

I try to post fairly and use data where available to me (within the constraint that I'm normally paid to provide analysis and I do this for free).

Thrugelmir

socrates wrote: »

And I do not class accidental LLs as Buy to Let LLs - someone who is about to lose their house and rents it out to try and pay the mortgage - never bought it to let it...

They had a choice whether to sell or let. Hanging onto a property is purely a financial decision. One has to lie in ones own bed.

socrates

Thrugelmir wrote: »

They had a choice whether to sell or let. Hanging onto a property is purely a financial decision. One has to lie in ones own bed.

And if they were in negative equity?

wotsthat

socrates wrote: »

And if they were in negative equity?

They decided becoming a landlord was a better option than the alternative. Their choice.

Thrugelmir

socrates wrote: »

And if they were in negative equity?

Same applies. In life you have to deal with whatever happens to you personally. We all suffer traumas of one kind or another through our lives. What differentiates us all is how we tackle the challenges. Life is about choices.

cepheus

Tories to build thousands of affordable second homes

THE government is to build 200,000 second houses to help homeowners onto the buy-to-let ladder. 29-year-old Emma Bradford said: “We’ve just gotten married and would like to start exploiting other people like us. :eek: