Not a time to be a buy-to-let landlord

mwpt

buglawton wrote: »

About the effect of the tax rises on rent levels.

I'll make a comparison with petrol here, because there's 'inelastic demand' for it. That means that history has proven that when price of petrol rises and falls, the amount of it consumed does not vary nearly as much as for things with 'elastic demand' like restaurant meals. Government tax hikes get absorbed by sellers and to a very large extent, buyers.

Living space demand may be a bit elastic but I think history shows it to be more like petrol than restaurant meals.

Hence, tenants are (regrettably) going to have to absorb the lions share of the tax hikes. Just like we blame the nasty oil companies for profiteering on our fuel, landlords are going to get the flak of course.

Only if leveraged BTlers falling into the 40% tax bracket make up the majority of the market. Do they?
And only if margins are so tiny that landlords cannot absorb a lot of the new tax. Can't they?
And only for existing landlords buying at asset prices not conducive to a reasonable yield. If asset prices correct downward, yields will be fine for new entrants.

BobQ

Electrum wrote: »

http://moneyweek.com/not-a-time-to-be-a-buy-to-let-landlord/

Try to sell now, take the pain or it will be far worse the longer you leave it.

Cash strapped governments need an easy target, oh there you greedy LandLords !!!!!!!!!!!

Its not a good time to be buying a BTL property or a second home.

Also it is not a good time to be buying a BTL with a large mortgage.

But is it so bad to own a BTL property with a small mortgage?

BobQ

Electrum wrote: »

Wrong, it is changing and will change a lot in the future.

Look at that picture and think about the cash strapped government looking under every stone for ideas where to get more income from?

I know you hate BTL landlords but try not to let these prejudices get in the way of the facts.

Income tax is not changing - the ability to deduct mortgage interest as an expense is changing. If like Mystic Trev and others you own the house there is no mortgage to deduct.

Where it impacts are people with say a £500,000 house and a loan of £400,000. Now they will suffer.

westernpromise

cells wrote: »

i think his argument was that crashes only really happen in recessions and during times when real interest rates jump (in 2007-2009 real interest rates were high even if the central bank rates were low) and as such even though prices are a tad lower mortgage rates (and deposits required) are a lot higher hence the ability to buy does not improve much

this seems to make logical sense, how many people who could not afford to buy in 2007 were able to and did buy in 2009? probably some people as other factors might of helped them (eg got a pay rise or a better job or family gifted deposit etc) however clearly the crash that happened did not lead to a a land of milk and cookies for the crash-wishers because we are where we are and they are wishing for another crash.

I should have said new customers rather than new entrants, but yeah. I bought in 1988 and not till 1998 did prices locally recover to what I'd paid. Meanwhile, anyone entering the market from about '92 on could get a much cheaper mortgage rate because it was all being generously funded by people trapped on the SVR. The kicker was that you needed a very substantial deposit to buy or move because lenders were afraid of further falls. If you had that they'd do a far better deal than a customer of 10 years' good standing.

The beneficiaries, so far as I could see, were chiefly people who'd bought 5 to 10 years earlier than me, whose houses had more than doubled versus what they paid before falling by a third. They still had enough equity to move.

A trustafarian paid £83k for a flat in the same block as the 1-bedder I'd paid £85k for 4 years previously, but she was pretty unusual in that she did no apparent work, and the developer was desperate to shift the remaining stock in a half-sold block. Most other sales ground to a halt for obvious reasons.

westernpromise

mwpt wrote: »

So, some people were worse off while others gained. Pretty much exactly the same as now with high HPI, just in reverse. Neither side deserves to gain or lose more than the other, it is a pity our housing market seems designed to make it so.

No, not really. Those best off were people with decades of equity - they could afford to take a 30% hit on a £200k property in return for a 30% discount on a £400k property. Landlords did quite well because they could charge tenants for being protected from capital loss.

These are the people crash trolls hate the most, and on whom they most wish harm, but last time, they were the least hurt and everyone else was hit a lot worse.

FTBs were hosed, because deposit requirements blew through the roof, as did their rent for the reason given. Recent FTBs were hosed, by negative equity.

Also, curiously (or not in my opinion), you previously claimed that a housing crash would result in people being unable to buy anyway. But now you're saying new entrants had it good. Can't quite work out your agenda.

I meant new borrowers. There weren't many new entrants.

mwpt

westernpromise wrote: »

No, not really. Those best off were people with decades of equity - they could afford to take a 30% hit on a £200k property in return for a 30% discount on a £400k property. Landlords did quite well because they could charge tenants for being protected from capital loss.

These are the people crash trolls hate the most, and on whom they most wish harm, but last time, they were the least hurt and everyone else was hit a lot worse.

FTBs were hosed, because deposit requirements blew through the roof, as did their rent for the reason given. Recent FTBs were hosed, by negative equity.

I meant new borrowers. There weren't many new entrants.

I'm sorry, I just don't believe you anymore. I think you're full of it.

Generali

buglawton wrote: »

Hence, tenants are (regrettably) going to have to absorb the lions share of the tax hikes. Just like we blame the nasty oil companies for profiteering on our fuel, landlords are going to get the flak of course.

Hmm. Given that a lot of rents come from already stretched pockets and HB that simply isn't going to pay more, I wonder where you think this extra money is going to come from. Your customers can't afford to pay more than they can afford and I suspect that if you tried a rent increase that genuinely compensates you for the tax rise a lot of your tenants would simply walk away and go somewhere cheaper, depending on your own circumstances of course.

Lest we forget, there is a great range of indebtedness among landlords from none to over 100% LTV. Those landlords will be facing very different costs in future so the LLs with low debt levels can up rents a little and still attract the better tenants. LLs with higher costs simply won't be able to compete and will go bust.

So the net result? IMHO it means slightly lower house prices than would otherwise be the case (NB that doesn't have to mean lower house prices it may simply mean smaller rises) and rents which are higher but by less than the amount of the tax, probably significantly less.

These tax changes are pretty messed up IMO but they are what they are and landlords are going to have to live with the changes they engender. Most simply it is likely to mean that if you have a big LTV mortgage on a property you are going to have to be pretty certain about the capital gains coming your way to make the numbers stack up.

Worse, many people with debt will find that they have to find a substantial amount of cash each month in order to hold on to the houses, especially as interest rates rise. There's a calculator on 118 that should be very sobering for anyone that thinks that holding property with a lot of debt is a good idea.

buglawton

As the new tax kicks in in stages, 'real' wages are (so the govt tells us) rising. They might have risen by 12%-15% by 2020.
A large part of that is going to be mopped up - for those who rent - by landlords raising rent. The most hard pressed landlords will try raising it speculatively, to see what the market will bear. They might be surprised, in many rental hotspots, how far they can go.

mwpt was saying earlier "Only if leveraged BTlers falling into the 40% tax bracket make up the majority of the market."

In hotspots around London, I can easily imagine that they are highly leveraged and at 40% (be interesting to know if stats exist).

So it looks like in hot spots, LLs will be syphoning money from generation rent to the government, if my inelastic demand theory is correct. Not good for the economy in general.

mwpt

buglawton wrote: »

As the new tax kicks in in stages, 'real' wages are (so the govt tells us) rising. They might have risen by 12%-15% by 2020.
A large part of that is going to be mopped up - for those who rent - by landlords raising rent. The most hard pressed landlords will try raising it speculatively, to see what the market will bear. They might be surprised, in many rental hotspots, how far they can go.

mwpt was saying earlier "Only if leveraged BTlers falling into the 40% tax bracket make up the majority of the market."

In hotspots around London, I can easily imagine that they are highly leveraged and at 40% (be interesting to know if stats exist).

So it looks like in hot spots, LLs will be syphoning money from generation rent to the government, if my inelastic demand theory is correct. Not good for the economy in general.

With any luck the highly leveraged will be forced to sell up to people with better business acumen and rents will continue to rise as normal.

My bet is rents rising as normal in line with historical averages.

Generali

buglawton wrote: »

As the new tax kicks in in stages, 'real' wages are (so the govt tells us) rising. They might have risen by 12%-15% by 2020.
A large part of that is going to be mopped up - for those who rent - by landlords raising rent. The most hard pressed landlords will try raising it speculatively, to see what the market will bear. They might be surprised, in many rental hotspots, how far they can go.

mwpt was saying earlier "Only if leveraged BTlers falling into the 40% tax bracket make up the majority of the market."

In hotspots around London, I can easily imagine that they are highly leveraged and at 40% (be interesting to know if stats exist).

So it looks like in hot spots, LLs will be syphoning money from generation rent to the government, if my inelastic demand theory is correct. Not good for the economy in general.

I can't think of many places where rents would be inelastic. Maybe in areas with poor transport links where moving a few miles down the road is the difference between a decent life and a horrible one but in most parts of the country a move a couple of stops down the tube line or bus route means 5 minutes longer on the train with an increased chance of getting a seat.

One of the positives of renting is you are footloose and fancy free.