buy-to-let will lose money in 91pc of regions

anchovypizza

THE TELEGRAPH


Mapped: how buy-to-let will lose money in 91pc of regions by 2021
Buy-to-let is under threat from rising mortgage rates, new regulation and swingeing taxes. By region and city, this shows how quickly property investments could turn sour
By Olivia Rudgard
http://www.telegraph.co.uk/finance/personalfinance/investing...

Buy-to-let investors purchasing mortgaged properties today are set to lose money within five years almost regardless of where in Britain they invest, analysis by Telegraph Money has found.

Using current house price, rental and mortgage rate data, the calculations suggest landlords who borrow a typical 75pc of a property price today will be losing money each month by 2021 in ten out of 11 British regions, including London. ...

michaels

Is this to do with predicted house price increases outstripping rental increases and turnover taxation?

Logic would suggest the former will only happen if those landlords who invest now make valuable capital gains in the next five years.

I didn't realise you were a medium term house prices bull

kinger101

All this tells us it that landlords in the HR tax band are not likely to be taking out 75% LTV mortgages.

antrobus

anchovypizza wrote: »

THE TELEGRAPH


Mapped: how buy-to-let will lose money in 91pc of regions by 2021
Buy-to-let is under threat from rising mortgage rates, new regulation and swingeing taxes. By region and city, this shows how quickly property investments could turn sour
By Olivia Rudgard
http://www.telegraph.co.uk/finance/personalfinance/investing...

Buy-to-let investors purchasing mortgaged properties today are set to lose money within five years almost regardless of where in Britain they invest, analysis by Telegraph Money has found.

Using current house price, rental and mortgage rate data, the calculations suggest landlords who borrow a typical 75pc of a property price today will be losing money each month by 2021 in ten out of 11 British regions, including London. ...

Good link
http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/12087337/Mapped-how-buy-to-let-will-lose-money-in-91pc-of-regions-by-2021.html

The analysis assumes that landlords are all higher rate tax payers and that interest rates increase by 2%. You could similarly conclude that most businesses are about to become loss-making by assuming that costs rise whilst income remains unchanged.

chucknorris

antrobus wrote: »

Good link
http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/12087337/Mapped-how-buy-to-let-will-lose-money-in-91pc-of-regions-by-2021.html

The analysis assumes that landlords are all higher rate tax payers and that interest rates increase by 2%. You could similarly conclude that most businesses are about to become loss-making by assuming that costs rise whilst income remains unchanged.

I think it is fair to look at the situation when rates rise, as the full impact of the changes will not take place until 2020, so by then rates will probably be a bit higher. But of course you are correct in that not everyone will be in the same position, as I outlined in the posts below made a few months ago. I think we'll see a bit of change to the way people buy property, probably buying via a limited company will become more popular, and probably buying with larger deposits too.

chucknorris wrote: »

At current levels of interest rates, the loss of the wear and tear allowance is more significant to us than the reduction of the mortgage interest allowed as a business expense. This is due to being mortgage free on some properties and having low margin tracker mortgages and a low average LTV ratio on the others. When the base rate reaches about 3.5% they will have equal impact on us.

Of course not everyone is in a good position as us, and the combination of both changes will have an immense impact on some landlords.

chucknorris wrote: »

the day after the budget changes were announced, I looked at the first couple of properties that I bought, and re-ran the figures applying the new post budget tax rules. When I first bought I was only covering costs and showing a very small profit, but I was content with that, because I was investing for the long term. But with the new tax rules, there is no way that I would (or could) have taken on those initial losses, in not only the first year, but quite a few more subsequent years before breaking even. It definitely is a 'game changer' for new entrants (and highly geared current landlords), it will also be interesting to see what happens to rents.

Marktheshark

Most fall straight in to the agent trap.
They skim all and often more of the profit from your 100k+ investment without making any investment.

If you can not self manage, stay out and stay away, this business is not for you.

Thrugelmir

kinger101 wrote: »

All this tells us it that landlords in the HR tax band are not likely to be taking out 75% LTV mortgages.

Vast majority of BTL are highly leveraged.

PasturesNew

I don't know what people do now, or how that will be changing, but from a fast skim down the article I didn't read, my thought was that they were looking at the average house price in an area and an average rent. I'd have expected that BTL were concentrated more in the cheaper houses than further up the scale. I live in an area where the average house is over £400k, but I bet most of those, and above, are more owner occupied, whereas most of the sub-£300k houses are BTL.

So the two figures the article seems to rely on aren't connected.

kinger101

Thrugelmir wrote: »

Vast majority of BTL are highly leveraged.

I believe the average advance on a BTL is around 66% (which includes remortgages). I'm not sure how many are mortgage free or stuck on some really low SVR from say 10 years ago.

I don't expect any new business at 75% LTV for higher rate taxpayers and some highly leveraged landlords will still dispose of property. Particularly if they come to the end of the term and cannot get a new loan because of insufficient equity (a number of banks have already pulled 75% LTV). Of course, LL disposing of their assets triggers a CGT and SDLT event, so this is all good news for the treasury, and part of GO's motivation for the new rules.

So they dynamic of the private rental market is just going to shift to corporations and LL needed lower LTV (or no mortgage). And perhaps retired people on basic rate.

The net effect will be some people will get a new landlord. Some people will pay more rent (some LL do charge under market value). But for most, there will be no change.

The Telegraph article is rather shoddy, because it's founded on the premise that there is no alternative of 75% LTV landlords paying HR tax.

wymondham

So what happens when private landlords offload their property? who will perform the role of Britains social housing then?

cells

Thrugelmir wrote: »

Vast majority of BTL are highly leveraged.

majority of BTL has no mortgage at all...