Forthcoming increases in rents will ...

padington

More than mitigate BTL tax rises ...

http://www.propertywire.com/news/europe/london-borough-rental-values-2016012511476.html

Graham_Devon

padington wrote: »

More than mitigate BTL tax rises ...

http://www.propertywire.com/news/europe/london-borough-rental-values-2016012511476.html

A 4% increase on an incredibly small rental yield is still small though.

Generali

I just don't see how BTL can work as an investment to new entrants unless you can find a way to get around the SDLT changes.

To buy this relatively modest, ex-council flat (albeit very centrally located):

http://www.rightmove.co.uk/property-for-sale/property-54620213.html

will cost £675,000. That's £44,000 in SDLT! I reckon you could let it for £400 a week if you get no voids:

http://goldenlaneestate.com/content/details.htm

So it's going to take 110 weeks' rent just to pay off your stamp duty bill.

That's a yield of below 3% BTW. That might look attractive with a BTL mortgage available for 2% plus change. Even with a working assumption that a BTL owner is pretty risk averse and so putting down a big deposit (IIRC 50% is pretty standard) base rates only need to go up to 4% for the LL to struggle to cover a 50% LTV mortgage using the rent alone (working on the assumption that mortgage rates are typically base rate + 2%).

Something's gotta give. Either rents are going to go up substantially (say 50% real rise over the next few years) or house prices are going to have to come down or the entire London market is just going to grind to a halt because nobody will sell but nobody can afford to buy.

Surely the number of plutocrats wanting a 2 bed, ex-council place must be limited.

mwpt

Generali wrote: »

I just don't see how BTL can work as an investment to new entrants unless you can find a way to get around the SDLT changes.

To buy this relatively modest, ex-council flat (albeit very centrally located):

http://www.rightmove.co.uk/property-for-sale/property-54620213.html

will cost £675,000. That's £44,000 in SDLT! I reckon you could let it for £20,000 a year if you get no voids:

http://goldenlaneestate.com/content/details.htm

So it's going to take 110 weeks' rent just to pay off your stamp duty bill.

Bit off topic but I think the extra 3% SDLT is going to have quite an impact. Anecdotally, my understanding is that there are a lot of "accidental" landlords around. That's not ideal for keeping stock ticking over.

Now, anyone looking to trade up is going to be faced with a big increase in stamp duty if they want to keep their existing place.

buglawton

In the last 8 months an 18% fall, that's nearly £900 million, in stamp duty receipts. Mainly due to the punitive new mansion tax rates.

http://www.telegraph.co.uk/finance/comment/12104608/Osbornes-stamp-duty-rises-threaten-to-tip-property-market-over-the-edge.html

And this even before the new BTL stamp duty rates kick in, when I predict a freeze-up in the middle market and yet another drop in receipts.
Osborne won't last.

Generali

buglawton wrote: »

In the last 8 months an 18% fall, that's nearly £900 million, in stamp duty receipts. Mainly due to the punitive new mansion tax rates.

http://www.telegraph.co.uk/finance/comment/12104608/Osbornes-stamp-duty-rises-threaten-to-tip-property-market-over-the-edge.html

And this even before the new BTL stamp duty rates kick in, when I predict a freeze-up in the middle market and yet another drop in receipts.
Osborne won't last.

That's about 0.4% of income tax and NI receipts. You honestly believe Mr Osbourne is going to lose his job over that?

It sounds like wishful thinking.

cells

Generali wrote: »

I just don't see how BTL can work as an investment to new entrants unless you can find a way to get around the SDLT changes.

To buy this relatively modest, ex-council flat (albeit very centrally located):

http://www.rightmove.co.uk/property-for-sale/property-54620213.html

will cost £675,000. That's £44,000 in SDLT! I reckon you could let it for £400 a week if you get no voids:

http://goldenlaneestate.com/content/details.htm

So it's going to take 110 weeks' rent just to pay off your stamp duty bill.

That's a yield of below 3% BTW. That might look attractive with a BTL mortgage available for 2% plus change. Even with a working assumption that a BTL owner is pretty risk averse and so putting down a big deposit (IIRC 50% is pretty standard) base rates only need to go up to 4% for the LL to struggle to cover a 50% LTV mortgage using the rent alone (working on the assumption that mortgage rates are typically base rate + 2%).

Something's gotta give. Either rents are going to go up substantially (say 50% real rise over the next few years) or house prices are going to have to come down or the entire London market is just going to grind to a halt because nobody will sell but nobody can afford to buy.

Surely the number of plutocrats wanting a 2 bed, ex-council place must be limited.

with the higher stamp duty I do fell transactions will slow quite a bit. As you say paying £30,000 for stamp duty on an average £500,000 property is a lot of money especially if MR Landlord is already quite old and can only realistically hold on for 10-15 years before health/memory problems or even death force a sale.

I am still on the fence on what exactly will happen. Stamp duty will have gone from £3k to £30k in less than 6 years on a lot of inner London flats that will surely crash volumes or if it does not crash volumes its going to have to suppress prices. Having said that we have higher transaction costs for some time in places like K&C and prices have not crashed there

I am still buying I hope its not a foolish decision. You do make me doubt it when I read your posts but what will be will be. Maybe its my confirmation bias but I simply dont see any way for prices to fall while London adds 5x as many people as it does new builds.

cells

Hackney saw the biggest increase in rental values in 2015, up 33%

I can confirm that is a load of s$hit

It will be hard to tell until 6 months time (rents are weaker this time of year) but it looks about flat to me in Hackney whereas the two years before were fairly strong gains

cells

mwpt wrote: »

Bit off topic but I think the extra 3% SDLT is going to have quite an impact. Anecdotally, my understanding is that there are a lot of "accidental" landlords around. That's not ideal for keeping stock ticking over.

Now, anyone looking to trade up is going to be faced with a big increase in stamp duty if they want to keep their existing place.

I recall some time back that the general rule was people stayed in their homes for 7 years before moving.

Well with £15k stamp duty taxes for the average London home, £30k if you have a second home or are a landlord and there are lot of them about. Its not going to make much sense moving every 7 years and handing out £15k or £30k.

So people will just stay put. No normal Londer is going to move sideways or down when they need to hand over £15k plus solicitors plus moving hassle. Even moving up is going to be stupid for a lot of people why pay £30k stamp duty when you can pay £30k and put in a loft conversion and add £30k value to the house


EDIT:
Thinking about it I think the 7 year rule must be BS as transaction volumes even in the past were too low for that to be true. The tradeable stock is about 23 million units and transactions about 0.8 million so on average a house comes to market once every 29 years or thereabouts.

chucknorris

Generali wrote: »

I just don't see how BTL can work as an investment to new entrants unless you can find a way to get around the SDLT changes.

To buy this relatively modest, ex-council flat (albeit very centrally located):

http://www.rightmove.co.uk/property-for-sale/property-54620213.html

will cost £675,000. That's £44,000 in SDLT! I reckon you could let it for £400 a week if you get no voids:

http://goldenlaneestate.com/content/details.htm

So it's going to take 110 weeks' rent just to pay off your stamp duty bill.

That's a yield of below 3% BTW. That might look attractive with a BTL mortgage available for 2% plus change. Even with a working assumption that a BTL owner is pretty risk averse and so putting down a big deposit (IIRC 50% is pretty standard) base rates only need to go up to 4% for the LL to struggle to cover a 50% LTV mortgage using the rent alone (working on the assumption that mortgage rates are typically base rate + 2%).

Something's gotta give. Either rents are going to go up substantially (say 50% real rise over the next few years) or house prices are going to have to come down or the entire London market is just going to grind to a halt because nobody will sell but nobody can afford to buy.

Surely the number of plutocrats wanting a 2 bed, ex-council place must be limited.

It is going to be interesting what happens, but a couple of things did come to my attention from your post:

1. £400/week rent link was from 2008, rents have increased quite a bit sine then, I think £500 to £550 is about the market price now.

2. The article is focusing on it being (possibly) lucrative for existing landlords, rather than new new entrants, I agree that property looks far from good for new entrants. But maybe not too bad for incorporated landlords.

Cells produced some figures not too long ago on the percentages of properties bought in London for investment (sorry I can't be bothered to search for it), but it was a significant percentage. If landlords stop buying, as you say something will have to give, I don't think they will stop buying altogether, but their numbers will reduce as they will tend to invest higher deposits and be incorporated. The 3% stamp duty is a barrier, but there are noises about incorporated landlords not having to pay (details yet to be published).

chucknorris

Graham_Devon wrote: »

A 4% increase on an incredibly small rental yield is still small though.

I'm biting your hand off Graham, I'm willing to take your 4% annually for the next 10 years.