Anyone thinking of selling their BTL?

Glover1862

FTSE down 150 points today, recovered a bit now, need to be brave to invest in shares.


Anyone remember how long it took for house prices to turn downwards when the FTSE went sub 4000 (2007/08), days, weeks, months, years?


A lot of BTL transactions this month (obvious reasons), are we going to see a massive amount of property for rent after April, can't do much for rental prices.

cells

chucknorris wrote: »

It wouldn't be 'cost free' though, I would have to pay the mortgage, pay for valuations, mortgage arrangements fees etc. of course I would also receive dividend income too, but I am not exactly frothing at the mouth to do it, but if I could sell and invest today, I would.

you should see the mortgage arrangement fee as part of the overall interest.

So if you borrow £200k and the arrangement fee is £2k and its a 2 year mortgage the arrangement fee is effectively ~0.5% a year.

So if the headline is 2.2% interest rate, add to it 0.5% and your true interest rate is 2.7%

Plus the initial outlay is to get the valuation and mortgage offer. That will cost somewhere around £350-£700 depending on the lender.

You then have 3 to 6 months where you can call upon the funds and usually get them into your account in less than a week. So worse case is you lose the £350-£700 if you dont make use of it. And of course if you do make use of it, you would only do so if you think what you are doing offers good value.

chucknorris

cells wrote: »

you should see the mortgage arrangement fee as part of the overall interest.

So if you borrow £200k and the arrangement fee is £2k and its a 2 year mortgage the arrangement fee is effectively ~0.5% a year.

So if the headline is 2.2% interest rate, add to it 0.5% and your true interest rate is 2.7%

Plus the initial outlay is to get the valuation and mortgage offer. That will cost somewhere around £350-£700 depending on the lender.

You then have 3 to 6 months where you can call upon the funds and usually get them into your account in less than a week. So worse case is you lose the £350-£700 if you dont make use of it. And of course if you do make use of it, you would only do so if you think what you are doing offers good value.

Borrowing to buy shares, just isn't something that I would be willing to do.

Crashy_Time

The time to get out of BTL was six months to a year ago, or at least as soon as the tax changes were announced. IMO, and as I said back then.

cells

chucknorris wrote: »

Borrowing to buy shares, just isn't something that I would be willing to do.

in your shoes i would not look at it like that, you would be moving equity from property to shares but in a way that is quicker than the 3-6 months it would take you to sell property and buy shares.

but of course like I said from the beginning do what you feel is best I was just pointing out that you can release equity from property without a sale which you probably already knew but maybe hadn't thought about the details (eg costs involved and timeframe to draw funds etc)

chucknorris

cells wrote: »

in your shoes i would not look at it like that, you would be moving equity from property to shares but in a way that is quicker than the 3-6 months it would take you to sell property and buy shares.

but of course like I said from the beginning do what you feel is best I was just pointing out that you can release equity from property without a sale which you probably already knew but maybe hadn't thought about the details (eg costs involved and timeframe to draw funds etc)

It did cross my mind, but I quickly disregarded it. It may very well look like a good move, looking back in a year or more later, but I don't feel the need to do it.

wotsthat

Glover1862 wrote: »

FTSE down 150 points today, recovered a bit now, need to be brave to invest in shares.

..or maybe just like buying at lower prices. What should people do - sit on cash until the markets recover by 20% before buying?

Bizarrely, if Apple announced 20% off Iphones massive queues would form but 20% off houses and shares and only the 'brave' buy.

If anyone fancies a punt I've got a tip. I'm expecting a bonus and will be making a large tracker purchase around 28th March so expect the FTSE to hit a new high around that date and fall c25% in the weeks after.

Generali

Glover1862 wrote: »

FTSE down 150 points today, recovered a bit now, need to be brave to invest in shares.


Anyone remember how long it took for house prices to turn downwards when the FTSE went sub 4000 (2007/08), days, weeks, months, years?


A lot of BTL transactions this month (obvious reasons), are we going to see a massive amount of property for rent after April, can't do much for rental prices.

There's a fair bit of work that's been done to show that property indices don't really capture the reality of the property market in the same way that stock market benchmarks do.

Every day there are forced sellers of shares: asset managers who have clients that wish to sell for whatever reason (life insurance company with a dead customer or a person retiring are examples that spring to mind). As a result, the FTSE100 will show a pretty accurate picture of what a share can sell for/be bought for.

However, the housing market isn't like that. When house prices fall people say, "Well, I'm not going to give the place away" and simply hold out for years for a price that can't be achieved. Instead of selling at the market price they don't sell at a much higher price.

Lloyds Bank shares currently sell for about 56p a pop but not so long ago would have cost about a tenner. Because it's a share, people accept the value is down by that much. If a house had once been worth about £500,000 then many people simply wouldn't sell for £300,000 a few years later as they feel that house prices should be on a ratchet: prices might stagnate but can never fall.

Bob Shiller has done a load of work on this stuff and it is very interesting (to me).

The TL;DR version is, "house prices appear to be less volatile than share prices but that's just due to a failure to understand the different markets".

HTH

westernpromise

Casa1862 wrote: »

I think further government legislations is the main threat rather than the general market conditions

Yes, I think what Osborne (or someone who has his ear) is thinking is that high net immigration is constructively with us indefinitely; there is no rapid way to ratchet up the output of housebuilders; rented accommodation is more efficiently filled than privately-owned, so we need more rented; private individuals acting as landlords lack the capital to create rental stock; hence the housing shortage both for buyers and renters will persist.

So the solution is to change the tax climate to restructure the lettings industry. You do this initially by taxing out small landlords. The resulting rental supply squeeze drives rents up and creates a margin for corporates, who build on brownfield sites or repurpose existing buildings into blocks of student-hall type accommodation. The rents are nice and high relative to costs; unlike individual private landlords, corporates will be allowed to offset loan interest and also depreciation of the building against tax; there will be economies of scale in maintenance, and lots of cash to distribute as dividends; and your position will be protected by the state, which will ensure there isn’t too much housebuilding to threaten your margins.

Tenants will then be renting standard rental units from a professional organization rather than from an individual, although presumably at the same or a higher cost; they pay fees to lettings agencies now, for example, so presumably they will still be charged a fee by someone, because the market can stand it. They’ll be able to stay as long as they like, and although the blocks will be traded, the occupants mostly won’t notice.

The potential downsides are numerous, though. One is that in the same way having a big Tesco out of town trashes the high street, having a Tesco equivalent in the local rentals market will do the same. Tenants will likely find that if they want to rent in Stafford or Bath, there is one or perhaps two local corporate suppliers, and everyone else has quit the market.

Another is that rental property will be blocks of flats because houses are disproportionately expensive to maintain. These flats will be in the configuration the average local wants. So if you live in a two with 4,000 students, student flats will be what’s on offer. If you want a 3-bed house with a garden, there won’t be any because the individual landlords who might have offered them will all have been forced out of the game by the tax penalties that they face and corporates don’t.

These blocks of flats, where new build, will be the same design, repeated over and over in different locations, in the same way that all Asdas, BP petrol stations and Premier Inns look similar.

It will not be possible for tenants to buy these flats.

Finally, tenants will find that a bad tenancy history now follows them around forever, like a bad credit history does. Just like there are people who can’t get credit, there will be people who can’t rent privately. There will therefore likely evolve a lettings equivalent of the payday lender. Just as some people who need £100 have to borrow it at 1,400% APR, people who can’t get a tenancy for £100 a week will have to rent, cash in advance, by the night for £50 a night from the equivalent of Wonga. This doesn’t yet happen in Germany, it’s true, but then Germany has a surplus rather than a shortage of housing.

Generali

chucknorris wrote: »

Borrowing to buy shares, just isn't something that I would be willing to do.

Don't forget that when you buy shares you are effectively still using leverage as the company you are buying will have debt.

However, as the company holds the debt rather than you and your equity value can't drop below zero you get the upside without the downside of leverage (or at least without the worst case of negative equity needing to be made up from elsewhere).