New BTL Mortgage Underwriting Standards

Generali

cells wrote: »

I think youve fallen into the crashy mindset. a lot of rental properties are mortgage free a lot of what remains are on low LTVs pretty much like the owner pool of homes

No I haven't. I'm trying to get a concrete example of what the tax and rule changes mean before I have a go at running the rule over a few places for myself.

You seem determined to convince yourself that a broad range of changes all of which will make the BTL market more expensive to get into and less profitable will have nil impact which seems unlikely at best.

Generali

cells wrote: »

The tax changes are v.significant (and stupid and unfair) but they dont kill most rentals as most rentals have no mortgaged followed by low mortgages.

The total tax tax iirc is about £2 billion from the interest tax changes. That is equal to about a 1% increase in mortgage rates.

If interest rates went up by 1% i'm sure you wouldn't think that would spell the end of rentals yet when a tax change which is not far off the same 1% in cost is implemented people cry that the 4 horsemen are knocking on the door

Dont get me wrong its not pleasent its a lot more tax but the way its phased in and the norm of inflation rent rises should help buffer the changes. The biggest losers will be current owners who will in theory be able to sell at a lower price to offset the pain for the new owners. That is a lower price than they otherwise would be rather than a lower price

I have always been explicit: I believe that the tax changes are specifically there to deter mortgaged small BTLers. It is not meant to be the death of the private rental market and nowhere have I claimed that.

cells

Generali wrote: »

No I haven't. I'm trying to get a concrete example of what the tax and rule changes mean before I have a go at running the rule over a few places for myself.

You seem determined to convince yourself that a broad range of changes all of which will make the BTL market more expensive to get into and less profitable will have nil impact which seems unlikely at best.

no you have me wrong, they will have an impact quite a significant impact but its not going to be an overnight shift from rentals to owners. even the BOE report sees BTL growing.

price increases and profitability will be less than they otherwise would be but thats not the same thing as the rental sector contracting away or house prices falling.

but like I keep saying, all of us are prone to confirmation bias including myself so it might be my mind trying to justify my actions. Either way we will see over the next 2 years I hope im right for obvious reasons but I do fear somewhat that i might not be

cells

Generali wrote: »

I have always been explicit: I believe that the tax changes are specifically there to deter mortgaged small BTLers. It is not meant to be the death of the private rental market and nowhere have I claimed that.

I think we are not far off on what we think, I think you are right it will deter some investors and will raise taxes. The reason for the implementation was probably a bit of both

I think the bit we disagree more on is that you think/thought London prices got bubbly some 3 years ago while I think current prices are about fair and that with a good tail wind London could get very rich over the next 20-30 years if the politicians dont fook it up

westernpromise

Generali wrote: »

Does that include the tax changes?

The mortgage is £3,700 a year. The rent is £29,000 a year. I'm on the 45% rate, so the tax changes will reduce my profit by £925. I'll survive.

At 5.5% base rate the mortgage would be £18,000 a year and the tax changes would lower my profit by £4,500. Again, I'll survive. In any case, high interest rates will eliminate higher-geared rental supply while driving up rental demand, so at that level, I'd expect to be able to put the rent up significantly.

When I was on £70k a year in London, the net rental income at interest rates of 5% was valuable. Today, it's shirt buttons - it's about £12k a year. I'd keep the flat if it were net nil because in 17 years it's inflated from £245k to £975k, over a 20 to 40 year horizon it will be worth the same or more, and in about 10 years, my children can occupy it. A well-kept flat with 13-foot ceilings in a white stucco enclave in a very salubrious area of London: why should they waste money on stamp duty when they can live there?

I stand to inherit another million's worth of property in due course and to the extent that I have thought about this at all, I am seriously thinking about not selling that, either. The house has been in the family for 45 years, and I like the idea of moving out of the current one, but keeping it and moving into that one. IHT, but no SDLT, no CGT. Only if you buy and sell, and there are ways to do neither.

Thrugelmir

cells wrote: »

The Wilson model is the exception not the norm.

The Wilsons were the trailblazers. They were into the mathematical fundamentals of leveraging with debt before the term BTL was even born. BTL was built on the back of B&B copying the US model of securitising debt to fund growth.

Thrugelmir

cells wrote: »

re-mortgaging exempt from some of this to not harm existing investors.

Doesn't mean that lenders won't impose rules internally.

westernpromise

Thrugelmir wrote: »

The Wilsons were the trailblazers. They were into the mathematical fundamentals of leveraging with debt before the term BTL was even born. BTL was built on the back of B&B copying the US model of securitising debt to fund growth.

Who are B & B?

The issue I have with the Wilsons' strategy is that they've over-concentrated geographically so they have a portfolio they now can't sell. If they tried to offload them all at once having accumulated them over 20 years they'd certainly dump the market. On the other hand, they do handily prove that BTL has no effect on price, because house prices in Ashford have gone up by no more than anywhere else in Kent. If BTL were the driver of house prices they'd have priced themselves out, which they haven't.

cells

westernpromise wrote: »

The mortgage is £3,700 a year. The rent is £29,000 a year. I'm on the 45% rate, so the tax changes will reduce my profit by £925. I'll survive.

At 5.5% base rate the mortgage would be £18,000 a year and the tax changes would lower my profit by £4,500. Again, I'll survive. In any case, high interest rates will eliminate higher-geared rental supply while driving up rental demand, so at that level, I'd expect to be able to put the rent up significantly.

When I was on £70k a year in London, the net rental income at interest rates of 5% was valuable. Today, it's shirt buttons - it's about £12k a year. I'd keep the flat if it were net nil because in 17 years it's inflated from £245k to £975k, over a 20 to 40 year horizon it will be worth the same or more, and in about 10 years, my children can occupy it. A well-kept flat with 13-foot ceilings in a white stucco enclave in a very salubrious area of London: why should they waste money on stamp duty when they can live there?

I stand to inherit another million's worth of property in due course and to mthe extent that I have thought abou this at all I am seriously thinking about not selling that, either. The house has been in the family for 45 years and I like the idea of moving out of the current one, but keeping it and moving into that one. IHT, but no SDLT, no CGT. Only if you buy and sell, and there are ways to do neither.

If you gift the property and its mortgage free and expect nothing in return afaik that results in no stamp duty. So you could potentially pass on property to your kids or whoever doing that and pay CGT @28% (and get some CGT allowance if its your main home or has ever been) rather than pay the 40% IHT. of course you need to live 7 years post transfer else its a bad more.

I always imagined you to be a multi property landlord. You seem to know a lot of stuff especially historical regarding the market that few others ive come across seem to know.

Thrugelmir

westernpromise wrote: »

Who are B & B?

The issue I have with the Wilsons' strategy is that they've over-concentrated geographically so they have a portfolio they now can't sell. If they tried to offload them all at onc ehaving accumulated them over 20 years they'd certainly dump the market. On the other hand, they do handily prove that BTL has no effect on price, because house prices in Ashford have gone up by no more than anywhere else in Kent. If BTL were the driver of house prices they'd have priced themselves out, which they haven't.

Bradford and Bingley - 1998

Seems as if they've already thought ahead.

Dec -2015
Britain's biggest - and most notorious - buy-to-let landlords have struck an agreement to sell their entire property empire for £250million to Arab investors.

Far from stupid. Whatever people may say about them.