New BTL Mortgage Underwriting Standards

westernpromise

Thrugelmir wrote: »

Bradford and Bingley - 1998

Seems as if they've already thought ahead.



Far from stupid. Whatever people may say about them.

I've seen no evidence of that having actually gone through; it just gets reannounced over and over again.

westernpromise

cells wrote: »

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 will be looking into all this stuff over the next few years. One thing that is interesting, though, is that if I leave investment property to the children in my will, the accumulated CGT is cancelled and replaced by IHT, which with the £500k allowance is actually cheaper. So I am thinking about how to structure the hand-on.

Essentially, though, if you inherit a £1 million property, it will cost you probably £20k of that to liquidate it, and another £73k just in SDLT if you then decided to get back into property at the same price. So there's a ~£100k incentive not to sell inherited property. It starts to re-accumulate CGT from that point on, but of course that's CGT based on the probate value, which I guess you understate a bit so you pay the high IHT rate on the lowest possible value and 28% CGT thereafter.

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.

I'll take that as a compliment For the record I have let out four different properties at various times since 1994, but never more than two at a time....but I have a very, very long memory for 1988 to 1996.

I was relocated by my employer from the Midlands to London in 1988. Part of the relocation package the company provided was that they paid the interest on the difference between your small old and big new mortgages for five years. Hence I went from a £25.5k mortgage in the midlands to a £72k mortgage in London. The company subbed me the interest on £46.5k, tax-free because it was deemed a relocation expense.

My mortgage rate then went to 15.75%, which meant that my monthly payment, which had been about £160 a month in the shires, went up to £960. The tax-free mortgage subvention only covered about £350 of the rise so I was £450 a month worse off, net. And two years into the mortgage, I had paid off less than £700 of it.

This was so crippling - you can't afford a £5500 net pay cut when you're on £25k gross a year - that I looked into selling the flat and renting. Two things put me off: the flat's value had plummeted, and local rents had rocketed. This rather crucial detail about rents is completely forgotten today. I got that the two were connected, but I thought rents were high because they tracked mortgage rates.

The company relocated me overseas in 1994 and made me let out my flat, with all the fees subbed by the company. So suddenly I was a landlord (and was gobsmacked to find the mortgage interest was tax-deductible). What was even more surprising was that even as mortgage rates fell, the rent I was getting kept on going up. That didn't fit my rents-follow-mortgages theory at all.

It took me 11 years to trade out of that flat, but I made bl00dy sure I didn't overextend next time. I was able quite soon to pull £100k out and put it aside to buy a second place, though life intervened and I've let it out since 2004. In 2008 interest rates cratered, yet the rent went up; interestingly, house prices fell.

Looking back on all that, it looks quite likely to me that rents go up when and because house prices fall, and vice versa. Folk will pay top dollar rents to avoid capital losses, and will continue to pay up until they notice that house prices have stopped falling. The converse is also true - so rents are weak when house prices are strong.

History doesn't repeat, but it rhymes. And hence I infer that rising rents are a sell signal and falling rents a buy signal.

Blacklight

People will get around this by shifting equity around, including their residential. A bit more hassle but nothing that can't be overcome.

Failing that, the weak point that's going to give under pressure is rents (again).

mwpt

Blacklight wrote: »

People will get around this by shifting equity around, including their residential. A bit more hassle but nothing that can't be overcome.

Failing that, the weak point that's going to give under pressure is rents (again).

Rents will rise as they always do. They may move slightly up, but only slightly.

Besides, since we've had many years of shifting to a larger PRS, according to your logic, this must have suppressed rents. So renters have been the "winners" in the last 10 years?

wotsthat

mwpt wrote: »

Rents will rise as they always do. They may move slightly up, but only slightly.

I can see why crashaholics might hope any new tax is pretty much funded entirely from LL profits and I can see why LL's hope it's funded from rent increases. Both views are fanciful.

westernpromise

wotsthat wrote: »

I can see why crashaholics might hope any new tax is pretty much funded entirely from LL profits and I can see why LL's hope it's funded from rent increases. Both views are fanciful.

Some landlords' assumption that their own costs will flow into all rents certainly is fanciful. But indrect upward pressure in rents seems to me to be inevitable, not because landlords will be able raise rents, but because they won't. If they try, people like me will poach all the best tenants. So they will sell, but not to other landlords because of the 3% SDLT penalty. Instead they'll sell to owners, who however occupy property less densely than renters. A property that had 4 tenants in it will be sold to 3 owner occupiers, typically. So one fewer house to rent and one more renter = higher rents.

mwpt

wotsthat wrote: »

I can see why crashaholics might hope any new tax is pretty much funded entirely from LL profits and I can see why LL's hope it's funded from rent increases. Both views are fanciful.

Well, on this forum we have the following views.

* Trying to shift the balance from landlords to OOs will result in decreased rental stock and therefore more demand for the remaining stock and higher rents.

* A crash results in a shift from OO to renters, meaning more demand for rental stock and higher rents.

The positions are at odds with each other but people nod sagely at both views. Meanwhile, rents rise broadly in line with historical averages, as they always do. Some areas become popular and rents rise faster, some areas stagnate and rents stagnate too.

cells

westernpromise wrote: »

I will be looking into all this stuff over the next few years. One thing that is interesting, though, is that if I leave investment property to the children in my will, the accumulated CGT is cancelled and replaced by IHT, which with the £500k allowance is actually cheaper. So I am thinking about how to structure the hand-on.

Essentially, though, if you inherit a £1 million property, it will cost you probably £20k of that to liquidate it, and another £73k just in SDLT if you then decided to get back into property at the same price. So there's a ~£100k incentive not to sell inherited property. It starts to re-accumulate CGT from that point on, but of course that's CGT based on the probate value, which I guess you understate a bit so you pay the high IHT rate on the lowest possible value and 28% CGT thereafter.

depends on how much you might leave, if its within the IHT free part then its best to do that. If the whole property is in the IHT 40% band then it looks to me like a transfer might be better.

Say you have other assets or savings so any property you leave is all IHTable

So a £1m property you can leave and the estate pays £400k in IHT

Or a £1m property you gift to the kids now you will pay capital gains tax on. If you bought for £500k and made a gain of £500k you would have 28% of £500k to pay minus any of the capital gains tax allowances which if you lived in it might be significant. Even with just the basic £11k exempt the tax bill would be ~£137k

So its £400k IHT vs £137k CGT. There is no stamp duty on the gifting of the house.

Also they are then liable for any CGT from that point on. So if they sell for £1.5m at some future point they have made a gain of £0.5m not a gain of £1m from your origional £0.5m purchase


or at least that is my understanding of it

cells

mwpt wrote: »

Rents will rise as they always do. They may move slightly up, but only slightly.

Besides, since we've had many years of shifting to a larger PRS, according to your logic, this must have suppressed rents. So renters have been the "winners" in the last 10 years?

rents are lower than they otherwise would be due to the expansion of the PRS but its no good for those renters who could be home-owners were it not for the over-regulation of mortgages meaning they cant buy

cells

mwpt wrote: »

Well, on this forum we have the following views.

* Trying to shift the balance from landlords to OOs will result in decreased rental stock and therefore more demand for the remaining stock and higher rents.

* A crash results in a shift from OO to renters, meaning more demand for rental stock and higher rents.

The positions are at odds with each other but people nod sagely at both views. Meanwhile, rents rise broadly in line with historical averages, as they always do. Some areas become popular and rents rise faster, some areas stagnate and rents stagnate too.

a crash does not result in a shift from oo to renters. the reaction to the crash, aka mortgage rationing and regulators making mortgages more difficult to get for the marginal customers resilts in a shift from oo to renters