Just to Make Things Completely Clear

stator

Being over-levereged and not having any debt are not the only options and it's not impossible to operate without debt at all. It's only businesses that are borderline that have cashflow problems.

globalds

I work for a business that has no debt .
It can only spend the cash it has in the bank ..I have a feeling ultimately we will be bought out by a much larger international as although we have a very good reputation in a really niche area ,the investment required to expand, and the lag between investment and pay off means we are walking forwards ..But far too slowly to keep up with our competitors.

Being a debt free small fish in a big pond is still being a small fish.

cells

stator wrote: »

Being over-levereged and not having any debt are not the only options and it's not impossible to operate without debt at all. It's only businesses that are borderline that have cashflow problems.

how do you define over-leveraged instead of just leveraged and who decides the line in the sand?

its a stupid concept if an investment vehicle wants to borrow and a bank or equity investors want to invest in them then who are you to jump in the middle and say no?

cells

cells wrote: »

The Westminster government (or some wonks in the treastury) are unhappy about the price of property in Westminster and nearby. They think that these taxes on landlords will reduce the price of nice big terrace homes in inner london so 'well paid middle class staff' like themselves can get a look in.

since nobody commented I will talk to myself

What the government has wrong is that houses are not expensive, houses are cheap, depending on the region and location. If the tax changes were really ideas on how to increase ownership they have completely failed to ask themselves why ownership is also down in the cheap areas like the North.

But since the government and much of the civil service is based in Westminster they are being overly and perhaps fully influenced by the notion and their anecdotal evidence which is all based on inner London period terrace homes being very high and unaffordable for them and their pals. Again here they will fail because inner London is largely a market of two halves. There are the nice big solid Victorian terraces that go for >£1m and then there are the small crap council flats in estates. The £1-2m+ Victorian terraces are not typically BTL sector so additional BTL taxes wont make them cheaper. These nicer terrace homes are simple a matter of musical chairs the civil service on £50k a year wont be buying them not while London is home to £250k+ a year asset managers

HornetSaver

cells wrote: »

its a stupid concept if an investment vehicle wants to borrow and a bank or equity investors want to invest in them then who are you to jump in the middle and say no?

The government has the right and in some cases the responsibility to take a view on whether a business transaction, or indeed a series of them, will do more harm than good to the overall economy.

To give one relevant set of examples:

Why is the government pushing up the minimum wage above the rate of inflation? Because the minimum wage is not keeping pace with the minimum cost of living.

What's the consequence of the minimum wage being too low? Excessive state spending on welfare, resentfully paid for by taxation from people and businesses that are standing on their own feet.

What's the consequence of it being too high? The economy being uncompetitive as many of these jobs can be done elsewhere, and those same people and businesses resentfully paying sky-high prices compared to other parts of the world (and as a result lower earners being in roughly the same position they'd have been in even if the minimum wage were lower)

Thus, there is a strong interest for the state and the wider economy in finding ways to suppress living costs, regardless of whether you are looking at it from a left, right, or rational point of view. The more appropriate question is whether such interventions will actually work.

michaels

Nice pair of posts, completely agree that the cost of living component - housing - is too high in one part of the country: too high based on the actual cost of providing housing if there were no artificial restrictions on supply. One part of the govt solution is to increase the national minimum wage, to me this is a pretty blunt lever and there is plenty of evidence that it is doing more harm than good in terms of employment in many parts of the country.

CLAPTON

HornetSaver wrote: »

The government has the right and in some cases the responsibility to take a view on whether a business transaction, or indeed a series of them, will do more harm than good to the overall economy.

To give one relevant set of examples:

Why is the government pushing up the minimum wage above the rate of inflation? Because the minimum wage is not keeping pace with the minimum cost of living.

What's the consequence of the minimum wage being too low? Excessive state spending on welfare, resentfully paid for by taxation from people and businesses that are standing on their own feet.

What's the consequence of it being too high? The economy being uncompetitive as many of these jobs can be done elsewhere, and those same people and businesses resentfully paying sky-high prices compared to other parts of the world (and as a result lower earners being in roughly the same position they'd have been in even if the minimum wage were lower)

Thus, there is a strong interest for the state and the wider economy in finding ways to suppress living costs, regardless of whether you are looking at it from a left, right, or rational point of view. The more appropriate question is whether such interventions will actually work.

a good post, illustrating why we should abolish the minimum wage and let the market decide wages.

mwpt

cells wrote: »

how do you define over-leveraged instead of just leveraged and who decides the line in the sand?

Apparently you do.

its a stupid concept if an investment vehicle wants to borrow and a bank or equity investors want to invest in them then who are you to jump in the middle and say no?

The government have a mandate to do what is in the best interest of everyone, not just BTL landlords. Actually, that isn't really true. They have a mandate to do what they think will make people vote for them, everything else is irrelevant since if they don't get votes they won't be making any policies at all.

So BTL are in the cross hairs, that much is clear. But I'm not counting chickens yet, since many MPs are BTL landlords, I'd start smiling only if they start selling up.

No offence, you can run your investments how you see fit, high leverage or no high leverage, up to you, but a change in landscape bankrupts people / business all the time, you'll have to suck it up like any regular investor.

I mean, if this change was about reducing tax relief on people who borrowed money to speculate in stocks or commodities or FX, would anyone even be blinking? No.

cells

mwpt wrote: »

Apparently you do.

yes as a matter of fact I do, and so do lots of other people, we have a whole industry based on this. The question was not who decides on individual projects what to lend on what tiear at what return the question is who is going to define and draw the line in the sand of what everyone or no one can do with their own capital.

The government have a mandate to do what is in the best interest of everyone, not just BTL landlords.

No they dont have a mandate to do what is in the best interest of 'everyone' for a start that sentence does not even make sense. If its not in my best interest its clearly not in the best interest of 'everyone' so first start by correcting yourself to something like ' the government has a mandate to do what is in the best interest of society' and thats a nice way of saying government should be able to screw you over if it thinks its in their interest. Even then its a silly statement the west is rich and fair because the government cant just screw people over (At least most of the time).

Actually, that isn't really true. They have a mandate to do what they think will make people vote for them, everything else is irrelevant since if they don't get votes they won't be making any policies at all.

again a silly point. Governments cant just do what the hell they like at least not in the west thanks to hundreds of years of tradition and various laws and counter balances and institutions.

Sure they need to win votes but not at any cost

I mean, if this change was about reducing tax relief on people who borrowed money to speculate in stocks or commodities or FX, would anyone even be blinking? No.

I am not annoyed at higher taxes (although I would prefer lower taxes) I was very surprised at how they went about it. Just deciding accounting rules no longer apply, oh wait they do if you are a company, they dont if you are a sole trader and oh only on one type of borrowing on one type of building. They should have just put on a charge onto BTL finance. Eg tax the banks 1% on BTL loans which would have fed through directly to 1% higher rates on BTL mortgages (This 1% would bring in a tad more than the accounting rule messup).


Also with regards to people borrowing money to buy shares, that is already the case indirectly. For instance you can go out and buy REIT shares and all of those companies have borrowings and they can use normal accounting rules. A REIT that is geared to 60% is no different from a BTL landlord buying with a 60% LTV mortgage.
Even non REITs like oil company, power companies, retail companies, virtually all of them have 'gearing' aka borrowings.

Also you are factually wrong too. People can effective gear shares or commodities or FX via derivatives and CFDs and options. Maybe you will want to make them illegal or add some new funny accounting taxes onto them too? Thought not

cells

michaels wrote: »

Nice pair of posts, completely agree that the cost of living component - housing - is too high in one part of the country: too high based on the actual cost of providing housing if there were no artificial restrictions on supply.

The Westminster government (I think I may have some Scottish blood in me) needs to understand that in about half the country homes are very cheap so cheap so that the average terrace costs less in mortgage interest than does renting the average local council property!

Its only when you get into the civil services local area of inner London do homes become expensive. But the civil service can not do anything to allow them to move into those terrace homes within their 'spying area'. The limited number of these nice solid desirable terrace homes means that its a game of musical chairs and the civil service on £50k pa isn't going to sit down when the music stops because London is full of people inheriting millions or working in the city earning multiples of what they think is a solid middle class income.

IF policy is being influenced by the government looking at their local areas of inner London large terrace homes being unaffordable then its a mistake and error of a big magnitude. Maybe the scots have a point when they moan about the westmonster government

---

On another note I used to think like you that planning was restricting building and keeping prices high. To some extent this is true but I no longer think there is much of a planning restriction holding prices up in at least half the country. In London there is an acute shortage but I am less sure now that anything can be done to move prices significantly. Is there a realistic possibility of building a lot of 150sqm terrace homes that importantly have no social tenants in the estate? Well certainly no not when the london plan is to have half of the development filled with the poor and needy mostly first generation immigrants. So the price of the private estate good quality solid homes will just go up and up.

I was at a dinenr on Friday with a bunch of very well paid city workers. One was a young un on £130k a year (the lowest paid in the company) and he was looking to buy. Even he is annoyed that he cant buy a nice solid terrace house within walking distance (say 3 miles) of liverpool st station. I tried to suggest to him that he could afford to buy decent x-council-homes(not flats) which are about £6k/sqm but he didn't like anything I showed him on rightmove. He wanted one of the £1.5m+ nice solid built terrace homes on a private road but at this time he had not the means to buy it. So he is going to save and get higher pay (will probably be on £250+ within a few years) and then try to buy one of those limited musical chairs. Little does he realize that there are lots of people like him and more importantly people who have higher wages and more savings and will get big inheritances so unless he can really jump up a gear in earnings he will never get a seat on the musical chairs.

This all begs the question why the hell was London musical chairs so cheap 25 years ago and ... well this post is already too long but there are good reasons and we dont want to go back there