Is Buy to Let dead?

JW394

tlc678910 wrote: »

(with a fictional example)
I think the principle of a loss for renting out a property is:
100% mortgage (interest only) of 10K a year
10K in rental receipts
A higher rate tax payer on 40% tax (or one who was pushed into higher tax band by their rental receipts) would only receive a 20% credit against their tax for the mortgage interest and so would owe £2000 tax despite making no profit at all.

Tlc

Sure, but isn't that 2k loss against a 10k loss from not renting it and leaving it empty? I guess there might be extra maintenance which would narrow the gap further though...

tlc678910

JW394 wrote: »

Sure, but isn't that 2k loss against a 10k loss from not renting it and leaving it empty? I guess there might be extra maintenance which would narrow the gap further though...

Yes I guess you're right. A 2K loss compared to not buying the house at all but if you did own it and have to pay the mortgage anyway you would be better to get the rent in.

MyOnlyPost

JW394 wrote: »

Sure, but isn't that 2k loss against a 10k loss from not renting it and leaving it empty? I guess there might be extra maintenance which would narrow the gap further though...

There are risks involved with renting if you are unfortunate to get a bad tenant (who are in the minority). No tenant equals no risk of bad tenant so assuming a tight margin for profit as illustrated it is a risk equation that individuals will judge differently.

Realisitcally the hardest hit will be parents in the 40% tax bracket who decided to buy a house some time ago for their childrens future and maybe rented out just to cover the mortgage and expenses over time. They would previously have been breaking even and would now be making a loss. Those cases are a small fraction of BTL LL's but more common than maybe people realsie as this was very popular in the mid to late noughties

JW394

MyOnlyPost wrote: »

There are risks involved with renting if you are unfortunate to get a bad tenant (who are in the minority). No tenant equals no risk of bad tenant so assuming a tight margin for profit as illustrated it is a risk equation that individuals will judge differently.

Yes I agree this is a risk, but isn't leaving the place empty like having a permanent bad tenant who never pays rent? The only difference would be the maintenance costs, which are presumably higher for a property that is occupied than one which is empty.

Realisitcally the hardest hit will be parents in the 40% tax bracket who decided to buy a house some time ago for their childrens future and maybe rented out just to cover the mortgage and expenses over time. They would previously have been breaking even and would now be making a loss. Those cases are a small fraction of BTL LL's but more common than maybe people realsie as this was very popular in the mid to late noughties

Yes they will be hard hit, but surely anyone in the 40% tax bracket will be equally hard hit (a larger group)?

MyOnlyPost

JW394 wrote: »

Yes I agree this is a risk, but isn't leaving the place empty like having a permanent bad tenant who never pays rent? The only difference would be the maintenance costs, which are presumably higher for a property that is occupied than one which is empty.)?

I understand your point, I am not saying I would do it, but the fact of the matter is there is a lot of property in London which has been bought as an investment with foreign money and is currently empty, so it is already happening.

JW394 wrote: »

Yes they will be hard hit, but surely anyone in the 40% tax bracket will be equally hard hit (a larger group)?

Someone who has mad a considered decision to buy a BTL as an investment and picked a house with a good yield will be more able to withstand the higher tax than someone who has bought a house as a future investment for a child and possibly the yield was less of a concern. Remember this tax is retrospective and so decisions taken 5-10 years ago would have been made using the assumptions of the day.

It's all speculation and only my opinion anyway

JW394

MyOnlyPost wrote: »

I understand your point, I am not saying I would do it, but the fact of the matter is there is a lot of property in London which has been bought as an investment with foreign money and is currently empty, so it is already happening.



Someone who has mad a considered decision to buy a BTL as an investment and picked a house with a good yield will be more able to withstand the higher tax than someone who has bought a house as a future investment for a child and possibly the yield was less of a concern. Remember this tax is retrospective and so decisions taken 5-10 years ago would have been made using the assumptions of the day.

It's all speculation and only my opinion anyway

Yes, you make some good points there I do wonder whether the government will bring in more penalties for leaving properties empty. I understand that the housing white paper had some such policies, but it didn't seem anything that would bother rich foreign investors buying luxury London property.

kilby_007

JW394 wrote: »

I do wonder whether the government will bring in more penalties for leaving properties empty.

A % of the purchase price per year left empty would be good. I recommend 100% as a starting point :beer:

ognum

anselld wrote: »

You make it sound like all of the extra SDLT will be recovered when selling. It will not.

It may not be but of course it can be applied to your buying costs if there is tax to pay on a capital gain.

ognum

The LLs I know have no mortgages on their BTL properties. They are older people who have spare money and and want a small return on it.

They already have pensions and own stocks and shares and are happy to diversify into multiple BTLs. They keep their properties in good condition and consider their tenants.

If there was a return from banks their money would probably be in the bank but their is no return. The people who celebrate low mortgage rates have to realise they come at a cost to savers. These LLs also buy in areas of capital growth. I admit I am one of these people.

I am not affected by tax changes on mortgages, I have none. Stamp duty makes little difference as I will mitigate the stamp duty against a capital gain when I sell.

I have one empty property in an area that I would not choose to buy ( I bought from a family member who couldn't sell and wanted to move on with their life). It is empty because the tenant, my only none professional tenant, used the property in a terrible way causing major condensation and mould issues. She taped up the double glazed windows and dried her washing on the radiators. Broke the toilet and cistern, ran the bath into the flat below and wondered why I served an s21 and then went to court and had her evicted. I am sure she did all this to get council housing which is what she now has! The property will be renovated and sold. My only react issue.

So in answer to 'is buy to let dead'. It probably is a no go for some but for others the government will need to change their strategy to get them to change.

MyOnlyPost

ognum wrote: »

It is empty because the tenant, my only none professional tenant, used the property in a terrible way causing major condensation and mould issues. She taped up the double glazed windows and dried her washing on the radiators. Broke the toilet and cistern, ran the bath into the flat below and wondered why I served an s21 and then went to court and had her evicted. I am sure she did all this to get council housing which is what she now has! The property will be renovated and sold. My only react issue..

I just wanted to highlight this and contrast it with all the stories in the news about landlords being responsible for homelessness. Clearly in this instance the tenant is responsible for their own homelessness and it is behaviour like this (As well as non payment of rent) which is responsible for the vast majority of evictions.

A few landlords may evict a tenant to get another at a higher rent or to sell the house but most would never evict someone who looked after the property and paid their rent, it's counter productive.