Why the bad news for landlords is just beginning

GreatApe

economic wrote: »

lower end being?

Cheaper end, which in all the country is the ex council stock

davomcdave

AG47 wrote: »

The smart money is selling up in overvalued London and buying undervalued areas.

So clever people are triggering a CGT event and paying a fresh round of stamp duty. Do you have a link?

Saints preserve us.

Conrad

GreatApe wrote: »

That is somewhat sugar coating it

A £280,000 purchase with £15,000 transaction including stamp duty


£15k aquistion cost is irrelevant to me in so far as it's a one off in the context of say a 35 year hold (and then pass on to my kids).

Debt financed using 2% plus £2k fees every 2 years = £575 finance costs + £100 service charge = £675 monthly cost


Remo fees for me are typically about £1200 - and again some are 3 or 5 years deals. I raise rents each year and capital growth has been excellent and will remain so on a long term view. Remortgaging allows further acquisition. Always keep monthly borrowing costs at a low fraction of rental income received.

If your rental amount is £1250 knock 3% off for voids


I've had only 1 void in years, but fair enough 3% is a cautious assumption




However you paid £295k for a property worth £280k so you need 4% house price increase to cover that or 4 years of rent to cover it if house prices do not go up.


Well since about 2011 I've had at least 20% HPI pa. Sure it wont go on forever, but your numbers here bare absolutely no resemblance to reality.

Simply put in London if there is capital gains its very worthwhile, if none its not, if prices go down even a little its a terrible bet


Simply put this is nonsense.


I've been around Landlords for 2 decades, and they and I earn all or a considerable portion of income from rentals.


Capital gains are a bonus, it's all about profitable monthly cashflow.


Plenty of LL's I know retired young on rental alone. Quite a few built their entire portfolio inside 10-15 years and have never worked since. You also forgot to factor in debt is broadly static whilst rentals go inexorably up. After 2o years debt compared to income is often paltry.

Historically it was Landowners, Landlords that derived much of their wealth from rental income, indeed some of our richest citizens still do.


Capital growth is merely one aspect.


Tax comes, tax goes, we learn new ways to ameliorate its effects. Most endeavours are taxable anyway and HMRC are becoming far more circumspect over allowable costs for all types of business these days

economic

GreatApe wrote: »

If I had 500,000 cash I would still put it into inner London property

You are likely to get 5% gross which might not sound a lot but its a lot more than the 0.5% gross you would get with the same money in a bank account

Buying with a mortgage and leveraging up is positive if prices are going up, but horrific if prices are going down. Right now I am not certain of price gains in the short term so I would not buy with leverage but if it were not leveraged I probably would. Also the cost difference, borrowing with cost you 2.5 to 3% while using your own capital is going to cost you the lost interest which is closer to 0.5% these days

Maybe the stock market offers better value but the fact is 90% of the public simply do not trust/understand the stock market while 90% do understand/trust homes so property vs cash in a bank account its not a hard call when its just those two options

its not as simple as 5% vs. 0.5%. you have to consider taxes, voids, maintenance. all this eats into the 5%. but agree still a lot better then 0.5%. if buying with cash or little leverage its still better then 0.5% taking into account taxes etc. but with savings your capital is safe whereas in a property values can of course fall. if you dont need to sell for a long time (10-20+ years) then fine its not really an issues.

re stocks: just because people are still not comfortable with stocks does not mean its not a choice. in fact give retail are not interested in stocks makes stocks a better bet for capital gains even now. plus yields are comparable to BTL even after taxes etc and thats not considering S&S ISAs. at this point in time stocks seems a clear winner compared to property in london,

Conrad

davomcdave wrote: »

So clever people are triggering a CGT event and paying a fresh round of stamp duty. Do you have a link?

Saints preserve us.

I've done this twice when the overall long term big picture dictates.


Who cares about a £25k CGT bill (across husband and wife) when re-investing in a bigger property exposes one to far greater long term growth and income?

Conrad

BTW - Property with land in the shires is making lots of their owners rich beyond their imagination. This includes farms, old garden centres, smelly old builders yards etc


It's getting to the point where people are asking any old price and achieving it.


A small detached house with small gardens near me was bought 10 years ago for £250k. It's been improved but not extended, and has just gone up for £1.2m. Just unthinkable really.


People are in bidding wars for agricultural land paying astronomic prices, then sub dividing and selling on to for example city dwellers that like the idea of owning an acre in the sticks.


The property bug is seemingly on steroids.

GreatApe

Conrad wrote: »

Capital growth is merely one aspect.

Tax comes, tax goes, we learn new ways to ameliorate its effects. Most endeavours are taxable anyway and HMRC are becoming far more circumspect over allowable costs for all types of business these days

You are falling into your own confirmation bias.

Since you are a London mortgage broker and London has performed so well over the last two decades that's all you know. In some places property prices have been flat for 10-12 years so none of your 20% annual increase

Total net returns on capital invested is most important and in geared property that means capital gains. If you feel capital gains is going to be zero or negative then you shouldn't be buying right now. Of course if prices go up 20% a year or even 5% a year then its a fantastic investment


Also your idea of MEWing to buy more will be a lot more difficult going forward as the new standard rental criteria of 145% @5.5% means you can not pull out much additional capital. So your flat can go up in price to twice what it is worth now but you will be limited to borrowing no more than £188k against it while it inky has a rent of £1250pm

Windofchange

GreatApe wrote: »

I did not say most are purchased without a mortgage, I said most rentals (ie existing ones) have no mortgage at all. Of the ~5 million rentals I recall reading somewhere about 3.5 million have no mortgage

Yes 80,000 BTLs will likely be purchased using a mortgage this year. Out of interest how many did you think would be buying now that the supposed apocalypse has arrived? zero?

Interestingly the CML shows 800,000 purchases with a mortgage last year while the Land Registry shows about 1.1 million purchases last year. So around 300,000 purchases without any mortgage. If the ratio was even between owners and BTLers then it would translate into roughly 80,000 BTLs purchased with a mortgage and around 35,000 BTLs purchased outright

Well if you can find the numbers to back up what you are saying then fine. I can't find anything on BTL mortgages. I can see your thinking with the CML numbers, but I could extrapolate that if there are 80,000 people a year buying rental homes with a mortgage each year then the number with mortgages as a total of the 5 million must be growing? I would also ask why the number of BTL mortgage products has increased so dramatically from 250 ish in 2009 to just under 1500 at the end of last year if people don't need mortgages to buy their BTL?

https://www.ft.com/content/34847bce-d828-11e6-944b-e7eb37a6aa8e

In other words, if the minority need a mortgage, why so many products, and why are 80,000 people needing a BTL mortgage each year? As is oft cited here, is it not a simple case of supply and demand? There is a huge demand for BTL mortgage products and therefore supply has increased to service it?

AG47

The point is this is just the start, bad news for property owners and good news for tenants. The trend is clear.

GreatApe

Windofchange wrote: »

Well if you can find the numbers to back up what you are saying then fine. I can't find anything on BTL mortgages. I can see your thinking with the CML numbers, but I could extrapolate that if there are 80,000 people a year buying rental homes with a mortgage each year then the number with mortgages as a total of the 5 million must be growing? I would also ask why the number of BTL mortgage products has increased so dramatically from 250 ish in 2009 to just under 1500 at the end of last year if people don't need mortgages to buy their BTL?

https://www.ft.com/content/34847bce-d828-11e6-944b-e7eb37a6aa8e

In other words, if the minority need a mortgage, why so many products, and why are 80,000 people needing a BTL mortgage each year? As is oft cited here, is it not a simple case of supply and demand? There is a huge demand for BTL mortgage products and therefore supply has increased to service it?

You really are special Mr BagOfWind with your ultra confirmation bias. Why must the number with mortgages be growing with the data that 80,000 will buy with a mortgage this year? What if all of that 80,000 are purchase from other landlords who have mortgages then no growth at all. And what about the stock of rentals some 5.5 million units how many of them have mortgages and pay them off annually?

Im sure the data is on the CML and ONS websites go look it up I'm not inclined to do your research for you.

The figure you should be looking for is the total outstanding debt on BTLs and you can figure out the total value of the 5+ million properties and be shocked to find the overall LTV is around 20% :beer: