Spending Review 2015

[Ridgley]

We heading back to the Victorian era like you said Blah they will expect the charity world to pick up the tap.

[JohnL]

Jeremy Wrote:

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> Was wondering the same Loz. Lots of landlords are

> going to have to either raise the rent or sell up

> due to the changes to interest tax relief.

>

> Throw in the rise to stamp duty which is

> presumably going to cause a drop in new rental

> properties coming onto the market.. surely rents

> are going to be rising pretty sharply before long.

Companies aren't affected - so looks like a (pretty easy) loophole.

Until he closes it.

[Loz]

JohnL Wrote:

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> Companies aren't affected - so looks like a (pretty easy) loophole.

>

> Until he closes it.

Figures from 2010 show that more than three-quarters (78%) of all landlords only owned a single dwelling for rent, comprising 40% of the total privately rented housing stock.

Losing an decent proportion of that - which is quite feasible - would be really significant.

[ratty]

Loz Wrote:

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> Given the changes made to landlords over the past

> two budgets/reviews, I reckon rents in London are

> going to rocket over the next couple of years as

> supply drops.

Agree. This will equal more misery and homelessness for thousands. The Tory way.

[Blah Blah]

Yes there's no joined up thinking again. You can't just tweak one aspect of the market and think that'll do it. I agree that the consequences will probably lead to higher rents and a squeeze on avaialble stock. And landlords under no restrictions from mortgages will just follow suit with rents, because it's free money to them.

[Jeremy]

We need some way to issue fines for homes left empty for long periods (including those with foreign owners). I know, easier said than done...

[Blah Blah]

I agree Jeremy, but even with fines, I think rental on many of those properties would probably be unnaffordable for a lot of people anyway.

[edhistory]

OK, I'm lost on this landlord thing.

Is it being said that:

1) Borrow-to-let amateur landlords in financial trouble will have to attempt to make distress sales.

2) The increase in supply caused by this glut of properties on the market will make house prices at completion rise.

[Blah Blah]

It's a stamp duty increase, so designed to disincentive people from purchasing buy to let. We are arguing that they will still buy anyway but charge higher rents. Osborne did however increase tax on BTL landlords in the Annual Budget as well. So again that may force rent increases or sale.

[Loz]

As BB said, there are two changes at play:

1) The change in mortgage tax relief which will make a significant proportion of properties unprofitable and so they will be sold off. This will happen over the next 3-4 years as the policy is phased in, so won't make a huge impact on sale prices (though they might steady for a while).

2) The new sales tax on second homes will dissuade new private landlords coming in.

The two policies will almost certainly cause a drop in supply in rental properties, especially in London where yields have been low for a number of years.

Note though that a couple of people say landlord will 'force increases'. They can do nothing of the sort - they can raise the asking price, but people are savvy enough nowadays to make an offer, not just accept the asking rent. The rise in websites like Rightmove mean that people know what an area is worth.

But, we will quickly get to a situation where people will offer more than the advertised rent to secure a property, as happens with sales occasionally. That is the point where rents will really take off. I'm guessing that will start happening late 2017 to early 2018.

People have been asking for years (especially on the left) for 'something to be done' about BTL landlords. This will probably end up showing that you should be careful what you wish for.

[Loz]

Jeremy Wrote:

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> We need some way to issue fines for homes left empty for long periods (including those with

> foreign owners). I know, easier said than done...

Whilst it would always help the housing crisis to fill these with people, the number of homes empty for > 6 months in the Greater London area is about 21,000 (or 0.6% of the total housing stock).

[edhistory]

Loz Wrote:

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> As BB said, there are two changes at play [...]

So this is seen as a forced asset transfer from amateur borrow-to-let landlords to professional buy-to-let landlords who already have 15 or more properties.

Also, the elasticity of effective demand will march in step with increased rental asking prices.

[Loz]

edhistory Wrote:

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> Loz Wrote:

> --------------------------------------------------

> -----

> > As BB said, there are two changes at play [...]

>

> So this is seen as a forced asset transfer from amateur borrow-to-let landlords to professional

> buy-to-let landlords who already have 15 or more properties.

Not necessarily. Some may go to other landlords, some to buyers. Given the relatively low number of large-portfolio landlords, I'd guess that would be heavily weighted to the latter, unless some really big players step into the market. And concentrating the rental stock into a much, much smaller number of players will reduce competition.

> Also, the elasticity of effective demand will

> march in step with increased rental asking prices.

Well, maybe, but what will people priced out of the market do? That is rather the crux of the issue.

[red devil]

Loz Wrote:

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> Figures from 2010 show that more than

> three-quarters (78%) of all landlords only owned a

> single dwelling for rent, comprising 40% of the

> total privately rented housing stock.

I'd hazard a guess that a large % of that 78% only have a 2nd property as an alternative to (or to 'top-up') an existing poorly performing pension. In effect, trying to be less dependent on the state pension when they retire...

[Mick Mac]

red devil Wrote:

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> Loz Wrote:

> --------------------------------------------------

> -----

>

> > Figures from 2010 show that more than

> > three-quarters (78%) of all landlords only owned

> a

> > single dwelling for rent, comprising 40% of the

> > total privately rented housing stock.

>

> I'd hazard a guess that a large % of that 78% only

> have a 2nd property as an alternative to (or to

> 'top-up') an existing poorly performing pension.

> In effect, trying to be less dependent on the

> state pension when they retire...

True.

He is also targeting extra money from foreign buyers who buy high end property and never intend even to rent them out.

[red devil]

That's a fairer target. Most people with property as a substitute for a pension aren't high rollers like foreign investors, it will hit them hard. So much for Tory entrepreneurial spirit...

[EDOldie]

Stamp duty changes do make a difference but people get used to them and have little choice but to pay the tax if they want to move. There is an argument that the seller actually pays it in terms of the value. The price they are able to get for their house is depressed because of the duty. This certainly seems to be so at the top end of the market where sales are, by all accounts, very sluggish in central London since the introduction of the 12% rate above ?1,500,000. For example on a ?10M sale the stamp duty would be ?1,113,750. Under the previous rules it would have been ?700,000 and I think, although I?m sure one of you will correct me if I?m wrong, would have been ?153,750. So a very significant increase even taking in to account the way values have risen. With regard to the buy to let scenario the problem has been that buy to let investors have had access to low interest rate cash and been able to out bid normal home buyers thus creating the price increase we have seen particularly at the lower end of the market and the subsequent lack of availability of property for owner occupiers.

My own view is that stamp duty should be abolished on all owner occupier house sales below ?500,000, the current London average house price, and then a fixed percentage, say 10% above that but not on the whole amount. I.e. the first ?500,000 of any house purchase would be stamp duty free. At the higher levels of the market this would be very similar to what people are paying today but I believe this would be a fairer calculation and free up the market at every level.

The next thing is the residential investment market. One of the tools used by HMRC is the so called Envelope or Envelopment Tax. This is what Ed Balls was going to base his ?mansion? tax on. https://www.gov.uk/guidance/annual-tax-on-enveloped-dwellings-the-basics

I think this should apply to all buy to let properties and second homes and that there should be no lower limit. I think this could raise very good revenue but the danger is of course that Landlords will seek to pass on the increase in tax to tenants. However, coupled with the abolition of stamp duty below ?500,000 there would be a more level playing field between either owning or renting. The benefit to buy to let investors should be a gradual increase in property value as well as reasonable return rather than the extortionate one they are currently enjoying because they are not properly taxed.

All makes sense to me but am I talking out of my elbow?

[Loz]

Most of what you wrote, EDoldie, makes reasonable sense. Some ideas may be good and some not. Though one point I would make...

> The benefit to buy to let investors should be a gradual increase in property value as

> well as reasonable return rather than the extortionate one they are currently enjoying

> because they are not properly taxed.

In most parts of London, there is no great return on rent. If you have a 500k property in ED, then you'll get about 1400-1500 a month rent (or 16,800-18,000 a year). That's a gross yield of about 3.5%. Then there is the mortgage (as most single-property buyers have a mortgage). Rates for BTL mortgages are about 3.5%-4% (you don't get the great deals you get on normal mortgages) - i.e. similar to the yield, so if you have a 70% mortgage, so you will only see about 30% of that rent, so about ?5k per year.

But you then have to take out costs - insurance, maintenance, void periods. If you are lucky, you might turn a profit of a ?2-3 grand a year. If you use an agent. most of that will be wiped out. If you are a 40% tax payer or higher and have a mortgage, the new relief change will mean you will actually make a loss.

The only money is in capital gain, which has been traditionally good, but who knows what will happen in the future? But 'extortionate' profit on the rental in London? Nope. Not for your single property landlord.

[red devil]

I think those who took out tracker BTL mortgages pre-credit crunch have done well on rental profit, but I agree, most are relying on a rise in equity to form a pension pot...

[miga]

Loz Wrote:

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> Figures from 2010 show that more than

> three-quarters (78%) of all landlords only owned a

> single dwelling for rent, comprising 40% of the

> total privately rented housing stock.

So - 60% of BTL properties are owned by people who have more than 1 BTL? Would be really interesing to find a good source on what proportion of the BTL market is owned by the >15 (unaffected) individuals/entities.

But if the intention was to help boost supply for people wanting to "get on the ladder", I'm not sure this policy will work. A combination of people intent on a BTL taking the 3% on the chin**, entities unaffected by the change (>15) just chugging along, and people already deep in equity on their BTL making enough to not warrant the transaction cost of going into some other form of investment, will mean the picture stays more or less the same in my opinion.

It just seems like another populist, headline grabbing measure, and the best outcome is that it isn't too consequential. But the 3% being passed on to tenants and boosting rents, or the BTL market being concentrated into fewer and fewer hands are two outcomes which also seem possible.

**Having someone else pay off a second property, or even go most of the way towards it, is one way to create housing opportunity for your kids, whatever the moral or political dimension. I know a few people who are doing this.

[EDOldie]

Loz Wrote:

> The only money is in capital gain, which has been

> traditionally good, but who knows what will happen

> in the future? But 'extortionate' profit on the

> rental in London? Nope. Not for your single

> property landlord.

Well yes, if you started now, but most of these properties have not been bought recently. People have been building up portfolios for years in some cases. So compared to what they paid for the property the return on their original investment is very good plus the capital value has increased significantly precisely because these properties have not been available to buy. Rent laws were freed up so that property owners could be assured of getting possession with a market, not regulated, rent being paid by the tenants. So the properties were effectively paying for themselves. There were tax advantages and it all got a bit out of control hence the changes we have seen in taxation. There will be more too I'm sure.

[numbers]

ratty Wrote:

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> numbers Wrote:

> --------------------------------------------------

> -----

> > The "opposition" & gimmicky Mao's red book.

> > Laughable.

> >

> > *waves to sean*

>

>

> Such a joke that they forced the chancellor to

> totally back down on his main austerity policy and

> make a humiliating u-turn. Just think what they

> could do if they are serious! Scarey huh?

I thought the use of Maoist propaganda was laughable in an unfunny way.

I don't think they are a credible opposition and if there's no coup and Corbyn lasts longer than a year, I'll be surprised.

[Loz]

EDOldie Wrote:

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> Well yes, if you started now, but most of these properties have not been bought recently. People

> have been building up portfolios for years in some cases.

Which is why I specified single (or even 1-3) property landlords. Most of these changes won't affect large scale landlords.

> So compared to what they paid for the property the return on their original investment is very good plus

> the capital value has increased significantly precisely because these properties have not been available

> to buy.

I basing my information on direct experience - rent returns are rubbish, capital returns are good. And the new relief rules will actually turn those small rental profits into losses.

So, what are you basing your information on? I read a lot of rubbish about BTL landlords 'raking in massive rents', but - like most things - the reality is a lot different to the theory when you actually get out and do it.

> Rent laws were freed up so that property owners could be assured of getting possession with a market, not

> regulated, rent being paid by the tenants. So the properties were effectively paying for themselves.

When you say "effectively paying for themselves", are you referring the old canard that rents pay off the mortgage and the landlord ends up with a 'free house'? It really doesn't work like that; more so when you a working with gross yields of 3-4%. Rent will usually cover the interest due on the mortgage, but the capital does not get paid. Most BTL mortgages are interest-only.

> There were tax advantages and it all got a bit out of control hence the changes we have seen in

> taxation. There will be more too I'm sure.

The point I was making was that these changes will cause many small landlords to leave the market and dissuade new ones replacing them, and the result of this will be significantly higher rents. Is that what you want?

[JohnL]

numbers Wrote:

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> ratty Wrote:

> --------------------------------------------------

> -----

> > numbers Wrote:

> >

> --------------------------------------------------

>

> > -----

> > > The "opposition" & gimmicky Mao's red book.

> > > Laughable.

> > >

> > > *waves to sean*

> >

> >

> > Such a joke that they forced the chancellor to

> > totally back down on his main austerity policy

> and

> > make a humiliating u-turn. Just think what they

> > could do if they are serious! Scarey huh?

>

> I thought the use of Maoist propaganda was

> laughable in an unfunny way.

>

> I don't think they are a credible opposition and

> if there's no coup and Corbyn lasts longer than a

> year, I'll be surprised.

Just imagine if this adventure in Syria goes wrong and

Osborne etc become the new Blair.

Boris would have to save the day - he is saying nothing I see :)

I'd rather Corbyn there than any of the others in that

election - if someone good appears he or she can take over when

Corbyn retires (which maybe before the next election).

[Blah Blah]

I think that's how things may play out John. Corbyn will go. If the party find a way to keep him off the new ballot paper there will be a revolt from the membership, so they'll have to put up a candidate from the left that they think they can work with.