BTL in East Dulwich?

[Guest]

Hi theboycj,

Some good points have been pointed out here.

If it's a question of whether to retain your current property to move home, London property price increases year on year make having a second investment property very worthwhile. Say property prices rise 5% over 2016- a 5% increase on two properties that you own is double capital appreciation on just one. Yes it can be a headache if you don't find the right tenants, but there are insurances out there to protect you. 10 years ago we were saying that property prices can't go much higher but then they did. 5 years ago we were still saing the same, but then they did! Although house price increases seem to have slowed down, I'm confident they will continue to go up. And if you do get the right mortgage product, you will be able to achieve reasonable side income from the rent too. In my opinion a much better deal than selling to minimise mortgage payments, however if the goal is to be mortgage free at some point and to have minimum risk, then selling to fund your new purchase is probably the most suitable option.

Regarding the B2L stamp increase, the increase will only apply to purchasing a B2L, so if you are buying to move home, it shouldn't be classed as a B2L and therefore you wont be affected by the increase. If you stayed where you are, released equity on your home to by a second property to let out, then it would. Downside that will affect you either way is the government's proposal to limit tax relief on mortgage interest. I'd say speak to a few mortgage brokers to see what works for you.

M

[Reg Smeeton]

I've been in ED long enough to have seen two major slumps in prices around here. 1990-93 there was a long drawn out 30% slump (which some thought would never end), then in 2008 a rapid plunge of about 25% (which ended because the Government reduced interest rates to zero, something they can't do next time). It will happen again one day. And when it does happen, the rose tinted specs disappear very quickly. So I'd say anyone who buys a place in London now should first imagine how they'd feel about living in it if it lost value. A dank one bed flat feels great when prices are going up, but terrible when they go down. At least if it's your home it has the value that you can live in it.

[bobbsy]

I didn't notice a 25% plunge in 2008?

[Loz]

There was a bit of a fall-back in 2008, post the banking crash, but it was more like 10-15%, rather than 25%.

There was also a rather big jump of about 20% early to mid-2014. ED prices over the past 10 years have tended to work in fits and starts.

[LondonMix]

bobbsy Wrote:

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> I didn't notice a 25% plunge in 2008?

Estate agents at the time said the market had fallen by 20%-- my neighbors had to move the New Zealand as a family member was ill and had to rent out their flat instead of selling it because they were upside down on their mortgage.

By 2012 things were roughly back to 2007 levels. Then the market soared for the next two years.

[Lowlander]

10-15% sounds about right I know of one flat bought in 2008 for ?300,000 sold in 2012 for ?280,000.

[Reg Smeeton]

Let me give you a specific example: In March 2008 a three bed house near me went on the market for ?599k. It was speculative, but some houses had achieved that level. It was just about the peak of the market. There were no buyers, so they kept reducing the price and finally in early 2009 it sold for ?430k. That's nearly 30% lower than what they'd hoped they might get for it. Yes there was froth in the market, but there will have been some people who bought in SE22 in early 2008 and were forced to sell in early 2009 (eg due to a marriage break-up or loss of a job) who genuinely did see 25% price falls. By mid 2009 the impact of low interest rates really began to kick in, and the market rocketed back up quickly.

That same house that sold for 430k would now probably get more than double that figure. Is the world twice as wealthy? Have family incomes doubled? No, in many case incomes have hardly changed. But interest rates are, for the time being, a fraction of what they were.

[LondonMix]

I agree with what happened to house prices- dramatic fall in the summer of 2008 that bottomed out in 2009 and slowly recovered value until 2012. After that, the area saw double digit growth for a couple of years. I started looking for a house near the end of 2012 and bought in 2013 (sold my flat in early 2013 which I had bought in 2007, but originally had valued in 2012 when we first started thinking of moving). Anyhow, the point is prices can definitely go down.

I think the drop had more to do with a lack of mortgage availability. Interest rates have helped support the recovery but people are borrowing a similar multiple of their incomes as before so low interest rates aren't the reason why prices have gone up as much as they have.

[Castillo]

Agree - its demand that makes prices go up, and if there is short supply then demand is even higher so prices get pushed even higher. Demand is solely behind the 'dramatic' rises we see.

I think we see less of a dramatic drop however when supply might be increasing, but rather a slowdown in the rise (if that makes sense!)

This is because demand in London is always pretty high- and it certainly will be in a place like ED as its a very desirable place to live.... and lets not forget ED is easily seen as a bargain compared to areas in North London and South West London etc

Alot of people think the latest restrictions on BTL will bring prices down and "help" FTB. I think not (its just a tax grab!) as its the barriers to actually getting a mortgage that seem to inhibit first time buyers the most. Demand will still be there, and thus so will prices. There is a shortage of FTB right now purely because they need huge deposits and repayments are calculated on "what if" Interest rates at circa 5%

[Cyclemonkey]

Advice on the new stamp duty rates up thread was untrue. The focus was on BTL but the proposal is that a 3% extra stamp duty charge will be levied on second homes regardless of what they are used for. Therefore if the OP retains their existing flat and buys a new place to live in they would be treated as buying a second home under the new system proposed.

I am not sure if the proposals will keep prices down for FTB but it is about time the very favourable tax treatment of property investment in comparison to other investments was ended. What it may also do is provide a disincentive for exactly what the OP is trying to do. One of the issues for first time buyers is constraint of supply and that is not helped by people retaining their starter flats to let out when they trade up in the hope of gaining later on from ever rising house prices.

[Penguin68]

The focus was on BTL but the proposal is that a 3% extra stamp duty charge will be levied on second homes regardless of what they are used for.

I am not sure this is right - by definition a second home is not thus available for third party use. The charge is on new buy-to-let and second homes, not second or additional properties per se. I believe that buying a new property as a ('first') home and subsequently/ consequently letting out your old property would not trigger the higher stamp duty. Nor would any action prior to April next year (2016). However, if you still retain a mortgage on your initial property then the 'right' to claim interest charges against rental revenues will be tapered, with the intent that interest charges will cease to be allowable landlord expenses.

[bobbsy]

I don't think the 3% surcharge will diminish house prices. Yes it's an extra cash charge to find when purchasing an investment, but factored in to overall rental yield it doesn't have a dramatic effect. If you were a pensioner releasing funds for a BTL rather than an annuity, you are cash rich anyway, so I don't believe this would change your investment decision versus the poor alternatives available.

If you are stepping up the housing ladder, rather than borrowing 70%, I think a buyer would borrow 75% thus needing a smaller deposit to allow for the extra stamp duty.

Foreign investors won't care. It is still an exceedingly safe country in which to invest.

FTB's are still the losers with this policy.

Just my view.

[Cyclemonkey]

Penguin the proposal is that the extra stamp duty will be levied on the purchase of ANY additional property over ?40,000. If you own a property you lived in and you De ide to buy another property to live in and let out the first property you are still buying an additional property.

[Penguin68]

I stand corrected

[EDOldie]

I think you are all looking at too short a period. Sure that there are ups and downs in the market but over twenty five years, a fairly normal length of mortgage, just look what happened to values. 1990 was an exceptional recession in the housing market but values today are probably ten times what they were then. Despite stamp duty, low rental yields, maintenance etc, etc a well planned BTL sandwich, sorry strategy, ought to be a very good bet on past performance.

[KidKruger]

"...levied on the purchase of ANY additional property over ?40,000"

slim-pickings then.

[Reg Smeeton]

Trying telling that to a Japanese person whose house is currently worth about half what it was worth in 1990. Or somebody in Dublin who paid 30% more for their house in 2007 than they can get for it now. But hey, London's different and prices will just keep on going up faster than the RPI forever till we property owners are all zillionaires.

EDOldie Wrote:

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> I think you are all looking at too short a period.

> Sure that there are ups and downs in the market

> but over twenty five years, a fairly normal length

> of mortgage, just look what happened to values.

> 1990 was an exceptional recession in the housing

> market but values today are probably ten times

> what they were then. Despite stamp duty, low

> rental yields, maintenance etc, etc a well planned

> BTL sandwich, sorry strategy, ought to be a very

> good bet on past performance.

[????]

er, you checked out Dublin prices recently Reg?

[Castillo]

Not a logical comparison. Japan had hyper inflation - the UK has very low inflation. In Ireland, the state income back then was almost entirely reliant on property via huge VAT levies on developers and income tax on the massive amount of workers in the construction sector. Both countries also had incredibly low barriers to getting a mortgage / with almost easy access to leveraged debt (and yes, the banks fuelled this activity). The bubble had to burst. We saw similar in the UK of course with consumer debt but the Irish gov was borrowing majority of GDP on money markets linked to property- thats why their economy collapsed.

Its different here in the UK. On a national level the property market in the UK is not overpriced or overvalued. people tend to forget this. London is a different story, which is typically seen as hugely overvalued when linked to current levels of wage growth.

There is a possibility that an interest rate hike in the UK may flush out fire sale of properties for those that are highly leveraged given the effect on mortgage repayements. However, even then a 10% drop in asking prices takes you to the prices this time last year. Demand will remain strong in London as its the centre of the world. The recent moves inhibiting BTL is driven by politics, fuelled by the misguided view that BTL disadvantages FTB, or by those promoting wishful thinking ("If we wait there will be a crash and itll be alot cheaper!") In my mind big taxes on overseas investors would have far more benefit to the UK economy but you wont see Cameron doing that anytime soon with all his toadying up to China!

[Blah Blah]

Or the OP could just sell the home and give someone else the chance of owning their own home, instead of seeing all their hard earned wages going to pay off someone else's mortgage. That's an option too.

[Loz]

Blah Blah Wrote:

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> Or the OP could just sell the home and give someone else the chance of owning their own home,

> instead of seeing all their hard earned wages going to pay off someone else's mortgage. That's

> an option too.

As explained before, there is no way that you can do BTL in London and have the rent "pay off" the mortgage. The best you can hope for is that it covers the interest payments on that loan.

[NunheadIsClose]

I have only skimmed this thread really quickly so apologies if this has already been covered, but I didn't see it.

BTL is a very good idea and owning a second property is great if you can afford it (even if your mortgage is interest only) as on average house prices rise faster than inflation. There are several social reasons why BTL is a very bad idea and I am not going to go into these either. Please be aware that none of us can see the future and BTL still has it risks, especially when interest rates have been so low for so long. When these rise who knows what will happen. But generally speaking if you are in for the long term then BTL has proved very successful for many, many people.

However please consider this. If you sell the flat you currently own and it is your main residence then you will be exempt from capital gains tax on the profit you have made on it, as selling your principle residence (your home) is exempt from CGT. However, if you keep it as a BTL and also buy another property that will then become your main residence. So when you come to sell the BTL you will need to pay CGT on the uplift in value from when you bought it until now. Please double check this with an accountant, but that is my understanding. How much you originally bought the flat for and how much you eventually sell it for will determine your tax bill.

Apologies if I am wrong I am not an accountant, but if I am, knowing the EDF I am sure someone will point it out within minutes.

[Loz]

NunheadIsClose Wrote:

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> However, if you keep it as a BTL and also buy another property that will then become your main

> residence. So when you come to sell the BTL you will need to pay CGT on the uplift in value from

> when you bought it until now. Please double check this with an accountant, but that is my

> understanding. How much you originally bought the flat for and how much you eventually sell it for

> will determine your tax bill.

It is much more complicated than that if you have ever had that house as your primary residence, as the OP has done. Essentially, you calculate the number of months you let it out (less 18 months) and the number of months in total you have owned it, then that is used to calculate a proportion of the capital gain to be applied to the letting period, which is taxable. But after that there are other possible reliefs as well. So, yes, do consult an accountant.

> Apologies if I am wrong I am not an accountant, but if I am, knowing the EDF I am sure someone

> will point it out within minutes.

http://www.emoticonhq.com/images/ICQ/blush.jpg

[Penguin68]

In addition any capital works (new bathroom, new k*tchen etc.) you have undertaken - in order to bring it up to standard for letting etc. can be claimed against your capital gain. Redecoration, unless it forms part of a capital work, e.g. new painting of new plasterwork, would in the past be paid for out of the 10% annual wear-and-tear allowance against rental - although this is now being withdrawn. This does mean that you must keep records of work done.

[Angelina]

so what happens if you use the equity in a BTL to put as a deposit on a residential? Is that a tax complication?