Would you invest in BTLs now?

[Richlist]

Well you may be right, I don't know if landlords will be hit on Nov' 17th but, I do know that there are a lot of fiscal opportunities available to the Gov' to help recover the £40 billion shortfall. We already know it's going to be painful because they have told us that.

Usually when they hit a particular section or industry there is a knock on effect. They will know that hitting the rental market will further reduce available properties, increase rents, etc. 

I think it's much more likely to be 1p on income tax/ changes to CGT, tax free allowances & reduction in PSA. Maybe a small increase in VAT, changes to the triple lock and other tweaks to the tax system.

There are many ways the Gov' could generate revenue.....e.g....I've never understood why we don't introduce a small visitor tax, other countries do it successfully.

 

 

[Carryon Regardless]

I agree interest is likely to rise. I suspect at 5 - 5.5% within 2 years.

In truth 4% + used to be considered healthy. We have become used to the extra ordinarily low rates is all.

But as much as the media don't report as much as create there are stories coming through of the hardships being experienced in the BtL sector. A lack of available finance for BtL. Reports of a lack of available rental properties and with that increasing rents. this introduces possibility of a less offensive approach to us poor down trodden risk takers.

This should be an opportunity for many renters to evolve to become owners, but as we know financing house purchase is becoming more difficult. Although much of that is psychological due to the finance sector hike following the mini budget. There is also the lack of deposit that many renters find themselves trapped by due to rents taking much of their hard earned.

I view that the mortgage industry is now ahead of the BoE rates. I see them effectively waiting for the BofE rates to catch them up, with possibility of the providers reducing by perhaps 1% in competition. But not till they have a restored confidence in the countries financial future.

But in short, while we may be heading for a global financial precipice, as people get used to the new rates, and after house prices have receded some, a new stable will return and buyers will buy again. 

Of course if we are going in to a crash greater than 2007 / 08 ignore pretty much everything I've just said.

[Melboy]

Anyone got a  BoE IR tracker mortgage?  My Son has not paid a penny in interest on his mortgage for 12 years.  😀

I think this is about to change for him quite dramatically though and I believe it already has in the past year. Interesting and not unsurprising to note that tracker mortgages from around 2010'ish quickly disappeared from the mortgage market. Do they still issue tracker rates today? Possibly but I haven't looked into it as I don't have any need to do so.

Watch the rise in BtL mortgage rates from today and probably anyone wanting a BtL mortgage will probably have to put up a much larger deposit to secure that mortgage.

[Carryon Regardless]

Mel don't most, non fixed rate, mortgages effectively track the BofE rate? Is there a difference in what you describe?

Our home mortgage tracks the BofE + 0.48%, so I've enjoyed the period of low interest.

My BtL mortgages all have passed their fixed rate periods so are tracking the BofE rate also, although at a significantly higher rate over.

I have been told that BtL mortgage provides are already requiring a 50% deposit. I don't understand why this has arisen as I'm not aware that BtL investments are a greater risk than home buyers. Unless they are now factoring in legislation that does of course present us with greater loss risks.

But yeh these are strange times, it feels like nothing can be relied on. So who knows where to invest? That can't be good for any economy.

[Grampa]

I have a BOE tracker rate on my home and have had a fantastic low rate for the last 10+ years. So I am in the fortunate position of moving within the next month and will be mortgage free. However, my BTL’s are all on 5 yr fixed. One was renewed with a smallish increase abour 3 months ago which was covered by a rent increase. Another was due Feb 2023 but I but I have just sold that one but have  2 coming up next Aug at the same time (2 flats in converted house). The mortgages are not huge so am thinking I may pay one off fully, renew the other (at a higher rate) and the cost will be about the same. Then hopefully when/if the rates drop I can release the funds put in. A chat with the accountant may be in order first though in case I am missing the obvious.

[Carryon Regardless]

9 hours ago, Grampa said:

I have a BOE tracker rate on my home and have had a fantastic low rate for the last 10+ years. So I am in the fortunate position of moving within the next month and will be mortgage free. However, my BTL’s are all on 5 yr fixed. One was renewed with a smallish increase abour 3 months ago which was covered by a rent increase. Another was due Feb 2023 but I but I have just sold that one but have  2 coming up next Aug at the same time (2 flats in converted house). The mortgages are not huge so am thinking I may pay one off fully, renew the other (at a higher rate) and the cost will be about the same. Then hopefully when/if the rates drop I can release the funds put in. A chat with the accountant may be in order first though in case I am missing the obvious.

 A sort of obvious may be CGT accumulated in the same year. It might mean a greater portion becomes higher rate. But rumour is there will be an increase to consider.

I'm considering keeping a house empty till next financial year before sale, because repossession is more than 12 months now. That's because I've sold one already this year and another is up for sealed bids right now.

[Grampa]

1 hour ago, Carryon Regardless said:

 A sort of obvious may be CGT accumulated in the same year. It might mean a greater portion becomes higher rate. But rumour is there will be an increase to consider.

I'm considering keeping a house empty till next financial year before sale, because repossession is more than 12 months now. That's because I've sold one already this year and another is up for sealed bids right now.

Having 2 relations who are accountants and do everything from vat, payroll and annual accounts for me is a double edged sword because I have never bothered to get my head around CGT and certain other elements of accounting as I would rather leave it to them and which many of you guys are far more knowledgeable than me. My head is filled with housing law and there is no more space. Which is the reason I rarely contribute to accounting posts. 

[Melboy]

Listening to a financial program this morning on the radio it has been pre announced  ( as per normal ) that Landlords will be affected by the Autumn budget and it was indicated that it would Capital Gains Tax that would be that tax. I would imagine the Chancellor will reduce or cancel the the amount of CGT relief you can claim per person.   Easy prey I guess are landlords.

[Richlist]

That doesn't sound so good.

The CGT tax free allowance is currently £12300 per person. That's why it's a good idea to have joint ownership where possible so you can each claim. Then it's 18% for basic rate & 28% for higher rate.

Well, we only have a couple of weeks to find out the bad news.

[Carryon Regardless]

It isn't just tax changes that get us.

I sold the house earlier this year, to enjoy the 2x personal relief I requested the solicitor to transfer the property into joint names just prior to the point of sale. This we have done previously.

The buyers solicitor refused as 'I think' the mortgage company of the buyer required that a property has to be owned by the seller for at least 6 months.

For an additional £325 my solicitor created some sort of deed of joint ownership that would satisfy HMRC for the tax benefit.

[Grampa]

Dont know if this is of any help regarding CGT

If landlords think Section 24 is bad wait until you read this by Mark Alexander - Founder of Property118

As I write this article the Bank of England Governor is under immense pressure to take emergency measures to protect against the collapse of the pound by increasing the Bank of England base rate by a further 1.75% to 4%. The £ is currently trading at $1.07 and is predicted to slump much further unless the UK bank base rate is increased imminently.

Whether either of these things will happen in the next few days remains to be seen, but either way money market pundits are now predicting the Bank of England Base rate will need to reach 5.8% in 2023.

Interest rates at this level would cripple most landlords, not to mention homeowners who are on variable-rate mortgages. It’s also a ticking time bomb for those on fixed rates.

What can landlords do?

There is a limit to how much rent people can pay, even with the unprecedented high levels of demand which is set to rise even further as landlords buckle under the pressure to sell up or risk bankruptcy.

It is probably fair to say that most landlords who follow economics are deeply concerned and looking into the viability of selling at least some of their properties and using the net proceeds of sale to reduce or pay down their remaining mortgages.

But what about Capital Gains Tax?

CGT is usually payable on the profit between the sale price minus acquisition and sale costs minus a further £12,300 per person of annual CGT exemption allowance. Here’s a worked example.

Mr and Mrs X jointly own 10 identical properties worth £300,000 each.

They paid £100,000 each for them some years ago.

For every house they sell they will make £200,000 of capital gains.

To keep the maths simple, we will assume the cost of redeeming their mortgage combined with their costs of sale are also £100,000 per property, so the net sale proceeds before tax are also £200,000 a property.

If Mr & Mrs X sell four houses they will have £800,000 of cash and only £600,000 of mortgages left to repay.

However, their capital gains on the sale of the four houses would be £800,000, so they would receive an eye-watering £217,712 CGT bill.

In other words, they still wouldn’t have enough money left over to pay off the £600,000 of mortgages on their remaining six properties.

Incorporation could be a far better solution

When landlords sell their properties to their own Limited Company in exchange for shares the value of the shares created is offset against their Capital Gains. The HMRC manuals describe this process as follows …

“TCGA92/S162 applies where a person other than a company transfers a business as a going concern with the whole of its assets (or the whole of its assets other than cash) to a company wholly or partly in exchange for shares. Provided that various conditions are satisfied, the charge to CGT on the whole or part of the gains will be postponed until such time as the person transferring the business disposes of the shares.

The way the relief works in practice is that all or part of the gains arising on the disposals of the assets are ‘rolled over’ against the cost of the shares.

Relief under TCGA92/S162 is sometimes referred to as ‘incorporation relief’.”

So what would this mean for Mr & Mrs X?

Following incorporation Mr & Mrs X will not pay any Capital Gains Tax on the sale of any of their properties unless they appreciate even further in value. In other words, the value of the properties at the time of incorporation sets a new base cost value for capital gains calculation purposes.

Therefore, if Mr & Mrs X were to sell four of their properties soon after incorporation they would be left with £200,000 of cash after paying off their remaining six mortgages. They would have no CGT to pay whatsoever!

For this reason it can make sense to incorporate before selling properties. The entire process can be achieved in less than six weeks, so much quicker than you are likely to be able to sell your properties. Also, depending on your circumstances it may be possible to incorporate without your new company having to pay Stamp Duty or to refinance.

[Melboy]

I guess there may be many landlords who are not looking to sell anytime soon or later like me.  I have my properties in dual and triple ownership and by that I mean Husband & Wife and in a couple of cases Daughter & Son are on the property deeds. CGT only becomes a problem if you have to sell.    No doubt the Government are looking at some novel ways of forcing landlords to sell just for the pure hell of it.

             Was this a clever move on my behalf? I doubt it but it does mean a 3rd party has a share of the property and in the event of being carted off to the Old Folks home it may mean the property can't be sold off to pay nursing home fee's which are currently costing about £1,500 a week.

[Melboy]

I don't have friends in high places but I do know people who have.  The worst kept budget secret since George Osbornes "pasty tax" has been revealed to me and that is CGT on second homes sales is to be halved from £12,300 to £6,000.   It will be interesting to see next week if this private information has any truth in it.  Only a real problem if you need to selI your 2nd home I guess.

It wouldn't not surprise me one bit if the Tories didn't go for some form of new tax on the sale of your private home because they are very suicidal at the moment and definitely not looking for another 4 years in Government.

So with that in mind let's have a sweepstake on what you think the Chancellor's budget will bring......apart from misery of course.   😅

[Richlist]

Well for me personally I don't see very much bad news.

* My income is below the 45% threshhold. So no tax increases expected for me.

* I've sold most of my properties so my enormous CGT bill is already behind me.

* I am in receipt of a state pension.....so looking forward to my 10.1% triple lock increase in April.

* I am virtually loan free.....just a couple of months to go.

* I have a very large war chest in case some attractive repossessions become available.

* I always try to stay flexible, roll with the punches, look out for the opportunities and take the chances that present themselves.

It's looking quite good......but I was always an optimist.

[Melboy]

RL said:

"I am in receipt of a state pension.....so looking forward to my 10.1% triple lock increase in April".

 

         😄     I don't think that is going to happen especially 10.1% increase.  It will be much reduced.

[Richlist]

That depends on which newspaper you read......we'll find out for sure in less than a week.

[Melboy]

Interesting property report in the Daily Telegraph today which certainly goes against what I have just heard on R4 Today program from the head of the Nationwide Building Society talking doom and gloom from last November and into this New Year about house prices, mortgage rates etc. etc.

https://www.msn.com/en-gb/money/other/second-home-and-buy-to-let-sales-surge-by-a-fifth/ar-AA16WYbn?rc=1&ocid=winp1taskbar&cvid=70f65e55db0d484b8087057a9fad2c6c

[Melboy]

Interesting snap-shot of the current BTL market. Worth a read I would suggest.  I do personally know of two landlords selling up and getting out of the business, but there again there are many who are not, me for a start. My selling HMRC tax bill would be enormous!  😃

‘I’m selling my properties as soon as a tenant gives notice’ (msn.com)

[Grampa]

We have noticed more landlords selling up and penny pinching on repairs. I think there is still money to be made on BTL it just means buying at the right price and managing the tenancy in a manner to reduce void periods by being a good landlord.

I have no idea how this compares to other landlords but my personal BTL have monthly overheads (mortgage, service charges, agents fees) in the region of 25-30% of the rental income. The couple of LTD BTL are a bit higher at 30-40%. I'm aware there are a lot of other considerations such as tax, void periods and maintenance. 

I have (fingers crossed) very little turnover of tenants. I put that down to keeping the rents a little under market rates, reasonably rent increases EVERY year, prompt maintenance and most importantly carefully choosing the right tenant. Not a 100% fool proof but it works for me. 

 

[bil8999]

8 hours ago, Melboy said:

Interesting snap-shot of the current BTL market. Worth a read I would suggest.  I do personally know of two landlords selling up and getting out of the business, but there again there are many who are not, me for a start. My selling HMRC tax bill would be enormous!  😃

‘I’m selling my properties as soon as a tenant gives notice’ (msn.com)

Would you sell if no the government covered the tax

[Melboy]

15 hours ago, bil8999 said:

Would you sell if no the government covered the tax

Probably not, but my circumstances are probably different to most landlords. Landlords who are working on tight budgets and are really affected by the increased mortgage rate, bad tenants, repairs and overheads etc. are most likely to be the first to take their money by selling up with a capital profit and getting out of BTL.

[bil8999]

43 minutes ago, Melboy said:

Probably not, but my circumstances are probably different to most landlords. Landlords who are working on tight budgets and are really affected by the increased mortgage rate, bad tenants, repairs and overheads etc. are most likely to be the first to take their money by selling up with a capital profit and getting out of BTL.

I am also in an enviable position, got my first property to rent at the age of 25 for £1500, now let out 41 properties, never had any borrowings, like you small time property developer, still got 6 plots to develop, will rent when built. Would i invest in property at the moment, no, unless well below market value,  would i sell if no tax to pay, not sure. As i know zero about how to invest money other than into property.

[Carryon Regardless]

1 hour ago, Melboy said:

Probably not, but my circumstances are probably different to most landlords. Landlords who are working on tight budgets and are really affected by the increased mortgage rate, bad tenants, repairs and overheads etc. are most likely to be the first to take their money by selling up with a capital profit and getting out of BTL.

Some one is talking about me.

[Melboy]

22 hours ago, Carryon Regardless said:

Some one is talking about me.

Not intentionally COR but I can see where you are coming from.  😃

[thome]

No