The Buy-To-Let Boom Isn't Over Yet

I'd have to agree with you there Cliff. The investors who ride out this storm will have to be smart - but I think there are some out there, and they are loving the current climate. We shall see!

David Kuo of Motley Fool predicts a 20% fall in house prices this year, Donna.

Landlords who buy now will certainly have to "be in it for the long-term" if their asset depreciates that much in 2008.

I am quite surprised to notice that none of the comments so far allow for the fact that so long as landlords obtain more in rent than any applicable borrowing costs, then they are OK and the cost price/value of the property is entirely irrelevant. sticking to this very basic business plan will make BTL a continuing good investment

Your simplifying a complicated subject..
For me, as a BTL investor (last month I purchased 27 houses), there are 3 BTL markets.
(1) Upto £100,000 , (2) £100,000 - £150,000
(3) £150,000 and above
House Prices are falling in the £150,000 and above price category. Two examples for you..
1)I recently purchased a house valued at £225,000 for £150,000 and 2)Purchased a house for £160,000 which was valued at £240,000
This is a great opportunity to make money if you buy right!!
I can also verify that rents have increased by more than 10% in 2007.

There are many good posts here on both sides of the fence.

Of course BTL is a good investment in principle.

However what is certain is that the current money markets will sort the wheat from the chaff.

Those investors who know their prices AND HAVE CASH/RESERVES will do well now. They will ride out the market and pick up more bargains.

However the recent ever-rising property sector has been carrying many amateurs and making them look good.

As Warren Buffet said recently, it's only when the tide goes out that you discover who's been swimming with no trunks.

The same principle is observable in the hedge fund market which in some cases is similarly leveraged. Just over a week ago Peloton Partners were forced to liquidate a highly successful fund (87% gain last year) due to cashflow problems regarding margin calls from their lenders in a falling market (in other words they didn't have enough cash to cover their 'mortgage costs').

Good luck to those seasoned property investors who have kept reserves - those newbies who trumpet 'the market only goes up' are however likely to be in for a lesson.

I think that highly levearged BTLs will become highly vulnerable over the next 24 months. For example a portfolio with 25% equity in portfolio paying a 4.5% gross yield,rental income barely covers current interest costs, if BTL interest costs go up to over 6% then life will become interesting on the income side. (this excludes rental voids, bad tenants, legal costs, repairs etc etc )

On the capital value side I think that valuers will become very cautious in this market and I could easily see that on remortgaging a Portfolio could drop in value by 10-15%, Thus reducing equity to below 25%. This will result in forced sales and a general reduction in values and so the whole game spirals downwards.

Nothing wrong with BTLs but in the current market I would looking at rental yields of 7% and above to make it worthwhile. This will require a serious reduction in capital values as rents will not increase that much. Wher i live rents have barely kept in touch with inflation over the last years, let alone stayed in touch with the rise in capital values.

Superskullker, you speak for the negative bitter people who can't be bothered taking action to take care of themselves in retirement by using the methods and vehicles available to them. Why do you think BTL mortgages were launched in 1996? It was because Thatcher's policy of selling off council houses left the country with insufficient rental availability. What do you think would happen to housing in this country if all BTL landlords exited the market en masse? You obviously think everyone (except them) would be better off. In fact, the country would lose an approx £30bn contribution to the economy and would be faced with housing all those who could no longer find anywhere to rent. But of course I guess your argument would be that they would all go and buy because the prices would be so affordable... in your dreams! Perhaps if you stop spending your time wishing ill on people who provide decent homes whilst taking care of their futures (and, yes, taking a long term view), you would be able to spend some time sorting your own future pension plans out because maybe I resent paying MY taxes to take care of those who won't take the necessary steps to take care of themselves. Those of us who are doing BTL correctly and are, of course, in this for the long term have no need for the government pittance of a pension. Tell me, do you think this will ultimately benefit the government and the country as a whole as well?
Secondly, how many people queue for the sale at Harrods and say "oh, prices are dropping, maybe I'd better not buy right now" - it's ridiculous, but that's what some of you seem to be suggesting.
Finally, I buy property without my own money in it. Of course I use leverage. I don't care whether prices drop next week, month or year, since (a) none of my money is in there, (b) I will never sell and (c) I'm in it for the long term and I know that ultimately there is no "top of the market".

Magicblonde is making some pretty hefty assumptions about my personal circumstances. I've got no problem with BTL as a concept, it's just dead in the water in 2008 because of a speculative bubble. I'm sure I'll switch my current investment stratgey to BTL in the future once the UK property market returns to sensible conditions; i.e. the payments on a 90% repayment mortgage are less than the rent for a similar property.

PaulWG Houses are only worth what people are prepared to pay, in your case.....what you paid, and still falling!

So if BTL investors succeed they're causing poverty and if they fail they are resented because they may be entitled to a Government pension?

Some of you really are bitter and twisted..

Is it because you missed the last four years of the property boom listening to Cliff's doom mongering on property prices since 2004?

I always thought that my state pension was paid out of my national insurance contributions. I never realised that they were in fact paid out of Superskuller's taxes! I also always thought that you got it regardless of your whether or not your BTL strategy worked.

Any thoughts on the possibility of, and then the consequences of mortgage interest tax relief being abolished on buy-to-let properties?

To make loan interest a non-allowable expense for IT and Corporation Tax purposes if let properties are part of the business (but retaining allowability for other business purposes) strikes me as a weird proposal. It's not clear to me that any benefits would outweigh the massive disadvantages.

I've heard the cry that owner-occupiers no longer receive any form of tax relief on their residential mortgage so why should residential landlords receive relief for loans to purchase residential property: the demand is for equality of treatment and a "level playing field" (even though there are very different games involved). Does this fervent desire for equality of tax treatment extend to CGT so that capital gains made by BTL landlords can be exempt from CGT just like gains made by owner-occupiers? Perhaps the claimed desire for "equality" is less generalised and all-encompassing than proponents would have us believe.

If a trading company also holds investment property then what proportion of its total borrowing would you disallow? All borrowing could, in practice, be to finance a new trading initiative with significant job creation prospects (and all sorts of other warm, fluffy emotive aspects) but some proportion would presumably have to be disallowed - so on what basis and with what justification?

How do you intend to define "BTL" so as to target the change without unintended consequences? Would residential care homes be exempt? Would provision of student accommodation be exempt? Would Furnished Holiday Lettings be exempt? How do you handle mixed-use property (e.g. flat over a shop)?

Does the security for a loan have any bearing? Will someone in the 15% of small landlords who remortgage their home to finance the purchase of a letting property be in a different position to someone who uses savings plus the security of the let property itself?

Disallowance of relief for loan interest would kill the BTL business - the increased tax burden means that it would cease to be an attractive (or, in many cases, even a viable) business even if operating with a conservative LTV. The new arrivals in the market with low yields and high LTVs are not the only players who will be red-carded. The BIG question is whether the country can afford the near-total elimination of the private rented sector (PRS). Will the public sector take up the slack or should the third sector commit resources to providing homes where needed. Remember that there are people who make a rational decision to rent but would have that option denied them - property is an illiquid asset with high frictional costs and ownership reduces the mobility of labour compared with a well-supplied rented sector.

There are significant regional variations in the proportion of housing stock that is in the PRS. Should this proposed change in taxation policy be applied equally across the UK?

Does the proposal recognise that large landlords dominate the stock? There is a distinct polarisation with a large number of landlords holding one or two properties but a small number holding over 50 properties. The latter account for a very high proportion of the total stock ("over 50" can mean waaaaaay over 50) so you're not just targetting the part-time or accidental landlord - you're also messing with the big boys in the playground. Are you really aiming to hit all of them or do you only want to pick on the little ones?

Remember, most importantly, that many people will never be able to buy a home where they want/need to live so what is to happen to them? There will be no ongoing extra tax take from disallowing interest as market participants will obviously exit the market. This means that you will, one way or another, meet the extra costs of housing those who can no longer find accommodation in the PRS - HB will not get anywhere near doing the job. If the private sector is to be killed off then someone or something has to undertake the provision of rented housing.

Some seem to think that disallowing interest and thereby destroying the PRS and dumping anything up to 10% of the nation's housing stock on the various local markets will have only the effect of reducing house prices to the benefit of all and for that effect to somehow be a continuing one. I don't see it as being that simple.

For a simplistic picture, let's assume that 10% of the housing stock is on the market in any year and that the PRS accounts for 10% of the housing stock. Even if dumping all that stock on the markets (doubling supply) makes houses/flats half the price for the moment, that doesn't make purchasing them affordable (or desirable) for everyone - and remember that your house will also be half-price. Are you still up for using the tax system for this social engineering?

Cheers!
... the "you" in the above is not a personalised "you" - more of a "one"...

the bloke next door to me rents his house out and lives in Spain. He says the housing benefit will be going to the renter soon instead of straight from council.
I reckon the courts will be packed with evictions! and a lot of houses wil go on the markets well as the dissapearance of tapered relief!
PS i get a local authority pension, haha!

It would appear that both sides of the argument may hold water. If a person does not *need* to leverage to purchase, this may (assuming migration patterns continue) be a wise investment providing a steady stream of income.

Now *IF* however, the economic boom doesn't continue forever, the Polish, et, al. migrants return home, interest rates rise to traditional levels (7%-10%), the government relaxes restrictions on home building (in their minds better late than never), Council's and police forces raise the rates to cover increased social needs requests in a softening economy and lending tightens up for an extended period, the BTL approach *may not* be a surefire money spinner.

I had seen a news report a little while ago that showed that US house prices have gone up 200% in the past 10 years where the UK house prices have, only, gone up 300%. Fortunately we here in England have all had our incomes rise 300% in that period so the housing fundamentals here are still strong. What is happening in Miami, Detroit, Las Vegas, San Diego could *never* happen here.

I watched the Toronto Housing market in 1989 - 2000 go through a moderate cycle of what I believe is about to hit the UK. The one thing that governments seem to forget is that a migrant has already demonstrated the willingness to move to where market conditions are better. It should be interesting to see how things unfold in the coming decade here in the UK (and China too should the carbon consumption taxes be applied). PS satire included in the preceding.

it appears that finding a BTL mortgage with greater than 90%LTV is suddently impossible.

True BTL loans of >85%LTV have always been very, very rare so I don't think it's true to say that >90% has suddenly become impossible.

how can I do this and still afford the property I want?

The folk on the Property Investing - Practical board have a firm grip on the realities of this kind of venture and will give you, at the very least, some strong clues:
http://boards.fool.co.uk/Messages.asp?mid=10998358&bid=50096

Cheers!

I think house prices trend will always be upwards. Historically it has been seen that demand always outstrips supply. In past house prices have sustained due to cheap credit now there seem to be end to cheap lending and lenders have definitely tighten up criteria. However I believe this is the best time to buy as after long period it seems that this is buyers market so if you have money lying about or are able to remortgage your exiting portfolio then go for it....before early bird catches the worm.

My son is due to remortgage his apartment at the end of November. His existing mortgage has 33 years to run having been a fixed tracker for the first 2 years. The apartment was purchased on the basis of owner occupation however, an overseas posting meant that for the last 6 months the apartment has been let with the approval of the Lender. It is still my sons only property and he will return to the property immediately upon completion of his overseas assignment probably within 1 to 2 years.

On approaching the Lender for remortgage they advise that as he will not be occupying the apartment at the time of remortgage then the only mortgage they will offer is a Buy to Let at extremely unfavourable terms. He can however, continue his present mortgage, despite this not being Buy to Let, at the Lender’s standard rate (equally unattractive)

Is this the stance adopted by all mortgage providers? If not then any advice on other lenders will be much appreciated.