Summer Budget 2015 – Landlords Reactions

Reply to the comment left by “Trendo ” at “30/09/2015 – 12:29“:

Hi Trendo

I always enjoy reading your posts. Where are you based.

The Basel II accord mandates that banks holding riskier assets have more capital on hand than those maintaining safer portfolios. According to Basel II, companies must publish both the details of risky investments and risk management practices. Basel III establishes more stringent capital requirements, tripling the amount of capital banks must keep on hand to absorb losses during financial crises. It also requires banks to maintain higher common equity than before, including a capital conservation buffer of 2.5% of their assets.

Reply to the comment left by “KATHY MILLER” at “30/09/2015 – 14:22“:

Pity the government do not have a comparable policy for the country.

Kathy, your synopsis is correct, in as far as it goes.

One interpretation of it is that BTL becomes classed as a riskier loan type under III than currently and that loans to companies (for BTL) as the riskiest type.

The requirement to hold more capital against those loans could mean that some lenders will simply no longer lend in those riskier markets and that others will, but will charge accordingly.

Accordingly being ‘like a wounded bull.’

I am maybe painting worst case scenarios, but some commentators saying that base +7 or 8% + margin (i.e. 10.29% with 0.5% base rate) might be a fair price to reflect the risk / cost to the lender.

It might be that other lenders come into the market (i.e. ones less impacted by Basel) at lower rates.

There isn’t, that I have seen, a definitive position on this by any lender, but the CML has expressed concern about the impact on BTL.

It is worth taking a look at. It comes in at the end of 2017.

Hi

Not sure if anything new here but just received this reply from the treasury via my Tory MP. Has taken months and continues to avoid the central question of taxing turnover rather than profit All v sad ;(

MC20 J 5/20237

HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ

Mike Freer MP house of Commons London
SW1A OAA

Your ref: MF/AP

J 1 SEP 70\5
Thank you for your letter of 7 August enclosing correspondence from your constituent,
Mr Jamie Finch of , London, about landlords’ tax relief on finance costs.

The Government wants a fair tax system. That means ensuring that landlords with the largest incomes no longer receive the most generous tax treatment. The wealthiest landlords can get relief on finance costs at their marginal rate of income tax. This saves them 40p or 45p in tax for every £1 of finance cost they incur. By restricting finance cost relief available to the basic rate of income tax (20%) all finance costs incurred by individual landlords will be treated the same by the tax system.

This restriction will reduce the advantage landlords may have in the property market. Onlv around 1 in 5 (18%) of individual landlords are expected to pay more tax as a result of this measure. Furthermore, this change is being introduced gradually from April 2017 over 4 years. This ensures landlords will have time to adjust and plan for this change.

The government does not expect this to have a large impact on either house prices or rent levels due to the small overall proportion of the housing market affected. There are 1.6 million buy to let mortgages outstanding in the UK overall, out of a total private
rented sector of 4.4 million households and total housing stock of 22.6 million households in Enqland.

The gradual introduction of this change will also give landlords time to adjust and plan for the change. The Office of Budget Responsibility believe the impact on the housing market wil be small and taking account of the other measures in the Summer Budget,
have not adjusted their forecast for house prices.

Landlords will continue to get full tax relief on the costs incurred in letting out a property such as letting agent fees and furniture, as others do on the costs of carrying out a trade. Finance costs are different as having a mortgage on a property aIso allows the landlord to purchase a more expensive property and incur larger
gains on the investment than they would have done without the mortgage.

The Government wants to rebalance relief for these finance costs and ensure that all individual landlords get finance cost relief at the same rate.

P|ease pass on my thanks to Mr Finch for taking the trouble to make us aware of these concerns

DAVID GAUKE

Reply to the comment left by “Jamie Finch” at “30/09/2015 – 16:11“:

At least you didnt just get the standard reply. Ireland’s house prices dropped 9% , more houses did get built, rents went up at least 24% and when it got reserved 4 years later , property prices went up higher as everyone came back to invest. No one wanted HBenefit tenants.

So the question still is where are they intending to put them?

Does anyone have temp housing B and B figures ?

Reply to the comment left by “Jon Pipllman” at “30/09/2015 – 16:07“:

I definitely think that BTL will be classed as much riskier.
Lets hope they don’t start pulling in loans, could they do this ? is it in their terms ?

Paying rates at 10% I remember res at 15% . But we would have to be able to pass this rate on in rental costs otherwise it would not be worth doing.
Res mortgages FTB are the government giving security on these, because in the last recession BTL did not I believe prove the biggest risk.

Maybe they will just shut up shop again.

Reply to the comment left by “Jamie Finch” at “30/09/2015 – 16:11“:

I think every Landlord who has contacted there MP has had the same reply as yours I cant see this being changed we have to get used to the new arrangements

Reply to the comment left by “Jamie Finch” at “30/09/2015 – 16:11“:

‘Finance costs are different as having a mortgage on a property aIso allows the landlord to purchase a more expensive property and incur larger gains on the investment than they would have done without the mortgage.’

That’s the new bit they’ve been putting in. Can anyone explain to me what this is supposed to mean? Anyone who gets a mortgage can get a house worth more than they could if they didn’t get a mortgage… It’s like saying BTL mortgages are suddenly some evil, criminal activity that must be ‘cracked down on.’ Well ban the f***ing things then – as in make any BTL mortgages on new purchases illegal – if they’re such an awful thing. They’re effectively doing that anyway.
And owner-occupiers get much higher gains than us – because they don’t pay CGT. So why aren’t they doing something about OO ‘speculation?’ That’s what’s pushed house prices up. So start taxing OOs. Why should they be allowed to gain hundreds of thousands off the back of house price increases and not have to pay a penny in tax? It’s the current OOs who are keeping the FTBs out of the market, not us.

In terms of the whole email, I’m pretty sure I have had this exact one a couple of times and also a few previously without the above sentence I’ve quoted. They’re an insult to our intelligence and a shameful pack of lies.

What happens when it becomes mathematically impossible to service the tax and financing costs on a rental property with housing benefit when not all landlords have financing costs and housing benefit is artificially holding up private rents?

Erm … a few misguided assumptions built in there i see!!

1. can the portfolio be run on non HB Tenants – Yes

2. is there enough demand to to sustain higher rents – yes (and demand growing on a daily basis, and that is before some LL sell up and reduce the rental stock slightly, Hb tenants are priced out of homes, more asylum seekers arrive to be homed and more young people seeking to leave the nest )

3. Hb artificially holding up rents ? ..er if you have a portfolio of ex LA prop, possibly in a few areas…. on some of them maybe. Hb does not come anywhere near HMO rent levels which are many times higher on larger porps. On smaller props “top up levels” larger up front rent balancing payments, bigger bonds and gaurantors will become far more important ..for those that choose to stay in that market, in all areas that i know of HB is paid at below market rates – with top ups from tenants (except for poor quality props with possibly dubious LLs)- i am very selective about purchasing property. personally so HB levels are about as relevant to me personally as the new tax proposals will be to mortgage free LL.