Patrick Collinson “Guardian of Housing Ignorance”

Patrick Collinson “Guardian of Housing Ignorance”

7:54 AM, 21st August 2017, About 6 years ago 46

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The 1,400% returns figure for Buy-to Let was grossly inflated

In fact it was both gross and inflated.  It was also fictitious, and contained errors.  It may have led George Osborne to introduce Section 24.

In a recent article purporting to criticise Guardian readers for vilifying a woman who had told them in an earlier article how much profit she had made on selling her only rental property, Patrick Collinson stoked their rage with a fake statistic.  He wrote “Financially speaking, buying to let has been probably the best thing anybody could have done with their money since 1997, with gains averaging more than 1,400% since then.” LINK

This implied that the average capital gain was 14 times the purchase price, that prices were 15 times higher now than 20 years ago.

The statistic was overstated by 493%.  In other words, it was nearly six times too big.

The national increase was 236%.

LINK to Telegraph article

Patrick Collinson’s figure appeared in the headline of a Guardian article in 2015 LINK

“On average, £1,000 invested in a buy-to-let asset in the final quarter of 1996 was worth £14,987 by the end of last year, according to analysis by economists at the Wriglesworth Consultancy for lender Landbay, published on Saturday. This was more than four times than the equivalent investment in commercial property, UK government bonds or shares and seven times the return on cash.

Years of rising house prices mean that despite the slump after the financial crisis, property investors who bought 18 years ago are still sitting on large capital gains.”

This implied that prices had increased by a factor of almost 14, in 18 years.

The figure came from a report by the Wriglesworth Consultancy in April 2015 called Buy-to-Let Comes of Age which can be downloaded from the section White Papers at

This report made it clear that the figure was not the price increase percentage, it was the return on investment (ROI) from mortgaged property.  The calculation combined the gross capital gain with the before-tax profit from 18 years of rentals, and was divided by the deposit (thus ignoring the purchasing costs).

Because the deposit was only 25% of the purchase price, the return was much greater than it would have been without a loan.  That is why mortgaged properties outperform passive investments – as long as prices are rising.  Because of the high cost of property most buyers need to borrow – only a minority of people can afford to buy property without a loan.  The magnification of the return results from this.  The fact that the deposit was a quarter of the purchase prices is the reason why the return was “more than four times than the equivalent investment in commercial property, UK government bonds or shares”.

And it is thanks to landlords’ability to borrow that the stock of dwellings in the PRS increased by 2.5 million between 1996 and 2013 in England alone.

“From 1996 to 2013, the total number of dwellings in England increased steadily from 20.3 million in 1996 to 23.3 million in 2013. Much of this was due to the notable growth in private rented housing which more than doubled in size from 2.0 million to 4.5 million over this period.”

Thus 2.5 million out of the 3 million increase was thanks to the PRS.  That is 83%.

Link to evidence on .Gov.Uk

Landlords did this by financing new builds, by rehabilitating run-down properties or by converting large residential or commercial buildings into flats or houses in multiple occupation (HMOs).

In 1996 the UK population was 58.2 million. By 2013 it had increased by 5.9 million to 64.1 million, while the number of dwellings only increased by 3 million.

The younger generation owes BTL a debt of gratitude because if landlords had not increased the supply, both prices and rents would have been even higher than they are now.   Instead they vilify landlords because they have been indoctrinated against BTL by a number of ignorant people, some of whom have articles published in the Guardian.

Contrary to the common belief, BTL did not cause much of the rise in prices. .  The National Housing and Planning Advice Unit (NHPAU) stated in 2008 that the BTL sector was responsible for increasing average house prices by 7% between 1996 and mid-2007 (when the housing market ground to a halt) but that average house prices rose by 150% in real terms during this period.

It stated “Between 1996 Q3 and 2007 Q2 the overall impact of BTL on house prices was relatively modest and illustrates the point made by others that movements in house prices are largely determined by fundamental economic and demographic factors (Meen etc).” LINK

So BTL was responsible for only one-twentieth of the increase.

The Wriglesworth report was written just after the change in pension rules in order to drum up business for its client Landbay, which allows ordinary investors to lend directly to landlords,, as it explained on page 9.  Landbay were offering interest at 3% above BoE base rate. LINK

So a report boasting of 1,400% returns was issued to encourage people to put their money into something that paid 3.5%.

But the 1,498.7%.statistic is, literally, fictitious, despite its ostensible accuracy.  It is the result of pretending that someone bought a property at the average price in 1996 and let it at the average rent until 2014, paying 25% in operating costs and interest at BofE Base Rate plus 1.75%, with 3 weeks of voids or arrears each year.  The capital gain was taken from a price index that excludes BTL properties.

Apart from that, there were various errors of principle.  It ignored income tax on rental profit,  pretending that the gross profit could be paid to the lender every year to pay down the mortgage.  It ignored the selling costs that would be incurred for the capital gain to be realised and, more importantly, it ignored the tax on the capital gain.  And, although purporting to measure the returns over 18 years, it ignored the effect of general inflation in that period.

Rob Thomas, Director of Research at Wriglesworth Consultancy wrote the report.  He took what he called the average price for the UK as a whole at the end of 1996, £55,000, and put it into the Nationwide’s calculator.  He selected a calculation of the value in the last quarter of 2014, and got the result of £188,421, which he rounded up to £189,000. LINK to Nationwide report

The returns were described as arising from “an average buy-to-let property”, but buy to let and cash purchases are explicitly excluded from this index.

For rents he took the average level from rental data for December 2014 provided by LSL Property Services, and extrapolated this all the way back to 1996.  He assumed that the costs of buying and furnishing the property average 3% of the purchase price.

No details of rents or rental profit are shown, so there is no way to check them.  But income tax was ignored.  On page 10 he states “As is standard in such comparisons, the returns have been calculated gross of tax as different investors face different tax rates.  Income is reinvested in the asset.”

To follow this principle he deducted the annual rental profit from the loan, which paid it off in 13 years, thus making the last 5 years interest-free and the profits higher.  In the real world, income tax of between 20% and 45% would have been due, making the loan last longer and the interest-free period shorter.  This means that profit was overestimated.

But a landlord is more likely to use the after-tax profit to live on, rather than pay it down.  So the interest payable would have been higher still, and the profit lower..  .

His table on page 10 shows that the theoretical rental profit (called net income) worked out to be 28.6% of the total return, making it about £59,000 over 18 years, or on average about £3,280 a year before income tax.

The remaining 71.4% of the total returns of 1,489.7% came from capital gain, i.e. 1,063.7%.

But the capital gain is wrong.  Instead of deducting the purchase price, he deducted the loan amount.  So the capital gain is overstated by the amount of the deposit, in this case £13,750.

There is no deduction for the capital gains tax liability that arises from an increase in prices, or for the selling costs that would be incurred in realising the gain.

However, the most striking omission was the failure to adjust for 18 years of general inflation, which averaged 2.9% a year. £1,000 in 1996 would have inflated to £1,677 by 2014.

I have used his purchase costs, and assumed some selling costs, and calculated the CGT.  Then I adjusted the result using the BofE’s inflation calculator, assuming that the loan had not been paid down at all.

Tax calc’n Return
£ £ £
Sale value 189,000 189,000
Purchase price from deposit 13,750
Purchase price from loan 41,250 41,250
Purchasing costs 1,697 56,697
132,303 147,750
Selling costs:
Estate agent’s fee 2,268  
Solicitor 800  
Lender admin 250 3,318 3,318
128,985 144,432
CGT @28% 36,116 36,116
Net, in 2014£, re-stated as 108,316
real, in 1996£ 64,604
Deposit plus costs 15,447
Return 49,147
Return on deposit plus costs 318%
Return on total cost 87%

The inflation adjusted return from the capital gain was £49,1497, or 87% of the cost, about 4.8% for each year of ownership.  It represented inflation-adjusted ROI of 318%.  That is less about three-tenths the figure claimed in the report.

Adjusting the (overestimated) £59,000 rental profit for inflation brings it down to £46,000 in real terms.  Applying income tax merely at the base rate reduces it to £36,800.  This is 65% of the cost, or 238% ROI.

So the overall return in real terms was 152% of the cost, and the total ROI was 556%.  The report’s 1,389.7% was two and a half times this figure.

The report had a disclaimer, but it was not that the past is no guide to the future.:

“Disclaimer: This material is for informational purposes only. It is not intended as investment advice and we are not soliciting any action based on it. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such.”

Unfortunately, people did rely on it.  It was featured in several national newspapers, always with something like this comment in the Daily Mail “But they will alarm campaigners concerned that buy-to-let landlords are pushing up house prices and making it even more difficult for young people to get on the property ladder.”  Somebody must have added this propaganda to Wriglesworth’s press release.

Natalie Bennett of the tiny Green Party quoted the figure in the the TV debate before the 2015 general election.  The BBC’s fact checker said it was correct, based on the Wriglesworth report!

Under the heading Private landlords, it stated “Natalie Bennett said that private landlords had made 1,400% profit since 1996, far more than investing in other areas.

This figure comes from a report produced by Wriglesworth Consultancy, which was sponsored by buy-to-let lender Landbay.”

A few weeks later Osborne stole her party’s manifesto commitment and disallowed finance costs, and broke David Cameron’s widely televised manifesto pledge that income tax would not go up if he were re-elected PM.

The trumpeting of 1,400% returns from BTL (to induce people to lend money at 3.5%) probably led to Osborne’s decision.

The theoretical rental profit is modest.  Most of the return is due to capital gains.  The latter are the result of politicians failing to ensure that the supply of dwellings increased to accommodate the population increase, especially in London.  But landlords are being punished for the growing imbalance between demand and supply which caused prices to rise.

Patrick Collinson’s article continued  “But the losers are the younger generation, who are now unable to get on the property ladder in large parts of the country, particularly in the capital.”  No, they were winners because BTL increased the supply of dwellings  significantly.

He went on “Tax hikes on buy to let and changes to lending criteria have taken the steam out of the market, but more needs to be done – higher rates of capital gains tax on rental properties, changes to the AST to give proper protections to tenants and stricter lending criteria are just a few of the options.”

CGT on the sale of rental properties is already higher than on any other type of asset.  Stricter lending criteria have already been introduced.  If by “proper protection” he means reforming what he calls the “no fault” eviction, and going back to the era of lifetime sitting tenants, that would also discourage landlords from increasing the supply of dwellings, which would not be in the interests of the younger generation.

His “remedies” are based on ignorance and prejudice.  They are the opposite of what is required.  Prices would be even higher if it were not for BTL.  The way to help the younger generation is to encourage BTL to increase the supply of dwellings, not discourage it.  The solution is to reverse the tax hikes on BTL and the CGT differential.

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John McKay

16:00 PM, 21st August 2017, About 6 years ago

This journalist cares little for facts. It's all about sensationalism.

Big Blue

19:35 PM, 21st August 2017, About 6 years ago

Collinson is a prize-winning berk who speaks in tongues and plays on whatever sophistry best supports his highly twisted and misinformed narrative. He always hates the landlord and wants them out of the market, but then complains bitterly when a tenant is made homeless because - er - the landlord is exiting the market! What EXACTLY does he want? A tenant in a secure and happy home or a tenant needlessly evicted because the government have enacted the Guardian's agenda to force the landlord out?! Does he not realise that without that landlord, the tenant no longer has a home? Really, for someone who thinks himself so bright he really is a bit short on brain cells if it's taking him this long to work out the connection between the evictions HE campaigns for and the homelessness that results.

Chris @ Possession Friend

19:43 PM, 21st August 2017, About 6 years ago

Good critique of the Guardian article, - of which we should all lodge complaints against. Just takes a little time to gather a number of their Anti-Landlord articles to back up this one.
However, the critique does not mention the near 15 % management charges ( certainly inclusive of VAT ) and surmises that not a penny is required to be spent on repairs, Licensing, legal costs of bad tenants etc etc.

Appalled Landlord

20:33 PM, 21st August 2017, About 6 years ago

Hi Chris
Rob Thomas included commission in his assumed operating costs of 25% of rents but I agree, if commission is 15% there would not be much left for repairs and renewals and all the other costs.

Gary Dully

7:44 AM, 22nd August 2017, About 6 years ago

How do I get to be a filthy rich landlord then?

With returns like that you'd be mad not to buy a few hundred houses and provide homes to poor people, wouldn't you?

How much property does the Guardian newspaper group own?

Where does its pension fund place its money?

Crumbs, well lets get them to give away their pension fund to the poor people and homeless, just like I did!

Rob Thomas

12:33 PM, 23rd August 2017, About 6 years ago

Reply to the comment left by Appalled Landlord at 21/08/2017 - 20:33
As the author of this report I want to respond to the above text. It seems my report has irked Appalled Landlord because it has been used by those who want to attack landlords. What the report does is lays out an estimate of average returns on different assets including buy-to-let. Do you not think that investors should have accurate information on returns across all asset classes? My calculation of buy-to-let returns was on the same basis as the returns shown for other asset classes such as equities. These are often quoted in the media and show returns on a pre-tax basis (as different investors have different tax profiles) and in nominal terms (i.e. not adjusted for inflation). This is the standard approach to showing investment returns. Would you really want me to show returns on buy-to-let on a fundamentally different basis than the returns shown for other assets? That would be completely illogical.
Appalled Landlord rightly points out that the highest returns on rented property were for those landlords who borrowed to invest (although even the cash investors outperformed other assets on my calculation). There is no point claiming this hasn't boosted returns. It has. I'm a landlord myself. I bought one of my properties in 1996, the base year for the report. I paid £110,000 for a property in London now worth maybe £810,000. I borrowed 75% of the value, so including purchase costs and fittings my initial cash investment was around £30,000. So my initial investment of £30,000 is now worth £727,500 (that's £810,000 less a mortgage of £82,500) not including the very health rental income I've enjoyed in the meantime.
NB Appalled Landlord, when you said above "But the capital gain is wrong. Instead of deducting the purchase price, he deducted the loan amount. So the capital gain is overstated by the amount of the deposit, in this case £13,750", hopefully from my calculation you can see why your maths is wrong.
So, while my calculation is just meant to be an average, clearly some investors will have under-performed and I feel for them but as my example above shows, other landlords have certainly out-performed the average. That's what an average is all about.
Rob Thomas

Rob Thomas

12:45 PM, 23rd August 2017, About 6 years ago

Reply to the comment left by Appalled Landlord at 21/08/2017 - 20:33
As Appalled Landlord correctly states I included an estimate in my calculation of operating costs of 25% of rental income. This is meant as an average. Clearly some properties are more cost intensive than others. For example, I have a property with a rental income of £750 a month (£9,000 a year). The only costs I have incurred other than my manager's wages is insurance of £100 a year, a gas safety certificate and very minor repair costs. So total costs (excluding management) have come to about £200 a year (a little more than 2% of rental income).
Rob Thomas

Annie Landlord

13:34 PM, 23rd August 2017, About 6 years ago

So you have never paid for an electrical safety certificate? You have never upgraded your property for the benefit of your tenants? You have never replaced a boiler (in all those years!)?
You have never had any void period? You have never had any rent arrears? You have never had a tenant do a moonlight flit? You have never had to use a solicitor? You have never spent £4000 repairing a property after it has been trashed by a tenant? (I have) Please, please can we stop this nonsense? As for capital appreciation, I have just had a property valued. Paid £86K eight years ago. Current value £90K. I'm delighted your London property has seen such significant gain, but such gains are not replicated nationally. And by the way: My properties are homes. They are not an asset class. I am a businesswoman, not an investor. I work hard in my business, to provide lovely homes and and a good service for my tenants. Buy to Let is not a hands-off, armchair investment like buying wine or trading in shares. Someone, be it the landlord or agent, has to run the business. Sadly, like many landlords, my strategy must now be to sell up and hope against hope that my tenants can find new homes. Financially I will be unable to continue with my business past 2020.

Rob Thomas

16:27 PM, 23rd August 2017, About 6 years ago

I've been a landlord for 28 years with multiple properties, so in answer to your question, yes I've had voids, yes I've had tenants running out without paying the rent. I've also had a major fire, a stolen door(!) and disturbed tenants where I needed to act as social worker as well as landlord. Your post suggests you are not paying attention: I was answering a specific point made by Appalled Landlord that 25% was somehow an inadequate average for non-finance costs as a proportion of rental income. This has nothing to do with voids or rent arrears.

I happen to agree that being a landlord is a business first and foremost. If you read the report I wrote you would see I said exactly that. If the quality of debate on this site is any guide to the quality of management amongst posters, it's no surprise you're all grumbling you can't turn a profit from buy-to-let.

Appalled Landlord

18:15 PM, 23rd August 2017, About 6 years ago

Reply to Rob Thomas

I have gleaned from Google that you were an economist with the Bank of England for 5 years, then you were housing market and mortgage bank analyst at UBS Warburg before becoming senior policy adviser covering mortgage funding issues at the Council of Mortgage Lenders until 2012. Towards the end of November 2013 you joined Wriglesworth, according to the press release:

“I'm delighted that Rob is joining us,' explained John Wriglesworth, CEO. 'We have a strong reputation for using research to establish and build strong brand profiles and market leading 'voice of authority' positioning for clients, Rob will enable us to build this even further.'
'Following a varied career in analysis and research, I believe my experience is perfectly suited to the role I have taken up and I am therefore delighted to join the Wriglesworth Consultancy,' explained Rob.
'I believe that with my mix of experience I can use research to further enhance the breadth of our offering and allow us to offer an even wider range of services to clients.'”

You ask “Do you not think that investors should have accurate information on returns across all asset classes?” Yes, and you didn’t provide it.

In any case, you are being disingenuous. Investors were well aware of how leverage magnifies the returns from BTL, they did not need your report. Your report was not aimed at people who might become landlords. It was issued to induce people to lend to Landbay for 3.5% a year, so that landlords could borrow from Landbay instead of from members of the Council of Mortgage Lenders.

The introduction on page 9 states “Investors need clear information to make informed decisions and we feel that there has been too little comparative information made available in a form that ordinary investors find accessible. With the new pension freedoms now in place the need for informed decision making is greater than ever.
In a sense buy-to-let has been more than just another asset class. It represents a democratising of the investment process because the main alternatives; equities, bonds, commercial property and cash are all ‘professional’ investments in the sense that they are managed by others. Buy-to-let has allowed investors to take control, cutting out a layer of management cost, which has enhanced returns.
Now, nearly two decades later, a new financing revolution is set to change buy-to-let as peer-to-peer lenders such as Landbay allow ordinary investors to lend directly to landlords, cutting out the traditional bank or building society sitting between the two. This paper should be of value to ordinary investors who want to lend to landlords as it sets out the relative robustness of the buy-to-let returns that help to underpin lenders’ investment as well as those of the landlords themselves.”

You also ask “Would you really want me to show returns on buy-to-let on a fundamentally different basis than the returns shown for other assets? That would be completely illogical.”
No, I would want you to show returns from all assets that reflected real-world concepts like taxation and inflation. It would have been safe to assume that somebody whose income justified a 75% loan on the value of a property would pay a marginal rate of 40% tax.

And you don’t even mention inflation, which for an economist is most surprising. You claim that £1,000 cash at the end of 1996 “would be worth” £1,959 at the end of 2014. In fact the original £1,000 would only have been worth £ 596.44 in real terms. The untaxed return of £959 would have been worth considerably less in real terms, given that most of it would have accrued in the 12 years before the bank rate went down to 0.5%.

In reply to criticism of your 1,400% returns - which was treated as Gospel by the major newspapers, quoted in the TV election debate and probably led Osborne to introduce Section 24 - you have the gall to come onto a forum for people who will be severely damaged if not bankrupted by S 24 and boast about how well you did in London.

And the patronising arrogance to express your hope that I can see where my maths is wrong. It is your thinking that is at fault, not my maths. Your “initial investment of £30,000 is now worth £727,500” That means the gain is £697,500.

You cannot include the £27,500 as a gain on the £27,500 you started with. In your words that is “completely illogical”.

Your gross capital gain is £700,000: £810,000 minus £110,000. Then you have to deduct the £2,500 you spent on the purchase cost and fittings, leaving £697,500.

You got the capital gain wrong on the unmortgaged example as well. The purchase price was £55,000 and the 2014 valuation was £189,000, making the gross gain £134,000.

The table on page 10 states that the total return was £5,071 for every £1,000 invested, and that 42.9% came from rental income. So the total return was £278,905, and 57.1% of it, £159,255. came from capital gain. That is £25,255 more. than the the actual gain. The extra is about half the purchase price. It is £459 for every £1,000 invested, 9% of the claimed gross returns, not adjusted for inflation.

You are incompetent as well as arrogant.

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