Patrick Collinson “Guardian of Housing Ignorance”

Patrick Collinson “Guardian of Housing Ignorance”

7:54 AM, 21st August 2017, About 4 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.


by Rob Thomas

11:03 AM, 29th August 2017, About 4 years ago

Reply to the comment left by Annie Landlord at 26/08/2017 - 10:25
You really are pathetic!

by Rob Thomas

11:21 AM, 29th August 2017, About 4 years ago

Reply to the comment left by Appalled Landlord at 24/08/2017 - 00:00
I wonder what your obsession with my report is all about? Could it be that you can't bring yourself to blame the real culprit: George Osborne. It was Osborne who chose to hammer buy-to-let with punitive taxes. Why did Osborne do this? I don't know. But as some of your readers may know back in 2012 the government announced its plan to subsidise institutional investors (pension funds and the like) in the private rented sector through the Build-to-Rent Fund and the PRS Housing Guarantee. So ordinary landlords get punitive taxes while institutional investors get government subsidies. Could it be that Osborne wanted to push out ordinary landlords to make space for his chums in the City to invest in the PRS? The City has always disliked investors who look after their own money, because they then loose their fat commission for managing our money (I should know, I used to work in the City).

by Rob Thomas

11:32 AM, 29th August 2017, About 4 years ago

Reply to the comment left by Rob Thomas at 29/08/2017 - 11:21
PS For your more ignorant readers (mentioning no names Annie) the City is the name for the UK's wholesale financial sector.

by Rob Thomas

11:54 AM, 31st August 2017, About 4 years ago

Reply to the comment left by Appalled Landlord at 24/08/2017 - 00:00
Appalled Landlord - I assume from the absence of a reply from you that you now accept that all of your accusations of errors in my report were wrong. However, I believe you should state in writing that this is the case so that your readers can see it is so.

Also, your inference that this report was written to somehow undermine buy-to-let is laughable. The report shows that buy-to-let returns have been excellent and was published by a buy-to-let lender. Don't try to make enemies of people who support buy-to-let.

by Annie Landlord

18:26 PM, 31st August 2017, About 4 years ago

Reply to the comment left by Rob Thomas at 29/08/2017 - 11:32
Yup. He's even more desperate now:)

by Appalled Landlord

21:39 PM, 31st August 2017, About 4 years ago

Reply to the comment left by Rob Thomas at 31/08/2017 - 11:54
Reply to Rob Thomas

Never assume. I was unaware of your post until today - I have not received any notifications for this thread for a week, for some reason.

I never implied that your report was written to undermine buy-to-let, and I am not trying to make enemies of people who support buy-to-let. I can’t imagine how you could come to such a conclusions.

See the separate post below about errors

by Jay James

21:59 PM, 31st August 2017, About 4 years ago

Some of the posts here are thoroughly unprofessional and indicate the particiular author is taking things far too much to heart. One wonders why. He really ought to improve his analysis of text on here before responding.

by Appalled Landlord

22:03 PM, 31st August 2017, About 4 years ago

Reply to the comment left by Rob Thomas at 25/08/2017 - 16:28
Reply to Rob Thomas

Inflation and taxation

It is surprising that an economist can issue a report claiming that £1,000 invested in cash at the end of 1996 would have a value of £1,959 in 2014, without adjusting for 18 years’ inflation, or even mentioning it.

You say you were only following convention. But this was not a conventional report - the inclusion of BTL made its format unique. It purported to give the returns from the average rental property. So you should have included the real world factors of inflation and taxation and applied them to all asset classes.

You say adjusting for inflation won't affect the relative performance against other asset classes. This is not correct. The returns from a property with a tracker mortgage move in a different way from cash or gilts when interest rates change. The latter would have earned more interest before March 2009 than after, and the reverse would be true of the profit from a mortgaged property. So inflation would have eroded more of the return from cash and gilts and less of the return from a mortgaged property.

Your approach was tantamount to pretending that income tax is not due on rental profit, because you deducted the gross amount from the mortgage principal each year. To do that in the real world would mean investing the income tax amount in the property each year, which would reduce the return percentage. A reasonable assumption would be income tax at 40%.

And there was no mention of the inherent capital gains tax liability, another real world factor. A reasonable assumption would be CGT at 28%.

Ignoring taxation makes your result gross. Ignoring inflation makes your result inflated. Ignoring both makes it grossly inflated.

Your table
Your table shows that £1,000 invested in the mortgaged property had a value of £14,897, and £1,000 invested in cash had a value of £1,959. So if we compare the two, the property investment had a value 7.6 times that of the cash investment. What use is that comparison?
What matters is the returns: £13,897 and £959 respectively. These figures show that the investment in the mortgaged property returned 14.5 times as much as cash.

Your table appears at the start of a chapter entitled
“Section 2 - Investment returns compared”

with the heading
“Table 4 – Cumulative total returns for the main UK asset classes (1996-2014)”
My mistake was to assume that the figures were as described, the cumulative total returns, and not some meaningless figures that cannot be directly compared.
I used them to try to work out what the total rental profit had been in order to adjust it for inflation. This led to a figure for the capital gain which was too high for both the mortgaged and the unmortgaged properties. In my haste to apologise for calling you incompetent to ward off a libel suit I forgot that it was the table’s own heading that had misled me.

Capital gain percentage
Your report states “Using identical underlying assumptions, the same property purchased with a 75% LTV buy-to-let mortgage (a fairly typical initial LTV) would, on average, over the same period have turned each £1,000 invested into £14,897, a return of just under 1,400% (and a 16.2% compound rate of return).” So these figures relate to a single property.

The reason I said that you had omitted the 3% purchase costs is that is the only way that the percentages give a capital gain that approximates to the difference between the purchase price and the 2014 valuation: £134,000.

But now I see that you used a different figure, £153,367, for the capital gain, so the gain and the total return are overstated by about £19,000.

Things I did not write
I did not claim that the figures in the 2014 report were the same as those in the 2013 report.

Nor did I claim that Osborne needed your report “to show him that geared buy-to-let investors had made exceptional cumulative returns since 1996.” But the fact that the grossly inflated figure of 1,400% returns had been splashed across the newspapers, turning the population even more against landlords, would have encouraged him to attack us.

I remain unconvinced by your protestations about the reason for writing the report that Landbay paid for.

And yes, I believe that the 1,400% is fictitious, rather than established fact.

by Appalled Landlord

22:07 PM, 31st August 2017, About 4 years ago

Reply to the comment left by Rob Thomas at 29/08/2017 - 11:21
Reply to Rob Thomas

I am not obsessed by your report, but I think it was extremely damaging, especially to us landlords outside the South East of England who are still waiting for prices to return to the levels of 10 years ago.

I know full well that Osborne was the culprit. I cannot understand why you would think that I can’t bring myself to blame him.

And yes, Property118 made the connection between S 24 and build to rent. Articles making the connection can be found here:

by Rob Thomas

22:30 PM, 31st August 2017, About 4 years ago

Reply to the comment left by Annie Landlord at 31/08/2017 - 18:26
Hey Annie Landlord - let the grown-ups continue with this discussion and go back to managing your apparently unsuccessful property business.

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