Buy-to-let hype and horror

[Brit1234]

Just found this little article, there seems to be a lot similar articles all of a sudden. Does anyone think its time to get out or shall we fight it through.:confused:


Why it can only get worse for buy-to-let investors

The situation is looking grim for Britain’s 400,000 buy-to-let investors – and it’s set to get worse. With interest rates now a full percentage point higher than they were last year, many landlords are finding that rental income doesn’t cover their mortgage repayments.

see the rest
http://www.moneyweek.com/file/31162/why-it-can-only-get-worse-for-buy-to-let-investors.html

[Colincbayley]

I think they are wrong and will still continue to buy.
Never planning on selling anything.

Could be worth starting a poll on here to see what others think?

[jghomer]

I have no plans to sell, but am holding off on buying as the figures don't stack up for me now. I'm feeling the squeeze in cashflow terms, but i've had 10 years of excellent house price inflation so I guess I can't grumble.

I'd be surprised if we got to 6%. I think that would cause very serious damage.

[Colincbayley]

I'd be surprised if we got to 6%. I think that would cause very serious damage.

I agree, 6% will start to have too much effect on small business's.

[Brit1234]

It's more than likely that interest rates go up to 5.75% in July based on the minutes of BOE, it was 5/4 against this month. However inflation is out of control at the moment ie food prices and things. So i'm prepared just about for 6% by the end of the year but if it comes earlier I'm going to start paying out of my pocket rather than the renters.

[Brit1234]

Interesting article about the dangers of some of us subsidising the rents.:confused:

Wednesday, June 27, 2007

Property investors should plan for a positive cashflow in their rental income or face repossession of their BTL properties...

Property website www.publicangel.com says recent increases in interest rates and further possible hikes could push some landlords over into the red with their mortgage payments.

In the race to increase portfolios, some landlords are subsidising the rents received with their own money to meet the increasing mortgage payments.

This method of property investment promoted by some “property gurus” will lead to financial ruin for many newbie investors.

Wrong to rely on capital gains

Public Angel’s Nilesh Gohil said: “It angers me to listen to so called property gurus preaching to new investors that being out of pocket every month is a good solution to cashing in on long term capital gains in the future.

“Every savvy property investor should know that, in general, property investors should plan for a positive cash flow and not rely on capital gains. Any capital gains achieved should be considered as a bonus.”

Nilesh added: “Poor cash flow management by new investors will increase the number of properties going into repossession. Great news for savvy property investors.

“I urge investors to get the right financial advice and ensure the figures stack up. I always run my figures past my mortgage advisor and accountant to ensure I am making the right choice in my property investment”.

Source: Press Release - PRlog

http://www.themovechannel.com/News/2007/June/27d.asp?ito=EC1000

[Brit1234]

Recent RICS (Royal Institute of Chartered Surveyors) reports state that a growing number of buy-to-let landlords are now selling up due to rate increase fears which could see their profits marginalised...
Posted: 8:51 am, 6th July 2007

Recent RICS (Royal Institute of Chartered Surveyors) reports state that a growing number of buy-to-let landlords are now selling up due to rate increase fears which could see their profits marginalised.

These figures indicate that there has been an increase in the numbers of buy-to-let investors placing their properties on the market - which may be related to the rising interest rates and the decline in rental yields over recent months.

RICS state that the number of residential property investors selling up increased to 5.2% during the first three months of the year - compared to 4.1% for the same quarter in 2006. 'Experts' say that this is the highest level in two years. It is also suggested that it is the smaller investors who are more likely to take this course of action due to facing lower yields from only one property as the rates rise.

"Many landlords are selling into the still tight housing market in light of falling gross yields and rising borrowing costs," said a spokesperson from the RICS.

These statistics come at a time of many similar - and conflicting - reports of the buy-to-let market, suggesting that nobody really knows what the future of the industry holds. One research provider even suggested that not only is buy-to-let on the up, but that the rental market could double in the ext ten years.

There is harder evidence however that the rising house prices and higher costs of borrowing have indeed impacted on returns from rental property - although that is not to say that profits cannot be found if investors are savvy and look in the right areas.:confused:

Is anyone selling here?

Source - www.lettingnews.com
http://www.landlordexpert.co.uk/index.php?news=922

[jai]

Nope and no plans to in the future. I think they are right in that it will mainly be the novice landlords who are on trackers.

[lorenzo]

I won't be selling, but the deeds are in the safe. I doubt many of those with sensible LVRs and positive cashflow will be selling either.

I do worry for the "Johnny Come Lately" LLs with negative cashflow and tight personal budgets. Many are going to be (and some already are) in deep doo-doo. But they won't be able to sell, or will have to endure a capital loss.

I've seen this over 2 cycles now, this will be the third.

And Gordo still may have some surprises in store taxation wise.

[Poppy35]

i have a few clients selling up but these are clients new into the market over the last year or so therefore currently subsidising their mortgages anyway as rent does not cover payments and of course prices have not risen too much over the past year or so.

[Colincbayley]

Won't ever sell if I can help it.
Am still buying, good opportunities are coming up with people keen to sell.

[Ruth Less]

Well I'm a mere tenant but I can tell you my ex-landlord's story. He chucked me out as he wanted to sell. The property was months empty and on the market. Then surprise, surprise was let again but is still for sale. Does that count? Of course it won't sell, the prices asked are laughable. Why a neighbour back there is asking 950K, he must be insane!

Also I watch the market. One rather nice flat purchased from new as a BTL round here is now empty and up for sale...

That's not counting the numerous "accidental" landlords in the vicinity that start off failing to sell and end up renting out and periodically trying to sell again...

[P.Pilcher]

Well, the market is undergoing a further predictable change. It was inevitable that interest rates would rise as they are now doing. The problem was when it was going to happen - now we know. Hopefully they won't rise as much as they did 20 or so years ago, when I desided against buying a 4 bed detached house at �39000 because my income could only contain an interest rate rise of 0.5% - it was at 10.5% then and within two years rose to 15%!
To be fair, I think we all expected rents to rise in line with increased money borrowing costs, but they haven't, thus people who have bought with very high gearing are now feeling the pinch. What is also going to cause trouble is those who have purchased and then remortgaged to pay further deposits and so on. They may have done this several times over the last few years as property prices have continuously risen. Now the increased mortgage rates are beginning to bite they may be more than tempted to sell a property. Now if you think about it, this is going to give them a capital gains tax liability which could be substantially more than the equity which such a sale will release (because this has been used to finance the purchase of other property). So they have to sell another and this produces a further CGT liability and so on until their property empire collapses around them like a pack of cards. OUCH! They will also be distressed sellers as H.M. Govt. certainly know how to charge interest on outstanding but unpaid CGT liabilities!

As I have posted before, I went into this business about 7 years ago with my life savings. I had been told by a bank manager that he would accept a gearing of up to 80%. Thus I calculated how much I should be able to borrow based on the principle that my savings were 20% of this sum. It came to over a million! Then I carefully calculated my net return based on the figures of the day: rental 10%, less a month's void a year, maintenance costs and so on. After interest deductions at the rate of the day, I calculated a very pleasantly substantial income. Then on my spreadsheet I started changing some of the parameters to see what effect on my potential income this had. What suprised me most was the sensitivity of this income to capital interest charges. If they went up by a couple of percent, this income vanished!

My target gearing was set therefore at a substantially lower figure, and today is even lower than this - thank heavens!

P.P.

[Brit1234]

I just think its bad all those landlords who are subsidising their mortgages as their rents won't cover the payments. They are the ones which are in danger of damaging house price values if they have too sell, then we all could be in negative equity as properties flood onto the market. If the rents can't cover it with a safety margin then don't buy it.

[peterdo]

Depends on the situation as well I suppose. I became a landlord due to a relocation for work purposes, the market for selling where I was based was somewhat slow due to massive redevelopment and lots of similarly priced properties from rival builders (with SD paid and carpets, cashback etc). Add to that the uncertainty around selling a property in England (I am Scottish btw) whereby a buyer can literally pull out on the day of exchange, that was a risk i couldnt afford.

Therefore, found some tenants and instantly knew I would be subsidising the property, it just happens that unfortunately with rate rises this has increased more than I anticipated. However, if the flat had taken more than 3 motnhs to sell once I vacated I would have been out of pocket by approx �2000 in addition, I wouldnt have been able to purchase a property in my new location and missed out on the �40k in 7 months equity increase on my new property as well as any increases on my property in England.

I suppose in essence it depends why you are doing it. If its an income requirement, you need to make money, fortunately, I have no intention of being a full scale landlord, I have a career in business, therefore, this is in effect an enforced sideline activity!

Although saying that, if I could sell the place at the moment I would! In addition I am actively bringing down the costs of retaining the property due to the squeeze.........just for illustration, on the residential mortgage I had on the flat prior to switching to BTL rates (on the same LTV etc) in October last year I was paying �520, after last week, it will be around �780 per month!

All the best

Pete

[Brit1234]

Here's a interesting video on the poor state of the Spanish property market. It looks like a far larger scale of whats happening in Manchester and Leeds at the moment.

http://news.bbc.co.uk/player/nol/newsid_6900000/newsid_6902100/6902120.stm?bw=bb&mp=wm&news=1

[stanley1]

40% of the government's income comes from housing?

[Brit1234]

The UK government is making a fortune here through the massive house price inflation. Just look at stamp duty limits, capital gains and inheritance tax. Its just the next 3 generation buzz all over.

I think they will try and delay the crash as long as possible due to their revenue gains from house price inflation.

[jeffrey]

The UK government is making a fortune here through the massive house price inflation. Just look at stamp duty limits, capital gains and inheritance tax. Its just the next 3 generation buzz all over.

I think they will try and delay the crash as long as possible due to their revenue gains from house price inflation.

More or less- but:
a. stamp duty does not now exist (it's been replaced by Stamp Duty Land Tax); and
b. SDLT is payable only on a purchase, not when a property value merely rises.

[Brit1234]

Any one hear got a residential mortgage for a buy to let? :eek:


Concerns are growing that many amateur landlords have fraudulently used residential mortgages to fund their buy-to-let properties.

These so-called “disguised” buy-to-lets occur when landlords – typically those with a handful of properties – pose as owner-occupiers to obtain cheaper and more flexible residential mortgages on property they have little or no intention of living in.

The financial regulator has uncovered the practice following a recent downturn in the buy-to-let market. Stagnant or falling prices for some city centre apartments have led to a number of landlords trying to offload cut-price properties quickly at auctions. The Financial Services Authority (FSA) says analysis of properties sold at auction last year found that although many were commonly classed as owner-occupied by their sellers, 80 per cent were in areas where buy-to-let was prevalent, suggesting that many were “disguised” buy-to-lets.

The FSA said that consumers abusing residential mortgages often did not understand the risks associated with the buy-to-let market and did not have alternative sources of finance to cover “empty” periods when they were not receiving rental payments.

Landlords struggling to rent out their properties have also had to deal with a slowdown in price growth. The average price of a new flat increased by just 0.8 per cent between the second quarter of 2004 and the first quarter of 2006, according to the FSA, leaving many amateur landlords with poorly-performing investments. The FSA said the percentage of repossessed properties appearing at auctions had risen to 25 per cent in December 2006, up from just 8 per cent in February of last year. It believes this number could increase in coming months as higher interest rates bite.

The FSA said: “Where questionable activity has been identified this is being raised with lenders.”

Ironically, buy-to-let mortgages are now much closer in price to residential loans due to competition and lenders’ greater experience with the sector. Giraffe Money, for example, has a three-year fixed-rate residential loan at 6.08 per cent. Its buy-to-let equivalent is only marginally more expensive at 6.15 per cent. Cheshire Building Society has a two-year buy-to-let fixed rate at 5.7 per cent while its equivalent residential loans vary from 5.54 per cent to 6.24 per cent, depending on the arrangement fee.

But lenders and brokers admit there are still some attractions to using residential loans to fund buy-to-let properties. One is that they usually allow larger amounts to be borrowed against a property’s value – 95-100 per cent compared with a typical maximum of 85 per cent for buy-to-let. Residential loans also provide capital gains tax relief because no CGT is paid on the sale of a main residence. However, residential loans do not allow the landlord to claim tax relief on interest payments.

Rob Thomas, senior policy adviser at the Council of Mortgage Lenders, has been monitoring the disguised buy-to-let sector closely this year. He says: “Our advice is that if you are lying to your lender by using disguised buy-to-let you are effectively committing fraud and people who do that will often face the consequences, so the best policy is to be honest with your lender.”

Mark Harris, managing director at London broker Savills Private Finance, warns: “Borrowers need to be extremely wary before trying to use residential loans to fund buy-to-let. There could be serious financial and legal consequences if they are found out because they are breaking the terms of their agreement. Anyone who wants to get into buy-to-let should consult a good professional mortgage broker about a buy-to-let loan.”

He adds that there is plenty of choice available, and it is no longer necessary to pay such a premium on buy-to-let loans compared with residential deals.

Linda Will, managing director at Accord Mortgages, which sells residential home loans exclusively through intermediaries and is soon to launch buy-to-let mortgages, says: “People should be aware that lenders are not daft. We have a lot of sophisticated electronic fraud checks these days to provide an early warning of potential abuse. If people blatantly lie on their application they will get caught out.”

Ray Boulger, senior technical manager at John Charcol, says in some cases buy-to-let loans are actually now cheaper than residential loans, eroding one of the main reasons to cheat.

For borrowers who are discovered using disguised buy-to-let, the penalty is usually an extra administration fee – typically £75-£500 plus a penalty interest rate.

This could add up to an extra 1 percentage point on loan rates, pushing, for example, a 5 per cent mortgage up to 6 per cent or more, adding thousands of pounds to annual payments. Penalties are lower or non-existent if borrowers have informed lenders in advance about letting a residential property – so-called “authorised lets”, say, when working abroad for a year.

Copyright The Financial Times Limited 2007
Published: August 3 2007 17:37 | Last updated: August 3 2007 17:37
http://www.ft.com/cms/s/467700d6-41b0-11dc-8328-0000779fd2ac.html

[Brit1234]

Interesting article of the dangers of buying off plan properties for portfolios. It may be the trigger point for a little turbulence in the next couple of years. Any land lords here who have done this and what are your thoughts?


Buy-to-let landlords head for the exit

The proportion of buy-to-let (BTL) landlords selling properties has risen to its highest level for two years as agents report a glut of flats for sale. Could the property market be turning down?

The Royal Institute of Chartered Surveyors (RICS) produces the authoritative quarterly survey on the UK BTL market. Its latest shows that in the three months to April, 5.2% of landlords sold properties, a sharp rise from the 4.1% of the previous quarter.

Falling yields and rising interest rates were the probable triggers, but while in most areas the conventional residential housing market is pretty tight, many agents now report gluts of flats for sale in many parts of the south-east - a development I’ve been predicting for several months.


Demand for lettings is over-concentrated
And here’s a straw in the wind: individuals now account for the highest-ever proportion of new lettings (83%), while students now barely feature in the figures and corporate letting are down to their lowest level of under 10%. Students have got nice new purpose-built student blocks which are financed by pension funds, so they don’t need to rent normal flats, and most companies with spare cash will buy a flat rather than rent it. Sharply lower demand from two groups of potential tenants isn’t good news for landlords.


Leave early to avoid the rush
You may think that one in 20 landlords selling properties isn’t that many, but the price of property is set at the margin - it’s the extra few properties for sale in an area that bring asking prices down. With another interest rate rise almost certain in the next few months, the returns for new BTL investors are falling, and though this hasn’t yet been reflected in new BTL loans, that’s the next area where I expect to see a significant change in the trend in the next few months. If we get lower demand and rising supply, there’s only one way prices can go.


Any BTL landlord thinking about taking chips off the table should do so fast, in my view - it’s best to get in ahead of the rush. RICS predicts a ‘soft landing’ for BTL - well, they would say that, wouldn’t they? In the very long run, you may still do OK from BTL, but the next few years are likely to see price declines for new-build, especially blocks that have been sold off-plan and where early buyers are looking to ‘flip’.


It isn’t cool to bank on a greater fool
When I search for ‘off plan’, I get links to hundreds of firms promoting high-risk property investment from here to Thailand. That alone should tell you it’s getting too warm out there.


Off-plan investing was huge in the US in 2002-05, but has since crashed and burned. The concept is simple and terribly appealing. For signing up to buy a flat in a new-build block, you only need to put down a 10% deposit - sometimes even less. If - as you and the developer hope - prices keep rising, you sell your flat on before it’s even built for a fat profit. How fat? Well, if the price of a £200,000 flat rises to £215,000, and you only put down a 10% deposit, then you have made a gain of £15,000 on an outlay of £20,000, which is a 75% profit margin. In the US, hundreds of thousands of people played this game and ‘flipped’ their ‘condo’ purchases at a profit from 2002 onwards. But, as in ‘Old Maid’, those left holding the cards when it all went wrong in 2006 lost not just their deposits - because the contract required them to pay the full price. Many were bankrupted as they had to buy flats they had contracted to pay for £200,000 but that they could only sell for £150,000. The US property market is still falling.


Rental fictions
In the UK, the game has been a little more sophisticated. Developers have joined forces with ‘clubs’ or marketing operators to sell off-plan at a discount and with rental guarantees. Often, the rental income guaranteed for the first year or two is well above the actual free market rent in the area. That makes the flat look like a good investment. But its real capital value depends on the free market rent it can command, so unless there’s a big rise in rents after you buy, you could find the resale value lower despite the discount. I’ve watched with some amusement over the past three years as UK mortgage lenders have regularly upped their Loan-To-Value maximums, lowered the ‘rent cover’ requirements and generally made getting a buy-to-let mortgage easier than a homeowner one.


Bankers will even tell you with straight faces that lending on buy-to-let is less risky than lending to salary-earning homeowners. You don’t have to think hard for long to realise that simply cannot be true. One thing I’ve learned in 35 years of watching the financial markets is that when bankers fall over themselves to lend money on something, it’s better to be a seller than a buyer.


One way of looking at off-plan purchases is that you are going into partnership with the developer. Your deposit replaces costly (and maybe hard-to-get) bank lending so that the place can get built. But if the developer doesn’t sell enough off-plan, and can’t get enough bank finance to complete, then the project could grind to a halt, locking up your money until some sort of sale can be achieved. There are thousands of unfinished ‘condos’ all over the US where off-plan investors may eventually get back a few cents on each dollar they invested.


Flip off abroad
So far, UK off-plan buyers have been able to flip profitably, thanks to falling interest rates and rising rents. Now interest rates are rising. Rents have risen too, but not nearly as fast as mortgage repayments. So increasing numbers of potential buyers, especially younger ones, are deciding the game is more profitable overseas- Bulgaria, Turkey, Croatia, Thailand. That’s where the off-plan party has migrated. I guess it’s natural for a party to migrate to where the booze is cheaper and the cops are always fast asleep.


In these countries the off-plan game gets much, much riskier. Many of the firms doing the developing are one-off cowboys. Local law may make it hard to establish 100% bomb-proof legal title; there’s not a well-developed local rental market, so what the actual free market rent of a property is may be hard to establish (and could be affected anyway if there’s a huge rash of development going on); the promoters, who earn big commissions on sales from the developers, are unlikely to be around to deal with any problems that arise; local mortgage lenders may prove somewhat more muscular in repossessing a property if you don’t pay your interest than would be the case in the UK.

Both here and in the relevant countries, property investment is unregulated and caveat emptor applies in its ‘red in tooth and claw’ form. Few countries have a developed framework of commercial law governing property investing, which means going to court will be expensive.


Greater foolishness
In fact, off-plan ‘investing’ is not investing at all - which implies a long-term commitment- but speculation. It is based on the expectation that there will be willing buyers you can sell to at a good profit. And the big risk is: what if there aren’t? The ‘greater fool’ theory says that it’s OK to be an idiot when you buy something so long as there’s an even bigger idiot who you can sell to. But as US off-plan speculators have discovered, the ‘greater fool’ game gets very ugly when the music stops and the idiots suddenly all wise up. So the rule you should apply if you want to join this or any other speculative game is: only play with money you can afford to lose.


In the worst-case scenario – the one being played out right now in the US - you could lose all of it. Do not kid yourself that there are special factors that make it different here, there or anywhere else. The present off-plan property game in undeveloped countries is about as obvious a ‘bubble’ as I’ve seen in the past 30 years. After the boom there will be a bust. Leave the party while there are still plenty of people arriving if you want to avoid a nasty hangover.

by Chris Gilchrist
June 07 2007
http://money.uk.msn.com/Mortgages/BuyToLet/article.aspx?cp-documentid=5182780

[welshgold]

Very interesting, thanks for posting

[Brit1234]

Just watched this news story on Channel 4 news. They stated that not only does the UK has a sub prime sector (I thought US only) and also that the dealers have been putting up interest rates 2-3% in the last couple of weeks due to the credit crunch. :eek:

An interesting watch.


http://www.channel4.com/news/articles/business_money/subprime+borrowers+take+a+hit/825952

[jeffrey]

"Sub-prime" is a dreadful euphemism. It means inferior/secondary/lousy/risky borrower (often with CCJs).
There are lots of profligate lenders involved here and there always have been. See Sunday tabloids for details!

[Colincbayley]

Just watched this news story on Channel 4 news. They stated that not only does the UK has a sub prime sector (I thought US only) and also that the dealers have been putting up interest rates 2-3% in the last couple of weeks due to the credit crunch.

An interesting watch.


http://www.channel4.com/news/articles/business_money/subprime+borrowers+take+a+hit/825952

It's not an issue, why don't all these lenders just go to 'Ocean Finance' they can combine all their debts and then there will just be one low monthly payment! Easy!!!! :D

[jeffrey]

Yes. Apparently they will pay all your debts for you!
Is "Ocean Finance" like "Ocean's Eleven/Twelve/Thirteen"?

[Colincbayley]

Yes. Apparently they will pay all your debts for you!
Is "Ocean Finance" like "Ocean's Eleven/Twelve/Thirteen"?

Yes, just with a little less money!

[jeffrey]

Yes, just with a little less money!

And no George Clooney or Brad Pitt either.

[Brit1234]

"The sub-prime sector represents around 1m (9%) of the 11.7m mortgages in the UK. Traditionally a niche market dominated by self-employed borrowers, it has grown rapidly after lenders targeted people who would find it hard to qualify for a conventional loan."

from Guardian today.

So effectively couldn't destabilise the market more? Not only would be looking for where the US debt had been repackaged but the UK debt as well.:confused:

http://money.guardian.co.uk/houseprices/story/0,,2173874,00.html

[Brit1234]

In these times of market instability C4 news has a article how it affects landlords. Article below:

The buy-to-let mortgage market has been hit by the recent turmoil in global credit markets, with firms tightening their lending criteria and raising fees.

Financial information group Moneyfacts said that while the prime residential lending market had so far been largely unaffected by the problems in financial markets, lenders in the buy-to-let sector were becoming more cautious.

It said there had been a number of changes to products during September, with lenders tightening their lending criteria, increasing fees and withdrawing some products completely.

The group said the most obvious change had been an increase in the so-called minimum rental cover demanded by some lenders.

This refers to the level of rent on a buy-to-let property relative to monthly mortgage repayments.

Moneyfacts said some lenders had increased the minimum rental cover from 100% of monthly mortgage repayments to up to 110%, while others had withdrawn products that allowed lower levels.

It said the move bucked the trend seen in recent years of reducing the level of rental income cover needed, which it claimed was a "definite sign" of a more cautious outlook.

At the same time the group said some lenders had withdrawn their entire range of buy-to-let mortgages, while others had withdrawn variable and tracker rate products.

Arrangement fees have also hit new records, with some lenders charging 5% of the amount borrowed to take out a mortgage, as fee income becomes a key source of revenue for lenders.

http://www.channel4.com/news/articles/business_money/buytolet+lenders+more+cautious/852352

[Brit1234]

Hi here is the video links to the Money Programmes Buy to Let and Below Market Value (BMV) purchases. It shoes how landlords are ditching traditional buy to lets in favour of BMV ones instead.

Part 1
http://uk.youtube.com/watch?v=4FBGbVLi0tU

Part 2
http://uk.youtube.com/watch?v=VW2wYredMjM

Part 3
http://uk.youtube.com/watch?v=xPTKwskSSQ8

[Rodent1]

Thanks Brit.....I missed it on TV...

S

[caroline7758]

BMV, otherwise known as EDP- Exploiting Desperate People!

[Brit1234]

Hi
Just watched this tv program on housing/Buy to Let in Reading and Brighton. It looks specifically at Brighton in the current situation with a panel of so called experts discussing the issues.

Click on the video below and then choose the South Video. Lots of different views from Landlords, MPs, economists, estate agents, etc.

http://news.bbc.co.uk/2/hi/programmes/politics_show/default.stm

[Brit1234]

Hi

This forum gets a mention in the Guardian today. Article below:




Tax changes fuel great escape from buy-to-let

With capital gains tax about to fall to 18 per cent, a flood of properties is likely to hit the market and add to credit crunch woes, writes Andrew Moody

Buy-to-let investors across the UK are telling estate agents to offload their properties to take advantage of new tax rules. Chancellor Alistair Darling passed up the opportunity in his first Budget to go back on controversial changes to CGT, which means that, from 6 April, landlords will benefit from a much lower tax rate of 18 per cent when selling property.

Until now, some higher-rate taxpayers have paid up to 40 per cent on any gains made when disposing of an investment property, which has proved a disincentive for many to sell. But property experts believe the reduced tax rate could result in a wave of new properties coming on to the market, adding to the gloom that the credit crunch has cast over house prices.

Jeremy Leaf, spokesman for The Royal Institution of Chartered Surveyors, says: 'Some landlords are planning to take advantage of the new CGT rate and are putting properties on the market. They are deciding to offload properties that are perhaps not in the right locations or those that are the wrong type and don't fit any longer within their portfolios.'

Estate agents around the country are already reporting a surge of rental properties coming on to the market. David Potter, owner of Potter & Co estate agents in Norwich, says he now has a number of properties on his books from landlords wanting to take advantage of the new capital gains tax rate. 'They are taking the opportunity to offload some of their investments,' he says. 'I think they see the tax change as a good opportunity to realise some of their gains. They can see that capital prices are on the slide and that they might have to wait five years for values to grow again.'

Jonathan Clayton, partner at Bentley Higgs & Co estate agents in Blackpool, says a number of landlords want to sell some or all of their properties. 'They are saying to me that tax is a factor in the decision and that they want to sell after 5 April. By taking away taper relief, the Chancellor has removed a major incentive for holding property long term,' he says.

Landlord Anthony Lock, who began acquiring property in 1996, has 12 flats in Kensington, Olympia and Shepherds Bush in west London. He says that the CGT tax regime has historically made the private rented sector very inflexible: 'One of the problems with building up a portfolio is how to realise the gains. And from the next financial year, it will be easier to dispose [of property] than in the past. As a landlord you are not able to respond to the supply and demand conditions in the rental market. You can't just sell a property and buy another one where there is stronger rental demand without paying punitive capital gains tax.'

The new CGT rate provides the biggest benefit to those landlords who have bought their properties relatively recently, as they would have been most likely to have to pay the full 40 per cent charge previously applicable. Those who have held their properties for a long time would have benefited from taper relief (now being scrapped), which reduced the amount of CGT payable to a minimum of 24 per cent, 6 per cent above the new rate. The Chancellor has also dispensed with 'indexation allowance', an extra CGT buffer for properties bought in the 16 years after 1982.

Rob Donaldson, 36, a corporate finance adviser who has a number of buy-to-let properties in and around London, says: 'The shorter-term investors who are not getting the returns they had hoped from their properties and who may be spooked by the prospect of a downturn may try to sell.

'For longer-term investors, I doubt the difference between the new rate and what it is now is a sufficient incentive to do so. I expect you will instead see a churn of property from newer investors to those who have been in for a while.'

John Whiting, tax partner at PricewaterhouseCoopers, says he is not surprised that some landlords are deciding to sell. 'Since the new rate was introduced, people have been revising and planning their affairs accordingly,' he says.

However, not everyone welcomes the change. Tom Entwistle, editor of Landlordzone.com, an online landlords' forum, says the tax reforms may be very disruptive. 'It takes away the incentive for landlords to be long-term investors, which was the principle behind taper relief. Providing property for people to live in ought to be undertaken on a long-term basis.':D

Anthony Capstick, 50, who runs an IT consultancy business in Clitheroe, Lancashire, believes it is wrong for sudden tax changes to throw everyone's long-term plans into chaos. He has built a property portfolio, which includes a flat in Clerkenwell, a house in the Lake District and a three-bedroom cottage at Staffin on the Isle of Skye, which is currently for sale, over a period of 20 years.

'Building the portfolio has been part of the long-term financial planning of my wife and myself. It is, therefore, very disappointing when the Chancellor comes along and moves the goalposts,' he says.

Peter Bolton King, chief executive of the National Association of Estate Agents, says it will be very difficult to predict the behaviour of landlords over the coming months. 'Landlords will be weighing up whether, if they realise their gains now, they will risk missing out on further gains in the medium to long term,' he says.

http://www.guardian.co.uk/money/2008/mar/23/property.tax

[Brit1234]

Hi

I saw this video today taking about the issues of buy to let investors in the current climate. It may be of interest

http://www.channel4.com/news/article...ytolet/1913447

By: Katie Razzall An exclusive Channel 4 News investigation has discovered fresh evidence that Britain's biggest buy-to-let lenders are tightening the screws and not just by hiking interest rates.


In a survey of the top 10 buy-to-let lenders, we found that most are demanding more equity, higher rental income, and bigger arrangement fees.

Some aren't accepting any new business at all and today two big high-street names, Natwest and RBS, have increased the size of the deposits they demand for mortgage borrowers from 15 to 25 per cent, effectively pulling out of most of the buy-to-let market.

[jeffrey]

One high-street name, really. RBS owns NatWest.

[Brit1234]

Hi, here is a news report showing how mortgage brokers are still getting customers to lie about their incomes to get a mortgage and even provide fake pay slips.

http://video.news.sky.com/skynews/video/?&videoSourceID=1317242&flashURL=/feeds/skynews/latest/flash/mortgages_270508_0900.flv


This is the famous lier loans that have helped keep properties overvalued and contribute to the British Sub Prime market that you will hear more about in the coming months as prices fall.



Has anyone here been offered such like? It looks like the FSA is really starting to clamp down as well as the banks.