BTL as a pension fund - why not?

[BoRED S2upid]

mrpurple said:

Not bought any BTL properties lately, selling them off as it happens, however can you actually get mortgages where the rent doesn't cover the mortgage nowdays?....Couldn't when I was buying them a few years ago.

I always made sure I had min 40% deposit just in case interest rates went up...which it will again at some point I would think.

Edited by mrpurple on Wednesday 26th November 23:56

Re the 40% deposit. I can see this happening before any tax increases in the private BTL sector. Tax increases would be massively unpopular but strengthening bank lending to insisting on 40% deposits would be easier and slightly more popular.

I bet a lot of people out there have huge residential mortgages and big BTL exposure that they couldn't cover without tenants or are on interest only which is a massive problem waiting to happen.

[BL Fanboy]

98elise said:

As a landlord I would happily build the houses I let. Its preferable to buying IMO. The problem is a lack of building land (believe me I'm looking)

Why is it distasteful investing in a basic human need? What are your feelings on food, energy, clothing, water, sanitation etc. what about banks who loan mortgages? Your feelings are being swayed by the lack of cheap housing for those that want to buy. I've rented when I've wanted to rent, and I was glad someone was providing that service. If it was a choice then would you be unhappy? The issue is a lack of choice for some renters, not that people are providing a service.

As you can see from some of the posts on this and other threads, its not a huge cash cow for the owner, and it comes with some risk.

Edited by 98elise on Wednesday 26th November 17:33

Fair enough and fair play to you.

Having watched the FTSE this last month and seen it drop then rise back up I'm not too happy about the volatility and overall performance my FTSE invested stakeholder pension either.

Its the income tax relief angle that's sold by providers as being the golden opportunity - yes, granted more money is in your pot for longer than it might have been because of the tax relief but you're still going to get taxed on the money on the way out when you draw it unless you want to try to survive on less than £10500 currently - and you'd pay tax on your interest in other savings.

Bottom line is, to me, BTL is a business and it needs to be treated as such. Too many people it seems to me do it on the side and don't know the rules such as summarily wanting to inspect "their" house or not protecting the tenants deposit. ETC ETC.

I always got a bit sick when watching Homes under the hammer whereby a well to do person would buy a place, magnolia and beige carpet it, everything for cheapness and generally look very smug. Just always got the impression that the "landlord" wouldn't lower themselves to actually live in one of their rental properties (a small terrace or flat) and it was really only intented for plebs.

I might have got in to BTL if I could get my head around the social aspects to it. Yes I know we have to look after ourselves but I'd like to try and do it ethically if I can.

[Eric Mc]

gibbon said:

That, in one ill thought out move would kill not only the housing market but the uk economy. How could you ever move house? What a nonsense idea.

If the economy is dependent on people buying and selling houses - we have a serious problem with the way the economy works.

[rovermorris999]

anonymous said:

[redacted]

This is what I've done although it wasn't planned really. I live on the coast in a remote area and the property next to me shares my access track across my land. The old chap who lived there pegged it and it looked like a noisy family was likely to buy it. Having been used to peace and quiet and dreading the thought of teenagers whizzing up and down the track on quad bikes past our house we decided to buy it and either let it full time where at least we'd have the choice of who lived there or do it as a holiday let.
We decided on a holiday let as it was much more lucrative. One week let in the summer is more than a month's full-time rent so it doesn't take many weeks to be well ahead. We have the advantage of being next door to the let and service it ourselves so if you can't do that you'd need someone to do it for you. We have a website through which we do all the booking so we aren't pestered with phone calls asking if it's available. We are also lucky in that November and December are also peak months (although at a lower rent) due to a local attraction plus we have direct private beach access.
There are some CGT benefits as well. We've also benefited from a business rates holiday for the last few years.
You can of course use the property yourself for holidays. HMRC rules say it must be available to let for 20 weeks per year and actually let for 10 to qualify as a holiday let business.
If you are remote from the property then you'd have the expense of having someone manage it for you which we don't have, I'd imagine that would be expensive if you use a holiday cottage company but less so if you can find someone trustworthy locally. I can easily let for around 35 weeks a year so it's a decent income for about four hours work each weekend prepping it. We only do full week bookings as it's easiest for us, short breaks are a pain to organise.
A full-time conventional let would be less work but it's nice not having neighbours!

[jdw1234]

I think what puts me off being a landlord is fond memories of our university house - parties, tearing the carpets by snowboarding down the stairs, letting off fireworks inside and riding a motorbike through the house.

Those were the days!!

[Rovinghawk]

BL Fanboy said:

I might have got in to BTL if I could get my head around the social aspects to it. Yes I know we have to look after ourselves but I'd like to try and do it ethically if I can.

Surprisingly easy: rent out a decent place at a sensible price to a quality tenant. Have a legal tenancy contract but have a gentleman's agreement on the side that any problems will be sorted quickly & quietly. Both sides understand give & take.
It's worked very well for me for many years.

[BoRED S2upid]

jdw1234 said:

I think what puts me off being a landlord is fond memories of our university house - parties, tearing the carpets by snowboarding down the stairs, letting off fireworks inside and riding a motorbike through the house.

Those were the days!!

Were you one of my tenants?

[jdw1234]

BoRED S2upid said:

jdw1234 said:

I think what puts me off being a landlord is fond memories of our university house - parties, tearing the carpets by snowboarding down the stairs, letting off fireworks inside and riding a motorbike through the house.

Those were the days!!

Were you one of my tenants?

HeheheIn our defence we always fixed anything we broke!

I think he was quite sad when we left as he didn't get to come any more parties or have daytime beers/spliffs whilst his wife thought he was maintaining the house/collecting rent.

Actually, maybe student BTL is a good idea!!

[nikaiyo2]

The only safe pension is in the public sector, we all know that the next labour government WILL act against BTL in one way or another, especially if Milliband continues his lurch to the left, it is essential for equality and fairness bla bla bla. He will then come after the private pension tax breaks. So if you want a good pension, NHS, teach, police fire thats about it

I have a number of BTLS, including two 2 bed houses in not so good areas, that had been let to mums on HB, just served section 21 notices on them as I am getting increasingly nervous about what Milliband will do when elected. I want them sold and gone before May, so that is 2 families gone from well maintained decent housing. They are going to go on the market for the going rate for that area, so not sure how this will reduce prices in that area...

[gibbon]

Eric Mc said:

If the economy is dependent on people buying and selling houses - we have a serious problem with the way the economy works.

That's not what I said.

Think about it, you work hard, save up, buy a house. Live in it for ten years.

Property prices may fluctuate, but it doesn't matter, you bought a home for your family that you could afford, value doesn't matter anymore. Work however requires you to move to a different part of the country, so you need to sell your home, and buy another home, no speculation, just geographic need. You got to sell and are faced with a 28% CGT bill, plus the associated other costs of buying and selling houses, meaning you can no longer afford to buy a new home of a similar quality to your old home.

If at all possible any rational of mind person we remortgage the old home and use the proceeds to buy the new home whilst renting the old. Saving a potential 28% tax bill on any increase. It simply would not work.

Stamp duty at the higher end of the market is already restricting movement for people. This would kill it.

Yes, the substantial money made from stamp duty, building, estate agents, legal associated work etc etc would take a huge hit, but so would all industries stuck with a static immobile working force with no incentive to mobilise and re-educate, reskill, learn, develop and further themselves.

Horrific idea.

Edited by gibbon on Thursday 27th November 11:19

[Eric Mc]

And yet - in other countries, where there is not this exemption for your main residence, the economy has not ground to a halt.

It is the greatest tax break in the UK - and as far as I can see, it has little or no impact on job flexibility.

If I were Chancellor, I would be strongly reconsidering the massive tax bias in favour of land and property acquisition inherent in UK taxation and looking at easing the tax burden on genuine productive industries.

[gibbon]

Eric Mc said:

And yet - in other countries, where there is not this exemption for your main residence, the economy has not ground to a halt.

It is the greatest tax break in the UK - and as far as I can see, it has little or no impact on job flexibility.

Which countries? What tax levels?

Europe isn't exactly booming at the moment.

[Eric Mc]

gibbon said:

Which countries? What tax levels?

Europe isn't exactly booming at the moment.

Are you implying that the economic problems of many parts the developed world (not just Europe) are caused by over taxation of peoples' main home?

I would argue the complete opposite - that generous taxation policies on land and property have encouraged investment and speculation in precisely the wrong areas.

[gibbon]

Eric Mc said:

Are you implying that the economic problems of many parts the developed world (not just Europe) are caused by over taxation of peoples' main home?

I would argue the complete opposite - that generous taxation policies on land and property have encouraged investment and speculation in precisely the wrong areas.

No, im not, it was a bit of a flippant remark if im honest.

So which countries tax growth on primary residential property and at what kind of rates? Im genuinely interested.

[LucreLout]

rotarymazda said:

All the next generation are doing are trying to do is house themselves with some control over their own lives
Snip
The winners are farming the losers.

You'll always have winners and losers in life. Tax won't alter that.

All investment ultimately relies on someone buying the asset from you for a higher price later, or paying you money to use the asset during your period of ownership.

Gordon Brown screwed my generation out of our private pensions. Time is not on our side, as 40 something and poor pension provision requires immediate action. What else do you expect people to invest for retirement in?

[Eric Mc]

If you do a quick Google, you will find that in some tax regimes, there is not the complete exemption on "sale of home" that we have in the UK.

California, for example, only exempts part of the proceeds. New Zealand will tax you if they find that you hadn't lived very long in the home. In Germany you must live in your main residence for 10 years or more to escape their CGT.

Also, in other countries, annual taxes based on property values are not uncommon. Ireland has just introduced such a tax.

The UK also allows a great deal of flexibility in allowing people to chose which of their properties is or was their main residence. It was this flexibility which was being exploited by MPs in their "home swapping" behaviour. You do not find such generous interpretation of "main residence" in other countries.

[Mark Benson]

gibbon said:

Huntsman said:

We seem to have drifted off a bit since I asked the question, but all interesting stuff.

As a datapoint, I bought my first house in 1997 for £53k on a £14k graduate engineer salary, same house today is £160k, we're taking on engineering graduates at work at £22k. They can't do what I did by a long way.

Anyhoo, nothing in this thread screams don't do BTL. For sure, there's risks, but as as long term plan to bring in come income?

15 years ago the FTSE 100 was over 6k, but less than 7k, this year, its been over 6k, but less than 7k with a couple of massive dips along the way, suppose I invest my cash in the markets and plan to retire when a massive dip happens? I have to wait? Does look like other forms of investment are much better than BTL?

You are discounting dividends, its quite a different story if you take dividends into account.

Also, something people tend to overlook is that the single asset they've sunk all their cash into may not be performing well when they wish to retire.
This is why diversification might not bring the highest return, but as a pension it has other advantages.

My dad diversified all his life, than 3 years before he retired for some reason (even he doesn't know why he did it) he followed advice from a financial advisor to put a lot of his cash into Equitable Life - what should have been a £50k a year pension is now worth peanuts and he's relying on the assets he didn't sell to provide a (much reduced) pension for him and mum. It taught me a valuable lesson - don't rely on any one source of income for retirement.

Remember 2009-2011 when house prices fell and the FTSE dipped to 5k? Gold was worth $1900/oz and rental yields rose. If you were relying on the sale of your main house (as many now are) or shares (or a pension based of the stock market) for your pension, you'd be stuck. If however you'd bought gold steadily through the years and could rely on a couple of rental places to bring in £1k a month, you'd be far better off.

The question is, could you have predicted which of those assets would have performed best at that time or more specifically - can you predict whether rental houses, as your only form of pension will perform sufficiently well throughout the duration of your retirement to give you a reasonable income?

If not - spread the risk.

[anonymous-user]

Eric Mc said:

And yet - in other countries....

...they have far higher proportion of renters and their economies haven't ground to a halt.
Many of them do have higher levels of taxation though and those pretty much have ground to a halt.
if you want lower UK house prices shrink your population or build more. It's not difficult.

[Eric Mc]

You could argue that perhaps economies with far more renters behave better - as they allow a much better flexibility of movement of the workforce.

It would be useful to look at the ratio of home ownership to state of economy and see which countries come out best.

[LucreLout]

Eric Mc said:

It is the greatest tax break in the UK - and as far as I can see, it has little or no impact on job flexibility.

Then I'd respectfully suggest you know little about taxation. There are far more lucrative tax breaks than PPR exemption from CGT.