BTL as a pension fund - why not?

[Rovinghawk]

s1962a said:

Yes, I am. Rather that getting so defensive, can you explain why you think something like housing should be allowed to be used in this way with no penalty?

I'll reverse the question- why should there be a penalty for buying a house & renting it to those who can't afford a deposit or just want a temporary place to live?

[s1962a]

Rovinghawk said:

s1962a said:

Yes, I am. Rather that getting so defensive, can you explain why you think something like housing should be allowed to be used in this way with no penalty?

I'll reverse the question- why should there be a penalty for buying a house & renting it to those who can't afford a deposit or just want a temporary place to live?

I'll explain my reasoning if you'll answer the question i posed as well.

BTL landlords and first time buyers compete against each other to buy the same properties, thus one purchasing a property makes it theoretically more expensive for the other type of buyer for future properties - assuming supply remains constant and it's a simple supply and demand scenario.

So you have Dave and his wife who is expecting, looking to put an offer on a property that is worth £200k as a starter home for their upcoming family. They have a deposit of 25% to put down and the mortgage company have agreed the remainder as a mortgage in principal.

On the other hand you have a BTL Landlord who puts in the same offer for this property as the rental yields are acceptable.

The stamp duty they pay and any other charges are equivalent for both types of buyer. Fair enough. But if the couple want to secure this property they either have to pay over the odds, or chase the remaining properties that weren't bought by BTL investors.

Now lets change the scenario so that the BTL landlord has to pay a land tax of 1% of the (arbitary) value of the property each year, which the couple will not have to pay. This extra tax is put into a fund to run schemes like help to buy or similar. This extra tax makes the yields for BTL less attractive so either rents go up (assume there is competition so not easy for a single landlord to raise rents on their own), or the BTL landlord factors in a lower yield to buy the property.

The BTL landlord may offer less for the property, thus putting the couple in a more favourable position to purchase the property, and making it less likely the prices will increase as much as they have as the main competition for house prices will be between owner occupiers, and less so with BTL landlords.

[LucreLout]

s1962a said:

I'll give you an example. A landlord I came across has a portfolio of 20 properties plus in London. He started buying them in the 1970's and most of what he has is mortgage free and out on rent. I am sure he is a good and honest person and pays tax on the rental income as per the rules, but those are 20 properties that are not owner occupiers and being used as an investment vehicle.

Yes, but why do you perceive that to be a bad thing?

[LucreLout]

s1962a said:

Why should this 3 bed house be used as an investment vehicle with virtually no penalty for taking it out of the owner occupier market?

It has no negative impact on the economy. Just the opposite once taxes are taken into account. Taxation doesn't exist to pander to the whims of GYPSYs (per a very funny and extremely accurate link someone else posted).

Edited by LucreLout on Friday 28th November 13:25

[LucreLout]

s1962a said:

A better question would be, why is the UK limited housing stock allowed to be used as an investment vehicle, with virtually no penalty for doing so.

Penalising investment rarely ends well for advanced economies.

[s1962a]

LucreLout said:

s1962a said:

I'll give you an example. A landlord I came across has a portfolio of 20 properties plus in London. He started buying them in the 1970's and most of what he has is mortgage free and out on rent. I am sure he is a good and honest person and pays tax on the rental income as per the rules, but those are 20 properties that are not owner occupiers and being used as an investment vehicle.

Yes, but why do you perceive that to be a bad thing?

It's no bad thing to have BTL or be a landlord at all. But to make it an even playing field between owner occupiers and those looking to profit off housing is what I disagree with.

[s1962a]

LucreLout said:

s1962a said:

Why should this 3 bed house be used as an investment vehicle with virtually no penalty for taking it out of the owner occupier market?

It has no negative impact on the economy. Just the opposite once taxes are taken into account. Taxation doesn't exist to pander to the whins of GYPSYs (per a very funny and extremely accurate link someone else posted).

Yes, it does. It pushes up prices as demand > supply.

[pork911]

s1962a said:

I'll explain my reasoning if you'll answer the question i posed as well.

BTL landlords and first time buyers compete against each other to buy the same properties, thus one purchasing a property makes it theoretically more expensive for the other type of buyer for future properties - assuming supply remains constant and it's a simple supply and demand scenario.

So you have Dave and his wife who is expecting, looking to put an offer on a property that is worth £200k as a starter home for their upcoming family. They have a deposit of 25% to put down and the mortgage company have agreed the remainder as a mortgage in principal.

On the other hand you have a BTL Landlord who puts in the same offer for this property as the rental yields are acceptable.

The stamp duty they pay and any other charges are equivalent for both types of buyer. Fair enough. But if the couple want to secure this property they either have to pay over the odds, or chase the remaining properties that weren't bought by BTL investors.

Now lets change the scenario so that the BTL landlord has to pay a land tax of 1% of the (arbitary) value of the property each year, which the couple will not have to pay. This extra tax is put into a fund to run schemes like help to buy or similar. This extra tax makes the yields for BTL less attractive so either rents go up (assume there is competition so not easy for a single landlord to raise rents on their own), or the BTL landlord factors in a lower yield to buy the property.

The BTL landlord may offer less for the property, thus putting the couple in a more favourable position to purchase the property, and making it less likely the prices will increase as much as they have as the main competition for house prices will be between owner occupiers, and less so with BTL landlords.

you haven't answered the 'why?'

[LucreLout]

jdw1234 said:

Won't the generation that can't afford housing be in charge roughly when everyone who is planning to use BTL for a pension retires?

Is 32 generation X or Y?

Y. Gen x ended sometime late 70s, so 32 would be an early Y.

[LucreLout]

s1962a said:

Yes, it does. It pushes up prices as demand > supply.

Higher prices mean higher taxes which funds more public spending which in a fit of accounting fiction, pushes up GDP.

[Eleven]

DMN said:

Sheepshanks said:

Eleven said:

I disagree with this. I bought my first house 30 years ago; I had to move out my home town to get it and it took two of us working full time to buy it. That was pretty much the norm in those days.

Not sure it was - we bought in that time-frame and the mortgage was very much based on my pay. We had kids pretty quickly and wife stayed at home for several years. No way could a couple in the same position buy that house today.

Don't know if it's already been mentioned but around here (outskirts of Chester) BTL's are definitely holding up prices. Anything where the price looks a bit soft they're snapping up - some areas have more "to let" signs than "for sale".

Likewsie, my parents bought their first house 35 years ago. They paid £7,000 cash. A house on the same street today costs 17 times that.

Wages haven't gone up 17 times over to match that. What has happened is that people today, who want to work hard and give themselves a future, have very little chance of being able to do so.

With the increase of people falling into the rental trap, when (if) they're ready to buy, a small one bedroom flat isn't going to be the answer.

There's a ticking time bomb that a Government of what ever colour is going to have to deal with some day.

I've just looked up my first house, which sold recently. It's in the South East.

I paid £41k for it with my then girlfriend it was in the mid 1980s. We earned £12kpa jointly as a car mechanic and a secretary.

The property has just sold for £148k. A couple buying the place would very roughly need an income of £43k jointly. What would a secretary and a car mechanic earn jointly today?

[s1962a]

pork911 said:

s1962a said:

I'll explain my reasoning if you'll answer the question i posed as well.

BTL landlords and first time buyers compete against each other to buy the same properties, thus one purchasing a property makes it theoretically more expensive for the other type of buyer for future properties - assuming supply remains constant and it's a simple supply and demand scenario.

So you have Dave and his wife who is expecting, looking to put an offer on a property that is worth £200k as a starter home for their upcoming family. They have a deposit of 25% to put down and the mortgage company have agreed the remainder as a mortgage in principal.

On the other hand you have a BTL Landlord who puts in the same offer for this property as the rental yields are acceptable.

The stamp duty they pay and any other charges are equivalent for both types of buyer. Fair enough. But if the couple want to secure this property they either have to pay over the odds, or chase the remaining properties that weren't bought by BTL investors.

Now lets change the scenario so that the BTL landlord has to pay a land tax of 1% of the (arbitary) value of the property each year, which the couple will not have to pay. This extra tax is put into a fund to run schemes like help to buy or similar. This extra tax makes the yields for BTL less attractive so either rents go up (assume there is competition so not easy for a single landlord to raise rents on their own), or the BTL landlord factors in a lower yield to buy the property.

The BTL landlord may offer less for the property, thus putting the couple in a more favourable position to purchase the property, and making it less likely the prices will increase as much as they have as the main competition for house prices will be between owner occupiers, and less so with BTL landlords.

you haven't answered the 'why?'

I mentioned that on earlier posts but will explain again. The 'why' is I don't agree with housing being used an investment vehicle as supply is restricted and a greater demand (and speculation) by BTL investors has created a bubble in the past. Taxation which can be used to fund right to buy type schemes are required to prioritise those willing to be owner occupiers vs those using housing for profit. Also a land tax is required so that foreign investors - such as chinese and malaysian investors - buy up property and potentially leave it empty waiting for capital appreciation. A land tax would make them give something back to the economy whilst these properties are not in use.

[s1962a]

LucreLout said:

s1962a said:

Yes, it does. It pushes up prices as demand > supply.

Higher prices mean higher taxes which funds more public spending which in a fit of accounting fiction, pushes up GDP.

In the example of the guy with 20+ properties. He hasn't sold any of the properties he's bought since the 1970's. Where does the economy benefit from his purchases?

[JagLover]

LucreLout said:

s1962a said:

A better question would be, why is the UK limited housing stock allowed to be used as an investment vehicle, with virtually no penalty for doing so.

Penalising investment rarely ends well for advanced economies.

What "investment"?, what properties are BTL investors building?

[Rovinghawk]

s1962a said:

I'll explain my reasoning if you'll answer the question i posed as well.

Certainly- I don't think there should be a penalty as I don't see what LLs are doing wrong by entering an open market, investing & providing a service. You might note that BTL is taxed.

[LucreLout]

pork911 said:

you haven't answered the 'why?'

Gen Y want to own houses rather than rent them so they can benefit from HPI. Whatever else they say is much noise and fury signifying nothing. They want to seize others capital gains so that they can take them for themselves - its just envy, spite, and jealousy. And its as pathetic as it is transparent. They'll just have to curb their expectations and dig deep and work harder for longer.

Put another way, when did anyone last step over a series of homeless gen y'ers freezing in the street? Yeah, me either.

[s1962a]

Rovinghawk said:

s1962a said:

I'll explain my reasoning if you'll answer the question i posed as well.

Certainly- I don't think there should be a penalty as I don't see what LLs are doing wrong by entering an open market, investing & providing a service. You might note that BTL is taxed.

They are doing nothing wrong and it is an open market yes. My view is purely on the fact that housing supply is limited and that BTL investors are competing directly against first time buyers.

In terms of taxation, you and me both know that professional BTL investors sometimes have companies set up with structures that are very tax efficient. This is one of the reasons I doubt the government would do anything about BTL landlords - some are very powerful with strong links to influence government policy.

An interesting read

http://www.independent.co.uk/money/mortgages/buyto...

[LucreLout]

JagLover said:

What "investment"?, what properties are BTL investors building?

They stimulate demand which encourages building. The capital they inject into the market gets withdrawn at the top of the chain by elderly boomers to spend on goods and services.

[s1962a]

LucreLout said:

pork911 said:

you haven't answered the 'why?'

Gen Y want to own houses rather than rent them so they can benefit from HPI. Whatever else they say is much noise and fury signifying nothing. They want to seize others capital gains so that they can take them for themselves - its just envy, spite, and jealousy. And its as pathetic as it is transparent. They'll just have to curb their expectations and dig deep and work harder for longer.

Put another way, when did anyone last step over a series of homeless gen y'ers freezing in the street? Yeah, me either.

Whats with your assumptions? Are you a BTL Landlord? I am, and I can see the inherent flaws in the system. Just because the system allows you and me to make profits out of housing stock, doesn't mean that there can't be better ways of ensuring owner occupiers get priority over purchasing housing over BTL investors. Also introducing barriers against housing being used as a tool for foreign investors to gamble on capital appreciation.

[s1962a]

LucreLout said:

JagLover said:

What "investment"?, what properties are BTL investors building?

They stimulate demand which encourages building. The capital they inject into the market gets withdrawn at the top of the chain by elderly boomers to spend on goods and services.

Can you provide an example of how this might work?