The UK Buy-to-Let Property Crisis Explained

[Phooey]

Always a divided topic on PH so thought this recent vid might be worth a watch for anyone thinking of a BTL..

https://www.youtube.com/watch?v=NtVk3ERt66w

[anonymous-user]

With interest rates as they are it just doesn't make sense at the moment. I have one BTL, if I sold it and put the money in a 1 year fixed account at 6.06% the interest I would be receiving would be more than the rent.

I am on a low fixed interest rate until September 2024, but if interest rates don't fall before then I will be making a loss of several hundred pounds a month.

This is for a property where the mortgage is only 35% on the value of the property. And that is for a property where I have had the same tenants for 6 years and who rarely give me much grief (famous last words)

My plan is to try and pay off as much of the mortgage as possible before September 2024, fix for two years and hope I can ride it out and that rates will be better by September 2026.

If I sell I am going to get hit with massive capital gains tax and who knows how long interest rates will be high on savings. The worst thing I could do is sell, but the money in the bank, rates fall and I cannot afford to buy another BTL.

But I certainly would never buy another one.

[Edible Roadkill]

The bubbles burst these things happen best to get out and reinvest the proceeds into something else.

[BAMoFo]

Joey Deacon said:

With interest rates as they are it just doesn't make sense at the moment. I have one BTL, if I sold it and put the money in a 1 year fixed account at 6.06% the interest I would be receiving would be more than the rent.

I am on a low fixed interest rate until September 2024, but if interest rates don't fall before then I will be making a loss of several hundred pounds a month.

This is for a property where the mortgage is only 35% on the value of the property. And that is for a property where I have had the same tenants for 6 years and who rarely give me much grief (famous last words)

My plan is to try and pay off as much of the mortgage as possible before September 2024, fix for two years and hope I can ride it out and that rates will be better by September 2026.

If I sell I am going to get hit with massive capital gains tax and who knows how long interest rates will be high on savings. The worst thing I could do is sell, but the money in the bank, rates fall and I cannot afford to buy another BTL.

But I certainly would never buy another one.

Getting hit with massive Capital Gains Tax doesn't sound like such a a bad problem to have. It infers that there has been a significant increase in the value of the property.

[markiii]

but then your comparison becomes current profits v interest on the value - the tax so is it still quite as good? plus if you ever want back in because the rates go down you have stamp duty on the way back in.

For me I'm staying put for now

[xeny]

Joey Deacon said:

If I sell I am going to get hit with massive capital gains tax and who knows how long interest rates will be high on savings. The worst thing I could do is sell, but the money in the bank, rates fall and I cannot afford to buy another BTL.

That's worse than interest rates normalising at this level and the capital gains gradually eroding over time?

[BoRED S2upid]

Edible Roadkill said:

The bubbles burst these things happen best to get out and reinvest the proceeds into something else.

Yet as soon as a property comes on the market there is a long line of people fighting for it. It’s far from dead.

[C69]

BoRED S2upid said:

Yet as soon as a property comes on the market there is a long line of people fighting for it. It’s far from dead.

I guess the question is, how many of those people nowadays are prospective sole traders, and how many are representing established limited companies?

Also, it does seem like an anomaly that interest payments are tax deductible for furnished holiday lets, but not BTLs.

[Edible Roadkill]

BoRED S2upid said:

Yet as soon as a property comes on the market there is a long line of people fighting for it. It’s far from dead.

Doesn’t look that way currently where I live. Many properties going reduced or hanging on the market for months not shifting, or going under offer and reappearing when the deal collapses. I don’t think there’s many individuals fancying dipping their toes into the btl market at the minute.

[Jon39]

Joey Deacon said:

My plan is to try and pay off as much of the mortgage as possible before September 2024, fix for two years and hope I can ride it out and that rates will be better by September 2026.

But the Bank of England Base Rate is now close to the long-term average.
It was the 1% rate that was abnormal, not the rates now.
BTL worked very well, during that long period of artificially low interest rates.

Joey Deacon said:

If I sell I am going to get hit with massive capital gains tax and who knows how long interest rates will be high on savings. The worst thing I could do is sell, put the money in the bank, rates fall and I cannot afford to buy another BTL.

To make it worse, CGT now also incorporates a tax on inflationary gains. Very unfair.
Think it was the Lib/Con coalition government that dreamt up that piece of envy.
Prior to that, you could calculate the inflation using RPI, then deduct that amount from the basic arithmetic gain.

To make it better, if you still have a BTL when you finally depart, then no CGT is charged.

[Wings]

Two Sundays past, tenant phones at 4.30 in the afternoon to report no downstairs electricity. Visit to the property identifies that whilst cooking the Sunday roast, spilt boiling water over the hob had tripped the consumer box. Last Friday night at 8 45 flat tenant phoned to say their shower room was flooded with water. Visit to the flat, fortunately ground floor, after turning stop tap off, and removing tiled boarding from shower wall, determined plastic push fit elbow had exploded under pressure.

Both tenants expressed their thanks for being tenants and relying on landlords, rather than being private home owners.

I have recently repossessed through the courts a residential rental property from a social housing tenant. The property requires complete refurbishment, new kitchen, bathroom, central hearting system etc, etc. The property went to auction with a reserve of £190k, it fetched nearly 60% more than the reserve price, with the invested monies earning more than the rent that was being received, with no stress and hassle.

It was a corporate residential company that purchased the property, although able to reclaim tax allowance on the mortgage loan interest, i still can not make the figures add up on the purchase price paid, together with always being on call to a tenant's, central government and local authority's demands.

[Super Sonic]

C69 said:

BoRED S2upid said:

Yet as soon as a property comes on the market there is a long line of people fighting for it. It’s far from dead.

I guess the question is, how many of those people nowadays are prospective sole traders, and how many are representing established limited companies?

Also, it does seem like an anomaly that interest payments are tax deductible for furnished holiday lets, but not BTLs.

Does this mean there are more properties available for people looking for a home? Surely this is a good thing?

[Huntsman]

Joey Deacon said:

With interest rates as they are it just doesn't make sense at the moment. I have one BTL, if I sold it and put the money in a 1 year fixed account at 6.06% the interest I would be receiving would be more than the rent.

I am on a low fixed interest rate until September 2024, but if interest rates don't fall before then I will be making a loss of several hundred pounds a month.

This is for a property where the mortgage is only 35% on the value of the property. And that is for a property where I have had the same tenants for 6 years and who rarely give me much grief (famous last words)

My plan is to try and pay off as much of the mortgage as possible before September 2024, fix for two years and hope I can ride it out and that rates will be better by September 2026.

If I sell I am going to get hit with massive capital gains tax and who knows how long interest rates will be high on savings. The worst thing I could do is sell, but the money in the bank, rates fall and I cannot afford to buy another BTL.

But I certainly would never buy another one.

What about the inflation that is de-valuing the mortgage?

[Puzzles]

Huntsman said:

What about the inflation that is de-valuing the mortgage?

Not really. They pay interest for that privilege

[C69]

Super Sonic said:

Does this mean there are more properties available for people looking for a home? Surely this is a good thing?

Not quite sure what you mean. More properties available for people wanting to buy a home? If so, then possibly yes, but a BTL could be sold with a sitting tenant. Also, somebody buying a former BTL to use as their home obviously means that there is one fewer rental property available, which can cause other issues if rental demand is high.

[LooneyTunes]

Edible Roadkill said:

BoRED S2upid said:

Yet as soon as a property comes on the market there is a long line of people fighting for it. It’s far from dead.

Doesn’t look that way currently where I live. Many properties going reduced or hanging on the market for months not shifting, or going under offer and reappearing when the deal collapses. I don’t think there’s many individuals fancying dipping their toes into the btl market at the minute.

I’d concur. At the weekend, on my weekly property summary from one of the websites, 90% of the new listings (criteria takes it up to “normal” 3 bed/occasionally the odd 4-bed) appeared to be rentals 90% of the properties reduced that week were the same. Increasing numbers seem to be off to auction.

Most of them were what I’d regard as small. entry level, BTLs for this area, often in quite good condition (from the photos) but low EPC and ultimately nothing special. Almost no scope for capital appreciation in the medium term.

There’s two things there that would cause a rational buyer to pause:
First the EPC changes that have been speculated about but never formalised. Whilst an exemption regime is a near certainty, you wouldn’t want to buy one of these without knowing your exposure. Unless it was so cheap/yieldy that it didn’t matter.

Second you’ve got very limited potential for capital appreciation in the medium term at the prices being asked. Buying one is a pure income play. Tbh, I don’t think the numbers really add up where you’re looking at what are cheap, but not bad, properties. It’s probably different at the very bottom of the market/where there can be a higher yield achievable by virtue of housing benefit levels.

C69 said:

Super Sonic said:

Does this mean there are more properties available for people looking for a home? Surely this is a good thing?

Not quite sure what you mean. More properties available for people wanting to buy a home? If so, then possibly yes, but a BTL could be sold with a sitting tenant. Also, somebody buying a former BTL to use as their home obviously means that there is one fewer rental property available, which can cause other issues if rental demand is high.

It happens, but you’ll probably take a hit on the price achieved. A tenant in situ makes it so much harder to check/get the property to the right standard and get an appropriate return. There still seem to be many agents pushing tenanted properties hoping that the x% return they quote will be attractive to buyers, even if that’s the same x% as would have been attractive two years ago… I dare say there are some markets where it’s attractive to have tenants in situ, but I’d suggest that generally it is not.

Anyone still open to buying is probably aware of many of the prospective issues associated with properties and tenants. They probably understand why people would be wanting to sell. I think it’s going to be very interesting to see what happens over the next year or two.

Vacant possession, well presented properties might find buyers at good values but there are more of these coming to market than I’ve seen for some time. Suspect that anyone disorganised, or with tenants refusing to leave, selling at auction with tenants still in situ could well end up taking a decent hit to get out of their positions, especially if they’re later in selling and anyone still with capital to deploy has already bought.

[Portia5]

https://www.rightmove.co.uk/property-for-sale/find...

One man’s “crisis” is another man’s opportunity…

[iphonedyou]

BAMoFo said:

Getting hit with massive Capital Gains Tax doesn't sound like such a a bad problem to have. It infers that there has been a significant increase in the value of the property.

You infer. It implies.

[superlightr]

Wings said:

Two Sundays past, tenant phones at 4.30 in the afternoon to report no downstairs electricity. Visit to the property identifies that whilst cooking the Sunday roast, spilt boiling water over the hob had tripped the consumer box. Last Friday night at 8 45 flat tenant phoned to say their shower room was flooded with water. Visit to the flat, fortunately ground floor, after turning stop tap off, and removing tiled boarding from shower wall, determined plastic push fit elbow had exploded under pressure.

Both tenants expressed their thanks for being tenants and relying on landlords, rather than being private home owners.

I have recently repossessed through the courts a residential rental property from a social housing tenant. The property requires complete refurbishment, new kitchen, bathroom, central hearting system etc, etc. The property went to auction with a reserve of £190k, it fetched nearly 60% more than the reserve price, with the invested monies earning more than the rent that was being received, with no stress and hassle.

It was a corporate residential company that purchased the property, although able to reclaim tax allowance on the mortgage loan interest, i still can not make the figures add up on the purchase price paid, together with always being on call to a tenant's, central government and local authority's demands.

We have recently sold up our letting business of 50+years we looked after about 350 properties - the legislative changes and challenges in running a letting agency is getting too onerous to the risk/reward profile together with landlords selling up due to the ever changing and challenging economic tax weight the govts are putting on them. Existing landlords who had bought in the 90's 00's are now reaching the age of selling up naturally - the BTL that would replace the natural wastage is or was not happening so we saw our numbers remain static/ start to decline. The income was the same due to squeezing the juice more and more but as a combination of the above and constant govt meddling and making LL public enemy with a General election together with banks closing client accounts ( PEP is in the news but client accounts for agents are being closed as well) we decided whilst we still could get a good price for the sale of the business we would sell up. We still have a couple of personally owned BTL with no debts on but purely as a diversification hedge.
I recon its going to be a cluster Fk of the biggest magnitude if labour get in and a slow steady cluster fk if Torys stay in - either way we are in a decade or longer of decline/destroying the economic viability of new BTL.

Edited by superlightr on Tuesday 8th August 09:38

Edited by superlightr on Tuesday 8th August 09:40

Edited by superlightr on Tuesday 8th August 09:43

[Louis Balfour]

iphonedyou said:

BAMoFo said:

Getting hit with massive Capital Gains Tax doesn't sound like such a a bad problem to have. It infers that there has been a significant increase in the value of the property.

You infer. It implies.

It does.

A massive CGT bill is a nice problem to have, if you’ve not been gearing up against the asset. Lots of people have taken equity out of BTLs, so when they now dispose of them they have to pay CGT on gains they spent years ago.