Property crash, just maybe it really is different this time

[Wight Flight]

3 minutes ago, sancho panza said:

Many don't even realsie their own home is at the end of the default chain if they get repoed and they end up with a debt to the bank

There is a reason you can't get a BTL loan unless you already own a property. As many will soon find out.

[Wight Flight]

10 minutes ago, sancho panza said:

Stark isn't it? And before reading the following stats remember that 38% LL's owe no money on their houses..there's jsut a huge wedge of poorly funded,highly levered LL's at the bottom of the pile.

Let's consider median average leverage of £200k loan/£400k property value in 2021

Average mortgage has gone from 1.5% to 5.4% since sept 21

So monthly repayments if not fixed

Month;y repayment has gone from £800 to £1217 or so.

Add on maintenance costs etc and unless the tenants can pony up the missing £400pcm then the chunk of LL's leverged at 50% + are deep in the hole

Many don't even realsie their own home is at the end of the default chain if they get repoed and they end up with a debt to the bank.

Like I've said,will get brutal otu there for the over levered.

 

Not only are they losing money every month, they are missing out on a possible £8k per year from investing their £200k of tied up cash.

[Formerly]

7 hours ago, Wight Flight said:

Not only are they losing money every month, they are missing out on a possible £8k per year from investing their £200k of tied up cash.

I think it was @MightyThargwho kept stating they're making out like bandits because inflation is making them £20k per year on that £200k loan.

I do wonder how long they can keep raking it in before they run out of money

[spygirl]

Takes some googling n joining

https://www.gov.uk/government/publications/a-fairer-private-rented-sector/a-fairer-private-rented-sector

Collectively, this adds up to a Private Rented Sector that offers the most expensive, least secure, and lowest quality housing to 4.4 million households, including 1.3 million households with children and 382,000 households over 65.[footnote 14] This is driving unacceptable outcomes and holding back some of the most deprived parts of the country.

About private 4.4m rentals. This ignores councils n LHAs, just to give you an idea.

https://blogs.lse.ac.uk/politicsandpolicy/the-growth-of-private-renting-can-no-longer-be-ignored/

See that ramp up in 2001?

PRS barely budged for the 10years before.

Here come the fuckwits.

Another 600k houses were added up to 2021.

About 2.5m/3m are going to be IO BTL.

And before you say - 'Oh theyll have made ££££££ if theyve bought in London'

Back to the first link -

There is geographical disparity with the highest rates of non-decent homes in Yorkshire and the Humber, the West Midlands and the North West.[footnote 7] Visibly dilapidated houses undermine pride in place and create the conditions for crime, drug-use, and antisocial behaviour.

As a a group, IO BTL fuckwits mainly piled into Northern terraces - Get more property for your house ...

Address:	36 Lambton Street, Shildon, DL4 1JG
Type:	Terrace
Tenure:	Freehold
New build:	No
Links:	Price map (Shildon)
Transaction type:	Standard price paid transaction

Registered sales:

Date Sold	Price Paid	Nominal change	Real change
05 Dec 2017	£39,950	0.0%	-6.0%
05 Apr 2016	£39,950	-46.0%	-57.2%
22 Jun 2007	£74,000	n/a	n/a

 

 

 

[spygirl]

Some of the fuckwits have already found social housing a bit tasteless.

Too many voids, too much trouble.

Its not unusual to find the above  good 30k/40k losses in boro/co durham.

 

 

 

[Balding Badger]

My distant relative BTLer has apparently decided to sell his home and move in to one of his smaller rentals. His proud parents are telling everyone that he is a genius and will come out of this well placed to expand his portfolio. I think he is doing the least sensible thing he could do, based on how I think things will develop. He has four rental properties in all, one he has had for 20 years, another for about 10, the third acquired in 2020 and the last, I kid you not, purchased four months ago. At current prices I think they are all 'worth' £180-250k. I cannot see how he is not underwater already on the most recent one and the 2020 one must be fast approaching it. I believe the rentals are all interest only mortgages and I am assuming that his main house ('worth' about 260k) is mortgaged to some extent but he probably has a lot of equity in that, relatively speaking. Can anyone explain to me why he could be right because I can't see it.

There is also a holiday apartment in Spain, purchased this year to add to the mix - apparently you can't go wrong with bricks and mortar because property is where it's at!

[Formerly]

29 minutes ago, Balding Badger said:

My distant relative BTLer has apparently decided to sell his home and move in to one of his smaller rentals. His proud parents are telling everyone that he is a genius and will come out of this well placed to expand his portfolio. I think he is doing the least sensible thing he could do, based on how I think things will develop. He has four rental properties in all, one he has had for 20 years, another for about 10, the third acquired in 2020 and the last, I kid you not, purchased four months ago. At current prices I think they are all 'worth' £180-250k. I cannot see how he is not underwater already on the most recent one and the 2020 one must be fast approaching it. I believe the rentals are all interest only mortgages and I am assuming that his main house ('worth' about 260k) is mortgaged to some extent but he probably has a lot of equity in that, relatively speaking. Can anyone explain to me why he could be right because I can't see it.

There is also a holiday apartment in Spain, purchased this year to add to the mix - apparently you can't go wrong with bricks and mortar because property is where it's at!

Perhaps he intends to sell more than one house. Does this allow him to avoid CGT by making his BTL his primary residence?

[Plan-b]

25 minutes ago, Formerly said:

Perhaps he intends to sell more than one house. Does this allow him to avoid CGT by making his BTL his primary residence?

He can sell his main residence CGT free, but after that its min 2 years lived in per move to get more CGT free. 

(I would think his Main Residence would also be subject to the 2 year rule)

Edited October 19, 2022 by Plan-b

[Democorruptcy]

1 hour ago, Balding Badger said:

My distant relative BTLer has apparently decided to sell his home and move in to one of his smaller rentals. His proud parents are telling everyone that he is a genius and will come out of this well placed to expand his portfolio. I think he is doing the least sensible thing he could do, based on how I think things will develop. He has four rental properties in all, one he has had for 20 years, another for about 10, the third acquired in 2020 and the last, I kid you not, purchased four months ago. At current prices I think they are all 'worth' £180-250k. I cannot see how he is not underwater already on the most recent one and the 2020 one must be fast approaching it. I believe the rentals are all interest only mortgages and I am assuming that his main house ('worth' about 260k) is mortgaged to some extent but he probably has a lot of equity in that, relatively speaking. Can anyone explain to me why he could be right because I can't see it.

There is also a holiday apartment in Spain, purchased this year to add to the mix - apparently you can't go wrong with bricks and mortar because property is where it's at!

Is him selling his main residence a bit like a margin call? He's selling that because it's CGT free and he has equity in it, that gives him cash to cover any shortfalls in rental income at the moment to pay his mortgages and maybe buy another rental or two when he thinks things are returning to 'normal'? 

[Boon]

Suppose much depends on how he has lived.... someone with IO mortgages would have been cashflow rich. And the effective yield on some of the older properties would be large, ie a £200k property today might have been £50-75k 20 years ago.

Some people might have paid things down, others could use it to leverage up and buy more properties, drive a Range Rover on finance etc. 

So take a £50k purchase 10/20 years ago, even if nothing was paid off and was on I/O, that is a real good position considering rent is still in profit and the property can be liquidated at large profit if needed.

However if remortgaged for a larger amount once or twice to use the increased equity to buy other places there is gonna be trouble. 

 

[Formerly]

30 minutes ago, Plan-b said:

He can sell his main residence CGT free, but after that its min 2 years lived in per move to get more CGT free. 

(I would think his Main Residence would also be subject to the 2 year rule)

Glad to hear it. So you can maybe offload one BTL using this, but it'll be too slow to get rid of a large portfolio.

[Plan-b]

7 minutes ago, Formerly said:

Glad to hear it. So you can maybe offload one BTL using this, but it'll be too slow to get rid of a large portfolio.

Yes thats my take on it. Perhaps he owns some in wags or others/relatives names then it could be done quicker. Unless hes set up as company then it's more complicated still.

Edited October 19, 2022 by Plan-b

[InLikeFlynn]

2 hours ago, Balding Badger said:

 He has four rental properties in all, one he has had for 20 years, another for about 10, the third acquired in 2020 and the last, I kid you not, purchased four months ago. At current prices I think they are all 'worth' £180-250k. I cannot see how he is not underwater already on the most recent one and the 2020 one must be fast approaching it. I believe the rentals are all interest only mortgages and I am assuming that his main house ('worth' about 260k) is mortgaged to some extent but he probably has a lot of equity in that, relatively speaking. Can anyone explain to me why he could be right because I can't see it.

There is also a holiday apartment in Spain, purchased this year to add to the mix - apparently you can't go wrong with bricks and mortar because property is where it's at!

He's toast I'm afraid. Nobody sells the family home unless things are really tough. Suspect the 2020 io fixed rate deal is expiring and he's facing a painful reversion to lender's standard variable rate. There is unlikely to be much equity in the 2020 flat and it's the lender's surveyor's view that matters, not his. If there was any equity left in his first BTL surely he would sell that (poor tenant)... But there won't be because he's probably remortgaged it several times to release funds to use as deposits for his BTL empire.... I feel sorry for his family and tenants.

[Calcutta]

2 hours ago, Balding Badger said:

My distant relative BTLer has apparently decided to sell his home and move in to one of his smaller rentals. His proud parents are telling everyone that he is a genius and will come out of this well placed to expand his portfolio. I think he is doing the least sensible thing he could do, based on how I think things will develop. He has four rental properties in all, one he has had for 20 years, another for about 10, the third acquired in 2020 and the last, I kid you not, purchased four months ago. At current prices I think they are all 'worth' £180-250k. I cannot see how he is not underwater already on the most recent one and the 2020 one must be fast approaching it. I believe the rentals are all interest only mortgages and I am assuming that his main house ('worth' about 260k) is mortgaged to some extent but he probably has a lot of equity in that, relatively speaking. Can anyone explain to me why he could be right because I can't see it.

There is also a holiday apartment in Spain, purchased this year to add to the mix - apparently you can't go wrong with bricks and mortar because property is where it's at!

This fella needs his own thread, I want to see his this plays out. 

[Axeman123]

2 hours ago, Balding Badger said:

My distant relative BTLer...

It would make sense if he was hoping to realise six figures of equity by selling the main home CGT free and then stuff it in a Cayman Islands trust, prior to personal bankruptcy!

On a more serious note, it would be interesting to find out if he has properly notified the lender of his moving into the BTL. Secret O/O on a BTL mortgage would be a first!

Edit with further thoughts:

Which property is he moving into?

If it is the one he has held the longest (with presumably the most equity) then he likely hopes to sell CGT free, and maybe doesn't know about the two year rule.

If it is one of the recent purchases, maybe his mortgagefix is up on it and remortgaging as BTL isn't viable so he is hoping to get an O/O one instead.

Maybe he wants to rejig things to be mortgage free on his new own home, and thinks bankruptcy will leave him sitting pretty in it. BTL logic will then be to release the equity with a mortgage once the dust settles and use that as deposits to build a new portfolio.

Not all the above would actually work of course.

Edited October 19, 2022 by Axeman123

[Boon]

Telegraph at it again, but this has been predicted for months already:

https://www.telegraph.co.uk/property/buy-to-let/london-landlords-properties-becoming-unmortgageable/

[HousePriceMania]

21 minutes ago, Boon said:

Telegraph at it again, but this has been predicted for months already:

https://www.telegraph.co.uk/property/buy-to-let/london-landlords-properties-becoming-unmortgageable/

...at any price ?

[JoeDavola]

Think I mentioned it on another topic but worth mentioning here.

I hadn't been looking at house in NI since pulling out of the one I was planning to buy, only thing I'd heard was "prices are still going up!" from my folks which may be true.

However it looks to me as if transactions have basically ground to a halt; i.e. fuck all is actually selling. My brother lives in an area of Belfast that is extremely popular with FTB's because you can get a modest 3 bed semi for about £190-200K. (Would have been £160K 3 years ago but that's another story.)

Anyway - throughout the pandemic houses were selling within a week, there would never be more than one or maybe two houses for sale in this development as people were fighting over the houses that did come on.

There's now 10 houses sitting for sale in the area, some have been on for a couple of months.

To me that looks like most FTB's just can't get an affordable mortgage any more at these levels at the higher IR's, after all it's still a desirable area to live in, people still want to live there.

[sancho panza]

3 hours ago, Plan-b said:

He can sell his main residence CGT free, but after that its min 2 years lived in per move to get more CGT free. 

(I would think his Main Residence would also be subject to the 2 year rule)

Not sure there's a clear cut timeframe

https://garner-hancock.co.uk/wealth-protection/how-long-must-i-own-my-home-to-avoid-paying-capital-gains-tax-cgt/

 

How long must I own a property to claim PPR?

 

HMRC is aware that developers buy properties, renovate them and then sell them for profit. Developers and builders trying to claim PPR in such circumstances will often be disappointed. In the case of Benford v HMRC (2011), Mr Benford sold a property after six months of alleged occupation, making a £50,000 profit. He argued that his short ownership arose from the breakdown of his marriage. The Court rejected his claim for PPR as electricity bills and council tax exemption suggested that the property was empty. In Metcalfe v HMRC (2010) the Court stated that failure to provide documentary evidence of residence would often result in favour of HMRC. In Moore v HMRC (2011), a dilapidated property was bought and refurbished. It was rented out and then sold at a profit. Although Mr Moore lived in the property during the period that the refurbishment took place, the court said that the evidence provided by him was vague and inconsistent. An interesting fact about this case is that the HMRC brought this claim seven years after the sale of the property was completed.

 

Short-term occupancy of a property is often fatal to a claim for PPR. In Core v HMRC [2020], however, it was held that Mr Core, a builder who bought a house, renovated it himself, lived there for only six to eight weeks with his family, should be granted PPR and thus avoided paying CGT. There were two main reasons for the case being ruled in his favour. Firstly, the Tax Tribunal accepted that Mr Core intended to use the house as his principal private residence.  He had not intended to sell the property prior to receiving multiple unsolicited offers for it. Secondly, he had moved into the property with his children. There was another property available for them to live in and he would not have made the move if the intention had only been to occupy the property on a temporary basis. Although the period of occupancy was very short, the Tribunal accepted the intention had been for it to be a long-term residence.

 

, if you are looking to make money from property renovation it is important not to move too quickly. However, when circumstances present themselves in ways which you had not intended, then the decision in Mr Core’s case may prove very useful to you.

https://www.gov.uk/tax-sell-home

Private Residence Relief

You do not pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:

• you have one home and you’ve lived in it as your main home for all the time you’ve owned it
• you have not let part of it out - this does not include having a lodger
• you have not used a part of your home exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use)
• the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
• you did not buy it just to make a gain

If all these apply you will automatically get a tax relief called Private Residence Relief and will have no tax to pay. If any of them apply, you may have some tax to pay.

[sancho panza]

1 hour ago, Boon said:

Telegraph at it again, but this has been predicted for months already:

https://www.telegraph.co.uk/property/buy-to-let/london-landlords-properties-becoming-unmortgageable/

And this is before any economci slowdown

 

'To keep these properties solvent, these London landlords will have to raise rents by 37pc, cut their loan sizes, or face selling up.

But analysts warned many investors will be unable to make rent increases of this size during the cost of living crisis, as tenant affordability is already getting hammered by energy price rises and a record drop in real earnings.

More than a fifth (22pc) of the buy-to-let properties at risk of becoming loss-making are in the South East. These landlords will need to raise rents by 28pc to make their properties mortgageable and profitable.

Landlords will be under pressure to make these rent increases because the soaring cost of borrowing means they will no longer be able to meet their lenders’ affordability criteria.

 

Nearly two thirds of landlords on fixed-rate mortgages will come to the end of their deals between now and the end of 2024. 

If these landlords have to pay mortgage rates that are four percentage points higher than their current deals, 38pc will find that their properties become unmortgageable and loss-making.'

[Boon]

Real life example:

https://forums.moneysavingexpert.com/discussion/6395908/landlord-increasing-rent-because-of-interest-rates

Maybe some will be able to make it stick. In many situations though adding this amount of money breaks the ceiling which the market can pay. I would think (assuming this guy is in London) that he could simply move somewhere else instead of paying that much more.

[Plan-b]

16 minutes ago, sancho panza said:

Not sure there's a clear cut timeframe

https://garner-hancock.co.uk/wealth-protection/how-long-must-i-own-my-home-to-avoid-paying-capital-gains-tax-cgt/

 

How long must I own a property to claim PPR?

 

HMRC is aware that developers buy properties, renovate them and then sell them for profit. Developers and builders trying to claim PPR in such circumstances will often be disappointed. In the case of Benford v HMRC (2011), Mr Benford sold a property after six months of alleged occupation, making a £50,000 profit. He argued that his short ownership arose from the breakdown of his marriage. The Court rejected his claim for PPR as electricity bills and council tax exemption suggested that the property was empty. In Metcalfe v HMRC (2010) the Court stated that failure to provide documentary evidence of residence would often result in favour of HMRC. In Moore v HMRC (2011), a dilapidated property was bought and refurbished. It was rented out and then sold at a profit. Although Mr Moore lived in the property during the period that the refurbishment took place, the court said that the evidence provided by him was vague and inconsistent. An interesting fact about this case is that the HMRC brought this claim seven years after the sale of the property was completed.

 

Short-term occupancy of a property is often fatal to a claim for PPR. In Core v HMRC [2020], however, it was held that Mr Core, a builder who bought a house, renovated it himself, lived there for only six to eight weeks with his family, should be granted PPR and thus avoided paying CGT. There were two main reasons for the case being ruled in his favour. Firstly, the Tax Tribunal accepted that Mr Core intended to use the house as his principal private residence.  He had not intended to sell the property prior to receiving multiple unsolicited offers for it. Secondly, he had moved into the property with his children. There was another property available for them to live in and he would not have made the move if the intention had only been to occupy the property on a temporary basis. Although the period of occupancy was very short, the Tribunal accepted the intention had been for it to be a long-term residence.

 

, if you are looking to make money from property renovation it is important not to move too quickly. However, when circumstances present themselves in ways which you had not intended, then the decision in Mr Core’s case may prove very useful to you.

https://www.gov.uk/tax-sell-home

Private Residence Relief

You do not pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:

• you have one home and you’ve lived in it as your main home for all the time you’ve owned it
• you have not let part of it out - this does not include having a lodger
• you have not used a part of your home exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use)
• the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
• you did not buy it just to make a gain

If all these apply you will automatically get a tax relief called Private Residence Relief and will have no tax to pay. If any of them apply, you may have some tax to pay.

As you say It isn't clear-cut, if you can prove 'Residence' or PPR then it's usually fine. But in this guys case he is an active landlord so will need to be careful and have proof of his intentions.

If hes the genius that his parents think he is I'm sure hes thought this out and is CGT free on his Principal Residence

[sancho panza]

4 hours ago, Balding Badger said:

My distant relative BTLer has apparently decided to sell his home and move in to one of his smaller rentals. His proud parents are telling everyone that he is a genius and will come out of this well placed to expand his portfolio. I think he is doing the least sensible thing he could do, based on how I think things will develop. He has four rental properties in all, one he has had for 20 years, another for about 10, the third acquired in 2020 and the last, I kid you not, purchased four months ago. At current prices I think they are all 'worth' £180-250k. I cannot see how he is not underwater already on the most recent one and the 2020 one must be fast approaching it. I believe the rentals are all interest only mortgages and I am assuming that his main house ('worth' about 260k) is mortgaged to some extent but he probably has a lot of equity in that, relatively speaking. Can anyone explain to me why he could be right because I can't see it.

There is also a holiday apartment in Spain, purchased this year to add to the mix - apparently you can't go wrong with bricks and mortar because property is where it's at!

I've got a relative with a few BTL's who's been in touch with our CEO(aka Mama Panza) and wondering if she'd be interested in doing a deal

'because,well, I'd rather pay you,Sancho and the kids the interest than the bank.You'll make money,I'll make money and we'll cut the banks out of the equation.'

'you'd best ring Sancho.'

'there's no real need for that is there,can't we jsut get the deal sorted between us?'

Toad.

 

In otehr news,I've run the calcs for our current LL.He bought at the market top in 21 for circa £800k and we're renting on a 2% gross yield(£1450) until 2024.I personally think he massively overpaid but thats by the bye.

With 25% down,puts him £600,000 in the hole.25 yr repayment(he's on a commercial loan I suspect so rates higher than mortgage rates but useful as a base)

at 2% puts him at £2702 repayment or £1001 IO

at 5.4% thats £2702 IO or £3650.

I'm struggling to see how the buidlign society won't get it back with a massive loss looming as LL quite astute and bought within ltd co. Developer so knows the risks.

QUite what the BS will do with it I don't know,the heating bills post Ukraine will put a lot of pensionders off(it's a bugnalow).QUite what the building society was doing lending on it in the first place I dont know.

 

Edited October 19, 2022 by sancho panza

[Balding Badger]

2 hours ago, Axeman123 said:

Which property is he moving into?

If it is the one he has held the longest (with presumably the most equity) then he likely hopes to sell CGT free, and maybe doesn't know about the two year rule.

If it is one of the recent purchases, maybe his mortgagefix is up on it and remortgaging as BTL isn't viable so he is hoping to get an O/O one instead.

Maybe he wants to rejig things to be mortgage free on his new own home, and thinks bankruptcy will leave him sitting pretty in it. BTL logic will then be to release the equity with a mortgage once the dust settles and use that as deposits to build a new portfolio.

Not all the above would actually work of course.

My understanding is that he plans to move into the most recently purchased one. I know from conversations in the Spring that he was telling family that he had trouble scraping together the deposit for this as he had recently committed to the Spanish flat and had used all his cash for the deposit on that. I assumed there was a re-mortgage of something to get the deposit for the fourth btl.

I genuinely don't know if he has paid anything off the older buy to lets. The oldest one would probably be about twice the price when he bought it but I had assumed that increases in value were being leveraged through re-mortgaging to release capital for further buys as per the BTL playbook.

I have to say that he doesn't talk to me about it at all as before he started out building his empire we had a conversation about the whole buy to let craze and I may have given him cause to think I wasn't entirely supportive! I know I didn't tell him exactly what I think from a moral perspective but I did question some of the business sense of it. Clearly, the ultra low interest rates for the last twelve years bailed him and his like out but it seems that he hasn't learned the right lessons.

My thinking is that he thinks that he can use the cash from the sale of his house to cover any shortfall on the mortgages of the other properties as they come up for re-mortgage as their fixes end. The danger must be that this is likely to continue for far longer than he thinks it will. Also, the value of the BTLs will be falling as the crash develops. If he finds himself forced to sell this will realise actual losses that will take his cash quite quickly. I  don't feel sympathetic for him as he is convinced that the government has his back (his parents are telling people that the government just have to lower taxes (!) and everything will be fine so you can see the level of thinking) but I am concerned that he could lose pretty well everything in due course, if things play out badly. Although he and his partner have looked down on the rest of us for years I know I am going to end up having to bite my tongue and not speak the brutal truth. I think he may have wrecked his families future though.

[sancho panza]

16 minutes ago, Plan-b said:

As you say It isn't clear-cut, if you can prove 'Residence' or PPR then it's usually fine. But in this guys case he is an active landlord so will need to be careful and have proof of his intentions.

If hes the genius that his parents think he is I'm sure hes thought this out and is CGT free on his Principal Residence

I think thats the key and HMRC are well aware that corut cases cost money,so there is an inbuilt inducement to settle imho.Unfairly so imho.

It may well be that as an active LL he takes longer to build up solid history of residency than your average Joe who has one home.

With these HMRC things,it's the court/legal costs fi you lsoe that hit.If you don't have a lawyer,you'll struggle.Most sols are £200 per hour.If you're cashflow negative on your investments,I suspect you'll settle.