How does Buy to Let END!

[Guest]

3 minutes ago, JoeDavola said:

We'll see what happens - I'm on a 3 month rolling contract so not sure if that matters.

Fact of the matter is this flat really needs major work done to the kitchen and a new bathroom at this point if they want to charge top dollar for renting it - they could put £10K into it easily to give it a facelift but the warning sign is that there's been a few times workmen have been sent out by the letting agents to measure up a job, and then the job just never gets done which says to me that the owner of the flat can't/won't pay for it.

Last one was about a year back a couple of young lads came out and measured up the radiator in the bathroom because it was so rusted and knackered it needed a new one; then just never heard from them again.

To be fair the rental market is so woeful they could probably rent this place as is, but it would take some balls given how knackered certain parts are - to be fair it's over 20 years old and basically everything except the boiler is the original one.

Might as well play the game though in my opinion. Rent hike lands, rent tribunal activated, consider your other options as well (including just sucking it up).

Our previous landlord was a great one for getting tradespeople round to quote for a job and then never doing any of it, I expect they were not terribly impressed.

[JoeDavola]

29 minutes ago, sancho panza said:

Joe,jsut some food for thought here from tut banking thread

BTL loans souring at an alarming rate,resilaons to  lesser degree.dyor natch,there's more charts on the Cov and Yorkshire BS's,same general story differnet nuances

from the skipton BS section,Stage 1 one is performing laons,stage 2=deterirorating,stage 3 deafualt,look at 2021 then look at 2022 year end

Yep can see that huge movement from Stage 1 into Stage 2 - can you explain in idiot-proof terms what a 'deteriorating' loan is? Is this a reduction in the perceieved ablity to pay it off and/or a negative change in its value vs the actual value of the asset it's secured against?

If a lot of these BTL-ers put their shite houses on the market in the coming couple of years they may well quite find that nobody wants them. (Cause we know they sure as hell aren't gonna try and sell them 'below market rates').

I guess another barometer of market changes might be if more houses start turning up in auctions?

Edited April 19, 2023 by JoeDavola

[JoeDavola]

Ah I see from the other topic what Stage 2 is:

Definition

Stage 2 Assets, in the context of IFRS 9 are financial instruments that have deteriorated significantly in credit quality since initial recognition but offer no objective evidence of a credit loss event. The term Stage 2 is not formally defined in the standard^[1] but has become part of the common description of the IFRS 9 methodology.

The standard formally defines the conditions that constitute a Significant Increase in Credit Risk, which necessitated the migration of an asset from stage 1 to stage 2 (and vice versa in case of a decrease). As a practical expedient, entities may assume that credit risk has not increased significantly if the credit risk of the instrument is determined to be low at the reporting date

[sancho panza]

7 minutes ago, JoeDavola said:

Yep can see that huge movement from Stage 1 into Stage 2 - can you explain in idiot-proof terms what a 'deteriorating' loan is? Is this a reduction in the perceieved ablity to pay it off and/or a negative change in its value vs the actual value of the asset it's secured against?

If a lot of these BTL-ers put their shite houses on the market in the coming couple of years they may well quite find that nobody wants them. (Cause we know they sure as hell aren't gonna try and sell them 'below market rates').

I guess another barometer of market changes might be if more houses start turning up in auctions?

form bank crisis thread

 

decent explantion of stage 1/2/3 is here

Stage 1 Assets - Open Risk Manual

 

Definition

Stage 1 Assets, in the context of IFRS 9 are financial instruments that either have not deteriorated significantly in credit quality since initial recognition or have low credit risk.

The term Stage 1 is not formally defined in the standard^[1] but has become part of the common description of the IFRS 9 methodology, including regulatory documentation.

The IFRS 9 standard formally defines the conditions that constitute a Significant Increase in Credit Risk, which necessitated the migration of an asset from stage 1 to stage 2 (and vice versa in case of a decrease)

 

Definition

Stage 2 Assets, in the context of IFRS 9 are financial instruments that have deteriorated significantly in credit quality since initial recognition but offer no objective evidence of a credit loss event. The term Stage 2 is not formally defined in the standard^[1] but has become part of the common description of the IFRS 9 methodology.

The standard formally defines the conditions that constitute a Significant Increase in Credit Risk, which necessitated the migration of an asset from stage 1 to stage 2 (and vice versa in case of a decrease). As a practical expedient, entities may assume that credit risk has not increased significantly if the credit risk of the instrument is determined to be low at the reporting date

 

Definition

Stage 3 Assets, in the context of IFRS 9 are financial instruments that offer objective evidence of a credit loss event.

The term Stage 3 is not formally defined in the standard^[1] but has become part of the common description of the IFRS 9 methodology.

In broad terms Stage 3 Assets are the ones for which the older IAS 39 standard considered impairment allowance.

[sancho panza]

2 minutes ago, JoeDavola said:

Ah I see from the other topic what Stage 2 is:

Definition

Stage 2 Assets, in the context of IFRS 9 are financial instruments that have deteriorated significantly in credit quality since initial recognition but offer no objective evidence of a credit loss event. The term Stage 2 is not formally defined in the standard^[1] but has become part of the common description of the IFRS 9 methodology.

The standard formally defines the conditions that constitute a Significant Increase in Credit Risk, which necessitated the migration of an asset from stage 1 to stage 2 (and vice versa in case of a decrease). As a practical expedient, entities may assume that credit risk has not increased significantly if the credit risk of the instrument is determined to be low at the reporting date

It'll be one of

1) LTV rise

2) IR cover deteriroation

3) missed payment

4) change in modelling criteria ie being fmoved from IRB to Standardized approach

things like that but Im not a banker.

 

 

what is of ntoe is that both the COv and SKipton have been forced to set aside more capital as the PRA have foudn their modelling inadequate.Hence steep drop in CET1 cpaital at the skippy.

[sancho panza]

13 minutes ago, JoeDavola said:

I guess another barometer of market changes might be if more houses start turning up in auctions?

Tht'd be a default sign ie stage 3 laons getting repoaed will take some time to filter through.even then the reciveer is duty bound to get best rpice so will test market first.auction last resort.

 

what you'll probably detect first is a change in the type of hosues going through auction rather than big increase in vol

PS worth mtojgn as well that thsi icnldues only Sept to Dec 31st,so they'll be more trickling in as we write.

Edited April 19, 2023 by sancho panza

[JoeDavola]

5 minutes ago, sancho panza said:

Tht'd be a default sign ie stage 3 laons getting repoaed will take some time to filter through.even then the reciveer is duty bound to get best rpice so will test market first.auction last resort.

Wasn't there some change however to make repos far less likely these days?

I remember repos were quite a common thing during the 08-12 crash in NI (more fool me for not buying one), but they've been mostly unheard of since.

[spygirl]

From TOS - 

 

This sounds like sooo many of the trades n self employedi n Scabby .

It’s my dad’s birthday today, he got a letter in the mail… one of his mortgages his interest rate’s up from 4%->7.5%.

Over the years he slowly acquired ~7 properties here in the southeast. These properties are all on BTL (interest only) mortgages. Operating on his assumption “property only goes up”, I’m confident he holds little equity (<15% LTV) in these properties.

Naturally, I know very few specifics, but I do know he owes at least £3 million to one mortgage provider alone.

He’s been reluctant to discuss this, he sees property as his retirement fund, he doesn’t think it’s possible it will crash.

i’m not saying it will crash, only that even if it doesn’t, interest rates are high, and other landlords will also start to find themselves in a similar position to him, making his leveraged exposure to the property market more risky.

With all of his fixed term interest rates coming to an end, i can tell he’s worried. He won’t be able to absorb the increases, and with the CoL crisis, neither will his tenants.

What im asking is:

1. Is there a service, for some ‘reasonable’ fee/commission that will take a property portfolio and liquidate it, even with tenants in situ?

2. Are there better ways of reducing his exposure to the property market?

3. What would you do if you found youself in a similar situation.

4. Is there simply good tips around discussing personal finance with somebody that is reluctant (and potentially suffering their mental health)?

Supplementary info:

He owns a few garages (100% equity), these are all let out, working on the assumption he owns 3 and they’re worth ~£15,000

He owns a small beach hut possibly £25-£30,000

Hes a bricklayer ~£200/day

Hes had a Ltd company for 25 years, although since 2020 been taking fewer jobs, and prefers working for others on his day rate.

He has no debt other than a £20,000 business loan ~0.5% interest (again assumed fixed rate)

no vehicle loans, just a work van purchased outright.

Hes almost illiterate (if it makes any odds)

Tl;dr: man owes millions on property with <15% equity, all currently being rented. He’s approaching retirement, and his interest rates are all about to double. His tenants can’t absorb the cost, neither can he…

What should he do? What can i do for him?

 

[spygirl]

 

level 2

FriendlyGas3890

OP·16 hr. ago

 

The way he’s got 7 properties is by remortgaging them as they increase in value and using the released equity to purchase new properties, so the equity has definely been squeezed out of them even if they were purchased up to 10 years ago.

Regardless, i have to trust his judgement, it seems no one has any major objections to his strategy which is reassuring.

[One percent]

15 hours ago, tank said:

Unemployment is the key.

You can't have any of form of real correction without a major recession and high unemployment forcing overleveraged owner occupiers and BTL landlords to sell up.

The HPC types on here who think otherwise have been proven wrong over and over again for 20 years. The last proper recession we had was in 2008 and house prices fell just like in the early 90s. 

I think it’s different this time. Wages have no way kept up with inflation, never mind the price of houses.  It’s sinking without mass unemployment this time. Well, unless government comes along with another massive prop. House prices need to at least halve. At least.  

[Guest]

14 minutes ago, spygirl said:

What can i do for him?

 

Make up the spare room so dad has somewhere to sleep when his principal residence is repo'd?

[sancho panza]

18 minutes ago, spygirl said:

Naturally, I know very few specifics, but I do know he owes at least £3 million to one mortgage provider alone.

Supplementary info:

 

He owns a few garages (100% equity), these are all let out, working on the assumption he owns 3 and they’re worth ~£15,000

He owns a small beach hut possibly £25-£30,000

 

 

I thought it was a very subtle troll till I read some of the OP's responses.

Do wodner how I cna position myself the other side of this?

[spygirl]

13 minutes ago, sancho panza said:

I thought it was a very subtle troll till I read some of the OP's responses.

Do wodner how I cna position myself the other side of this?

His Dads fucked as his withrawn equity to buy other places.

Odds of hed have been offseting rent agianst that, which is a no no even before S24.

With S24 about 50% of that rental income will go in tax.

Its sounds like a troll as ewehn you put the levrgaed IO BTL fkwttery down on paper it soudns so unbelivable.

Again. I know of a few taxi drivers inScabby who are carrying 1.5m+ of IO debt, skimming ~100/m on the diffence beweetn rent n mortgage payment.

Or were til rates went up.

 

[sancho panza]

2 hours ago, spygirl said:

His Dads fucked as his withrawn equity to buy other places.

Odds of hed have been offseting rent agianst that, which is a no no even before S24.

With S24 about 50% of that rental income will go in tax.

Its sounds like a troll as ewehn you put the levrgaed IO BTL fkwttery down on paper it soudns so unbelivable.

Again. I know of a few taxi drivers inScabby who are carrying 1.5m+ of IO debt, skimming ~100/m on the diffence beweetn rent n mortgage payment.

Or were til rates went up.

 

ref S24 if the LL is loss making then how would that work in the example below if we changed  mortgage interest bill to £15000?

Basica rate tax payer would mean £3000 tax liability as before,,you can then claim back 20% of your mortgage payments=£3000.Bascially in thsi situation the LL is actually ok non?

Or is there a lag and/or do you have to pay tax upfront?Feel free to keep it simple.

Also,am i correct in thinking that accumulated retns will take LL's into 40% tax brackets so the bloke ni the above post with £3mn houses and roughly £150k in icnoem would be laible for 40% on everything over the 40% allowance circa £45k

https://www.alanboswell.com/news/what-is-section-24/

Here’s an illustration of how Section 24 works:

• Your rental income is £15,000.
• Your mortgage interest is £5,000.
• Under Section 24 you’ll need to pay tax on the full rental income. This is £3,000 for basic rate taxpayers (20%) and £6,000 for higher rate taxpayers (40%).
• You can then claim back 20% of your mortgage interest payments which is £1,000 (20% of £5,000).
• Therefore, basic rate taxpayers will pay £2,000 tax on their rental income and higher rate taxpayers will pay £5,000.

If you rent out a property, you’ll need to pay tax on any profit you make. While it may seem like a like a simple calculation, tax on rental income can be complex and something you should consider.

[spygirl]

12 minutes ago, sancho panza said:

ref S24 if the LL is loss making then how would that work in the example below if we changed  mortgage interest bill to £15000?

Basica rate tax payer would mean £3000 tax liability as before,,you can then claim back 20% of your mortgage payments=£3000.Bascially in thsi situation the LL is actually ok non?

Or is there a lag and/or do you have to pay tax upfront?Feel free to keep it simple.

Also,am i correct in thinking that accumulated retns will take LL's into 40% tax brackets so the bloke ni the above post with £3mn houses and roughly £150k in icnoem would be laible for 40% on everything over the 40% allowance circa £45k

https://www.alanboswell.com/news/what-is-section-24/

Here’s an illustration of how Section 24 works:

• Your rental income is £15,000.
• Your mortgage interest is £5,000.
• Under Section 24 you’ll need to pay tax on the full rental income. This is £3,000 for basic rate taxpayers (20%) and £6,000 for higher rate taxpayers (40%).
• You can then claim back 20% of your mortgage interest payments which is £1,000 (20% of £5,000).
• Therefore, basic rate taxpayers will pay £2,000 tax on their rental income and higher rate taxpayers will pay £5,000.

If you rent out a property, you’ll need to pay tax on any profit you make. While it may seem like a like a simple calculation, tax on rental income can be complex and something you should consider.

Before S24 a LL could offste the mrent agains the mortgage payments.

However ... as soon as you extract money from the original place and buy another you no longer do that.

HMRC/accountig thing- you cant keep leveraging/borrowing and claim income relief.

if this LL has 8 rentals, at, say, ~1300, then hes into HRT.

, hes got a massive fuck up ebfore S24.

With S24 in place - and if ignore his previous issue - hes goign to be paying 50% of th rental incoem as tax.

This morons is bust.

 

 

 

[JoeDavola]

4 hours ago, spygirl said:

From TOS - 

 

This sounds like sooo many of the trades n self employedi n Scabby .

It’s my dad’s birthday today, he got a letter in the mail… one of his mortgages his interest rate’s up from 4%->7.5%.

Over the years he slowly acquired ~7 properties here in the southeast. These properties are all on BTL (interest only) mortgages. Operating on his assumption “property only goes up”, I’m confident he holds little equity (<15% LTV) in these properties.

Naturally, I know very few specifics, but I do know he owes at least £3 million to one mortgage provider alone.

He’s been reluctant to discuss this, he sees property as his retirement fund, he doesn’t think it’s possible it will crash.

i’m not saying it will crash, only that even if it doesn’t, interest rates are high, and other landlords will also start to find themselves in a similar position to him, making his leveraged exposure to the property market more risky.

With all of his fixed term interest rates coming to an end, i can tell he’s worried. He won’t be able to absorb the increases, and with the CoL crisis, neither will his tenants.

What im asking is:

1. Is there a service, for some ‘reasonable’ fee/commission that will take a property portfolio and liquidate it, even with tenants in situ?

2. Are there better ways of reducing his exposure to the property market?

3. What would you do if you found youself in a similar situation.

4. Is there simply good tips around discussing personal finance with somebody that is reluctant (and potentially suffering their mental health)?

Supplementary info:

He owns a few garages (100% equity), these are all let out, working on the assumption he owns 3 and they’re worth ~£15,000

He owns a small beach hut possibly £25-£30,000

Hes a bricklayer ~£200/day

Hes had a Ltd company for 25 years, although since 2020 been taking fewer jobs, and prefers working for others on his day rate.

He has no debt other than a £20,000 business loan ~0.5% interest (again assumed fixed rate)

no vehicle loans, just a work van purchased outright.

Hes almost illiterate (if it makes any odds)

Tl;dr: man owes millions on property with <15% equity, all currently being rented. He’s approaching retirement, and his interest rates are all about to double. His tenants can’t absorb the cost, neither can he…

What should he do? What can i do for him?

 

"almost illiterate" and yet has been given £3 million in credit.

[Wight Flight]

1 hour ago, spygirl said:

HMRC/accountig thing- you cant keep leveraging/borrowing and claim income relief.

Are you sure?

i thought if it was invested in more property you could claim relief - but not if you bought a Range Rover.

[JoeDavola]

3 hours ago, spygirl said:

Again. I know of a few taxi drivers inScabby who are carrying 1.5m+ of IO debt, skimming ~100/m on the diffence beweetn rent n mortgage payment.

Funny you mention that - when my landlord had to buy a new washing machine about 18 months ago, the bloke who delivered it had a 'helper', basically a dogsbody who didn't seem like he was all there to be honest, to help him shift the washing machine into the flat.

This bloke then mentioned that he owned 10 houses. What the actual fuck.

[JoeDavola]

6 minutes ago, JoeDavola said:

"almost illiterate" and yet has been given £3 million in credit.

From the reddit thread:

[spygirl]

28 minutes ago, JoeDavola said:

"almost illiterate" and yet has been given £3 million in credit.

I have it it on good authoroty that ScarbBS as was lent ~2m of BTL to someone on disaility benefits, or jus tthe dole. Cantremeber which.

This came out i nthe lon review, after it went under.

 

 

 

[spygirl]

27 minutes ago, Wight Flight said:

Are you sure?

i thought if it was invested in more property you could claim relief - but not if you bought a Range Rover.

Only if you were using a LtdCo.

Moot now, post S24.

The fuckwit is bust. It does not really matter for how much.

 

27 minutes ago, JoeDavola said:

Funny you mention that - when my landlord had to buy a new washing machine about 18 months ago, the bloke who delivered it had a 'helper', basically a dogsbody who didn't seem like he was all there to be honest, to help him shift the washing machine into the flat.

This bloke then mentioned that he owned 10 houses. What the actual fuck.

Yep.

Painters n decorators - juggling ~3m housign portfolios.

taxi driver - 5m of of leverage.

Its truely insanely mental.

And its not out ofthe system yet.

It will be in 12 months.

 

[JoeDavola]

32 minutes ago, spygirl said:

It will be in 12 months.

As in you think that's when the last of the cheap BTL mortgages will expire?

[spygirl]

1 hour ago, JoeDavola said:

As in you think that's when the last of the cheap BTL mortgages will expire?

As in thats when the banks start pulling in btl loans theyve issued.

 

[JoeDavola]

2 minutes ago, spygirl said:

As in thats when the banks start pulling in btl loans theyve issued.

But how long are the IO loans fixed for? 3 years max? Ie how long until nobody is on a cheap IO mortgage

[spygirl]

3 minutes ago, JoeDavola said:

But how long are the IO loans fixed for? 3 years max? Ie how long until nobody is on a cheap IO mortgage

Dont matter.

Banks can n do call in a commercial loan when they like.

Hitting 25y from 1st lot sold.

As soon as they start hitting term and LL goes - Nit got the money ... then the big banks will move first.