Help to Buy Scheme Should Really Be Named Help For Bankers Scheme - Discuss

[HaX]

Hax, regarding rental prices in Germany being more reasonable in comparison to wages, but are houses cheaper too?

Hi Darren, houses are cheaper to buy in Germany too, though some parts are more expensive than others.

Regardless of regional variations, rent controls are in place to prevent living costs getting out of hand, which obviously has a knock on effect with regard to limiting House Price Inflation.

There is also a lot of institutional investment in the German property market. Insurance and pension companies for example, build entire apartment blocks to rent out. From a tenant's perspective, this has it's advantages. You are renting from an accountable organisation which has a reputation to maintain. This is vastly preferable to what most people get in the UK ; renting from an anonymous small-time landlord via a Lettings Agent, which sees tenants as both a nuisance and source of exploitation

Furthermore, through the economies of scale and standardisation, a large organisation owning an entire development has the resources to ensure that the whole block is maintained to a high standard, with repairs effected in a timely and professional manner.

Another big failing with the UK rental market is that despite tenants having to go through numerous checks, there is no financial or background / CRB checking undertaken before allowing people to become landlords or letting agents.

Furthermore, in this country, the majority landlords are not not adding any value. They're simply buying and monopolising existing housing stock, rather than adding value or supply. Those who bring dilapidated houses back into use or build new property are creating value, though sadly such examples are very much a minority.

Landlords in the UK have to buy already expensive property to begin with. And a landlord not only has to pay the mortgage remember, they also have to pay any services charges, land rent and of course keep the property in a good state of repair - none of which comes cheap. DUring any void periods they also have to pay council tax and of course still pay the mortgage.

While it is true that a landlord in the UK will have to pay more than a landlord in Germany for an equivalent property. it's a chicken and egg situation. The emergence of buy-to-let mortgages in the late 90s has been a significant factor in driving up prices over the recent years. Prior to this, to buy a house to let, you either had to buy with cash or have a very large deposit.

With regard to mortgage payments, service charges/ground rent (in the cases of flats), and maintenance costs - these all have to be borne by owner occupiers too.

Although paying maintenance costs etc may seem like a bitter pill to swallow, it is the price you have to pay for capturing a significant proportion of the wealth generated by someone elses productivity, which is ultimately paying off your mortgage.

I don't agree prices should have declined 50%. I get where you are coming from though(prices were supported), but if the property market had declined/been allowed to decline that much that also could have had dire consequences for society. Lets just say, if nobody had a job then even a 50% drop in house prices would have left them unaffordable to most people still. The bigger picture would be very different than how many imagine it. The banks would have been in an even worse situation too.

House prices should have never been allowed to increase that much in the first place, and it is through gross negligence on the parts of the treasury, Financial Services Authority (now-defunct) and Bank of England that they ever did.

To get back to their pre-bubble norm, prices need to reduce by 50% in relation to wages. Only then will the housing market be a truly meritocratic system whereby the type of home someone lives in is directly related to their success and productivity, and not bywhether or not they were able to buy pre-boom.

 

[DarrenM343]

When you say you don't earn much out of it. If it pays the mortgage you are getting free equity...how is that not earning something?

BTL mortgages are interest only so what I'm saying is that after costs there's not much left. Sure it's better than a loss. There are additional risks to landlord such as void periods, excess costs of repairs. Put new carpets in the small place a year or so ago and that wasn't cheap for decent carpets. There seems to be a belief by many that landlords rake it in on the monthly rent AND when they sell but reality can be somewhat different.

The person renting it gets literally nothing other than short term shelter but even with things going wrong that need fixing you are still effectively owning the house for free..

True, but the person renting also has no worries about paying for repairs. I'm learning the benefits of that right now as I recently bought a new home for me to live in and have had many problems that are starting to add up in £. The void periods are an unknown for landlords. In fact my last landlord (I rented recently) still hasn't filled the flat I rented from him and I moved out on the 12th September 2015! I did recommend he do a few things though which he hasn't done so probably not helping (mainly the flat needs to be fully furnished) as there's no lift, it's not that big and the stairs leading up to it are narrow for getting any decent sized furniture up.

 

[Rifte]

When you say you don't earn much out of it. If it pays the mortgage you are getting free equity...how is that not earning something?

The person renting it gets literally nothing other than short term shelter but even with things going wrong that need fixing you are still effectively owning the house for free..

As as landlord myself I am in a similar situation to HaX. Once I have taken into account, mortgage payments, agency fees, self assessment, repairs, service charges etc etc etc from a CASH FLOW perspective it costs me to rent my properties out.

On the other side of the coin, if I take into account the capital payments (excluding house value increases) I make on them, marginally though. Although strictly I will not realise this profit unless I actually sell the properties or become mortgage free on them.

Obviously the main advantage is that I am having effectively interest free mortgages on my properties, my tenants are paying it off, and they are paying off some of the capital as well. I just do not physically realise it yet.

It obviously comes with risk though.

Despite being a BTL landlord I do understand the changes in the interest payments as being tax deductable. It bites me, but if I take the emotion out of it, why should I get tax relief?

What I do despise though is some of the posters who contribute to threads like this stating that all BTL landlords are the scum of the earth. I certainly
do not believe that I am. I have been lucky sure but I have also sacrificed enough to try and put my family into a position where I am can plan a decent retirement for me and my wife and a good legacy for my children.

As stated it does come with risk though, maybe I will go bankrupt as some of the posters on here hope if the housing market drops out, but I hope that it pays off for me. Am I a part of the problem with unaffordable housing? Probably, but hate the game, not the player. Why begrudge me and wish bankruptcy on someone who is trying to do the right thing for their family?

 

[DarrenM343]

Despite being a BTL landlord I do understand the changes in the interest payments as being tax deductable. It bites me, but if I take the emotion out of it, why should I get tax relief?
?

Regarding tax relief, BTL properties are an investment/business and as such expenses, such as a mortgage, should be tax deductible IMO. Businesses get relief on loans they take out don't they?


Agree with you and trying to do the best for my future as I don't expect to be working when I'm over 50 or by 55, possibly due to health reasons, so an aim is to be secure by then. The BTL properties can help with that but are not without risks as you well know. I also look after my tenants and treat them as I would like to be treated myself if/when I rent.

 

[Rifte]

Regarding tax relief, BTL properties are an investment/business and as such expenses, such as a mortgage, should be tax deductible IMO. Businesses get relief on loans they take out don't they?

You know thats a damn good point, never looked at it from a business perspective before, more from a personal investment point of view.

 

[SpeedFreak]

Effective yield to capital investment for most BTL properties is high. It's very well saying you make £700 on a £140k property but if you only have £50k equity and are paying £200 per month in mortgage interest and £100 in costs your are making nearly £5k per year on your £50k. Yes cash flows are a consideration for most BTL landlords, but their involvement in the market is what is killing "supply" and inflating prices.

 

[Skeeter]

Even though I think they are screwing the market and I have had issues with all 4 BTL landlords I've had, I still, even with the additional taxes and stuff, really want to get in on the action.

Unfortunately our deposit money is my GFs from an inheritance so I have no say on how its spent. Much like with the issue of house prices rising, I reserve the right to radically alter my view on these issues depending on which side of the fence I sit.

(To be clear, I don't think all BTL landlords are scum. I think its far too easy to be one, and far to easy to be right on the cusp of affordability while doing so. In my opinion they should make it so only 'good' potential landlords can get BTL mortgages, with one of the criteria to being 'good' being at least 50% deposit to ensure low LTV mortgages which carry less risk and less chance of being only just affordable. I've covered this in a thread on here before and it wasn't that popular of a suggestion)

 

[Scam]

You know thats a damn good point, never looked at it from a business perspective before, more from a personal investment point of view.

It would be lovely if all landlords ran their investments as a business (i.e. worked at least 25hrs+ a week towards it) but as demonstrated in this thread already, most 'fall' into it or have made the decision to become a hobbyist landlord because they can.

I think that is only one thing of many. Brits have a fascination with owning property.

HaX wrote a much better reply than I have time for. But in short if I gave you two options on your housing, what would you choose?

Option A: Put down a deposit. Pay out up to 70% of your salary to live in a place that is not decorated to your liking, does not have the appliances you like, that forces you to pay extra energy bills because the windows are pants and insulation is non-existent, that has mould in the bathroom, has carpets that need replacing, has old furniture that you don't like and can't replace. Oh, and you only know that this place is going to be your home for sure for the next two months.

Option B: Put down a deposit. Pay way less than 70% of your salary and live in a place that you can fix 100% of the problems listed above.

And people wonder why tenants in the UK want to own somewhere so desperately.

Scam, you language on here buddy is very telling. I like your passion but it comes across that you have a major chip on your shoulder due to perhaps one or a combination of a few reasons.

1)You rent and you would sooner have bought.
2)Your landlord(s) has caused you issues in the past (hence the whole BTL landlords need to go bankrupt and die etc).
3)Or these have happened to a close friend or family member.

To be honest I like riling up the landlords, yes. To answer number 1 - see above.

2/3 - Where to start? Your wording makes it seem like you've never rented because the truth of the matter is that 99% of tenants have had major landlords issues. Some serious, some mild annoyances. But it all feeds into this belief that somehow tenants are a second class citizen. I could list a lot of the things that I've had problems with landlords down the line but to be honest a lot of people on here would read them and go 'no big deal' because either [a] they're tenants themselves and have experienced the same thing or because their homeowners and can't comprehend how that makes you feel. My girlfriend was explaining to her 50+ yr old colleague about section 21. That whereever we rent, we only know for certain that we will be there for the next two months. Her colleague bought a house when she was 20-odd, never rented and simply could not get her head around that. It was unfathomable to her that we could be kicked out with only two months notice. At any time.

Anyway, I'll leave this here because it was what I was talking about a page or so back:

http://www.theguardian.com/world/20...enerational-divide-social-mobility-tsar-warns

 

[Rifte]

2/3 - Where to start? Your wording makes it seem like you've never rented because the truth of the matter is that 99% of tenants have had major landlords issues.

If my wording does sound like that, it is not my intention. From a perception of percentage I have lived most of my adult life in rented accommodation. It is only in the last 8 to 9 years that I have purchased then been lucky enough to buy in the right place and the right time to give me enough equity to buy elsewhere (this alongside a whole lot of sacrifice to get the deposits together).

If sounds like you have had some really **** landlords, and this is why you like to rile them up (myself included).

Maybe I was fortunate, but when I rented, my landlords were generally either ok to brilliant. The only issue I had with my 'ok' landlord was when he tried to hold back 100 quid of my deposit for some supposed damage to the wardrobe. I got it all back in the end, but he became unreasonable for about a week.

I was never in fear of the whole ' get kicked out in 2 months' thing. Perhaps this was because I was naive or perhaps at the time it was just me and my wife so we could have coped easily enough with a quick and unscheduled move. I am sure if it happened to us in the situation we are now (2 children and 2 dogs) it would cause all sorts of issues.

The point I was trying to make is that your language sounds very emotive and almost pigeon holes all of us in the same box labelled *** because of some poor experiences you have had. There are some great landlords out there, I believe I am one of them.