BTL: Buy to let vs Borrow to let

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compscidude
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BTL: Buy to let vs Borrow to let

Postby compscidude » December 11th, 2016, 3:29 am

https://www.reddit.com/r/unitedkingdom/ ... y/db0omvx/

I thought this comment on reddit was excellent. In relation to BTLers complaining about recent tax changes.
Anyone complaining is by definition not a buy-to-letter, they're a borrow-to-letter.

The reason is that buy-to-letters that actually bought with their own money, are unaffected by the change.

JonE
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Re: BTL: Buy to let vs Borrow to let

Postby JonE » December 17th, 2016, 12:18 pm

compscidude wrote:The reason is that buy-to-letters that actually bought with their own money, are unaffected by the change.


Doesn't this also apply to landlords who do incur interest costs for their lettings business but who end up not having to pay HR IT after the full computation?

Cheers!

Alaric
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Re: BTL: Buy to let vs Borrow to let

Postby Alaric » December 17th, 2016, 1:23 pm

JonE wrote:Doesn't this also apply to landlords who do incur interest costs for their lettings business but who end up not having to pay HR IT after the full computation?


There's always the possibility of individuals setting up a Company to manage a "borrow to let" business. What are the disadvantages of this which leave personal holdings as the route chosen by most landlords.

It's difficult to avoid the conclusion that if borrowing to let is profitable, where does the profit come from, other than tenants who are being excluded from being able to upgrade from being a rent payer to being a mortgage payer?

youfoolishboy
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Re: BTL: Buy to let vs Borrow to let

Postby youfoolishboy » December 17th, 2016, 1:40 pm

The ultimate aim of the hate the landlords campaign by the government is to bring large companies into the market to run rentals. Great I hear the renters shout that will be fantastic but in reality you are more likely to have the same problems that you face with all large companies lack of response and high costs to cover their overheads and making a profit for shareholders. For the government it means a more easy tax base than a load of landlords avoiding paying tax, yes it does happen a fair bit, and having others using tax breaks to avoid tax legally. The only winners in this sea change will be large companies with the government's ear and politicians who are riding the wave of populism with some deluded renters from taxing landlords out of existence.
Short term I agree with previous posters rents will have to rise to cover the extra costs as like it or not there is actually a housing shortage in the UK and getting rid of landlords is not going to get more houses built. Medium term there will be a shortage of rental properties, more rises in rents then the large companies will see a market and step in and corner it and wait for it, raise rents.

JonE
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Re: BTL: Buy to let vs Borrow to let

Postby JonE » December 17th, 2016, 3:54 pm

Alaric wrote:It's difficult to avoid the conclusion that if borrowing to let is profitable, where does the profit come from, other than tenants who are being excluded from being able to upgrade from being a rent payer to being a mortgage payer?


Well, one other source of gross income is tenants who simply don't wish to "upgrade" and find the private rented sector suits their needs very well. Relatively quick and easy relocation and general flexibility in housing choices have significant value for some folk: one can imagine many individual circumstance in which renting would be a preferred option.

One example I encountered recently is a single woman who had retired and didn't want the worry/burden of property maintenance along with the potentially lumpy hits to her purse so sold up and is now very happily renting (with a significantly fatter purse) and with maintenance issues addressed with a single phone call and no need to find a lump of loot. It's easy to forget that interest costs are not the only costs a landlord bears.

Cheers!
...sometime landlord, sometime tenant and sometimes both at the same time...

Arborbridge
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Re: BTL: Buy to let vs Borrow to let

Postby Arborbridge » December 20th, 2016, 8:54 am

Alaric wrote:
It's difficult to avoid the conclusion that if borrowing to let is profitable, where does the profit come from, other than tenants who are being excluded from being able to upgrade from being a rent payer to being a mortgage payer?


That's an interesting point, bordering on philosophy :) Where does any profit within any industry come from - from its customers who are all tied into a system and excluded from influencing it. There is no other source of revenue. People in all walks of life are "excluded" from being able to upgrade to whatever they want to be by various limitations. This is only one tiny particular example.

Life's not fair. I really wanted so many things... but I was excluded. So what? I got on with it.

Arb.

Alaric
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Re: BTL: Buy to let vs Borrow to let

Postby Alaric » December 20th, 2016, 9:50 am

Arborbridge wrote: Where does any profit within any industry come from - from its customers who are all tied into a system and excluded from influencing it.


I see it more as distribution of wealth. In the parallel universe where "borrow to let" doesn't exist and is replaced by "borrow to buy ", it's the now ex-tenants who are taking the risk and the profits of being the equity holders. That was how it was in the past particularly when "borrow to buy" offered tax relief on the borrowings.

LadyGagarin
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Re: BTL: Buy to let vs Borrow to let

Postby LadyGagarin » December 20th, 2016, 5:26 pm

Arborbridge wrote:People in all walks of life are "excluded" from being able to upgrade to whatever they want to be by various limitations. This is only one tiny particular example.

Life's not fair. I really wanted so many things... but I was excluded. So what? I got on with it.

Arb.


But housing - like food - is something that pretty much everybody needs. You can't draw full comparisons between the housing market and that for non-essential goods.

richlist
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Re: BTL: Buy to let vs Borrow to let

Postby richlist » December 20th, 2016, 7:05 pm

I read somewhere that there are over 400,000 empty properties in Spain.....you know, the housing boom that fell flat.

Why not ship the homeless over there whilst we are still in the EU and Spain can't object.....free movement of people and all that.

Sorts out our problem and theirs......maybe the Gov can even buy them and rent them out to those that want social housing.

Sometimes thinking out of the box produces alternative ideas!

Arborbridge
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Re: BTL: Buy to let vs Borrow to let

Postby Arborbridge » December 20th, 2016, 10:55 pm

LadyGagarin wrote:But housing - like food - is something that pretty much everybody needs. You can't draw full comparisons between the housing market and that for non-essential goods.


I don't think that makes any difference to the principle: life isn't fair. We are all excluded from one thing or another.
Government regulation can help, but then very many people (and newpapers) constantly moan on about how we already have too much regulation. We wouldn't like such control.

Alaric
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Re: BTL: Buy to let vs Borrow to let

Postby Alaric » December 20th, 2016, 11:33 pm

Arborbridge wrote:Government regulation can help, but then very many people (and newpapers) constantly moan on about how we already have too much regulation.


Government regulation can hinder as well. Is it any coincidence that the "borrow to let" market started to expand, complete with tax relief, when the Government first restricted and then removed tax relief from "borrow to buy"?

I was never sure whether you could borrow to let if you didn't already own a property. Perhaps you couldn't else what would stop A and B conspiring so that A was BTL landlord to B who in turn was BTL landlord to A? Legal costs etc permitting, they pocket tax relief unavailable if both borrow to own the properties they live in.

IsleofWightPete
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Re: BTL: Buy to let vs Borrow to let

Postby IsleofWightPete » December 21st, 2016, 3:13 pm

Alaric wrote:Is it any coincidence that the "borrow to let" market started to expand, complete with tax relief, when the Government first restricted and then removed tax relief from "borrow to buy"?


Yes I think it is coincidence - the two are unrelated.
The growth in Private Sector rentals was driven primarily by the two Housing Acts (1988 and 1996) which effectively ended automatic security of tenure for tenants (and also ended mandatory rent levels set by Rent Tribunals)
On the back of those Acts, the steady exodus of Landlords fed up with being unable to repossess their properties and receiving uneconomic rent, finally reversed, and turned into a flood of new entrants.
This was fully supported by lenders, who realised that this new market offered far better security for lending (properties could be repossessed for sale if required, and rent controls, that could slash a Landlords returns, were abolished on AST's). Hence the birth of, and subsequent and boom in, BTL mortgages.

As for tax relief, there was never "tax relief" on BTL mortgages. It was simply that tax was always payable on profits, and the calculation of profits has always been revenue less costs. Costs were always deemed to include the interest on capital borrowed to fund acquisition of the business assets (as with all other types of business).

It is only in the last year or so that the notion of taxing revenues, but making a tax allowance for interest costs, has been introduced.


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