Buy-to-let landlords face having their profits more than halved following last week’s Budget which will cap the amount of relief on mortgage interest to 20%.
Figures published in the Guardian at the weekend include calculations by Nationwide.
The lender says that a buy-to-let borrower with a £150,000 mortgage on a property worth £200,000 and with a rent income of £800 a month currently earns a net profit of £2,160 a year.
That would reduce to £960.
However, mortgage expert Ray Boulger of John Charcol sees even steeper declines.
He says that a borrower with a £120,000 mortgage on a buy-to-let property worth £200,000 and bringing in rent of £700 a month could see their annual profit collapse from £1,322 a year to £472.
The Guardian says that other figures prepared for it by London & Country Mortgages and SPF Private Clients also show similar steep declines.
The article suggests that the tax changes, which will be phased in over a six-year period, will mean that investors would do better to put their money into a bank saving account, even with today’s “miserable” returns.
It also suggests that people planning to use the new pension freedoms to invest in bricks and mortar will be deterred. It is not known how many private landlords buy with a mortgage: some estimates put the figure as low as 30%.
It is an interesting piece which ends with advice from Britain’s best known landlord, Fergus Wilson.
His tip? Bribe estate agents. Well, apparently.
“Go to your friendly estate agent and tell them you want to know about any two-bed mid-terrace house in Park Farm [the estate in Ashford, Kent, where Wilson began his property empire] immediately after they take instructions. Say: ‘I have £500 in readies for your pocket!’
“That is what I used to do in Ashford in 2002-2007. I paid the market price but gave a £500 tip. Also, I said: ‘If you cross me and sell me a pup, there will be no more £500.’
“Now Mr and Mrs Guardian Reader, I am a telling you the tricks of the trade.
“If you want to get anywhere in life, jingle the coins. I am sorry if it offends, but money talks.”
They forgot the capital gain. They always forget the capital gain. If you are leveraging yourself up to the hilt like the wilsons, it might be a problem, but the average investor sees BTL as a way of getting someone else to cover the mortgage whilst the capital appreciates. Since rents are on average considerably more than mortgages on the same property, u don’t see this as a problem.
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You do know they get tax on Capital Gains when sold?1
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Unless you engage in MP style home flipping.
But there has to be a gain in order to be taxed.
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How sad for the bloke, all that money but no dignity.
His story only reflect badly on him and a handful of Agents- How about you name them all Mr Wilson, name everyone you have ever given a bung to?
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Also another part of the industry that need investigating, Paying agent £500.
You act for the vendor, that is £500 they should receive. Along with creating a conflict of interest.
What happens later down the line if the buyer knocks them on the agreed price and the estate agent could potentially lose the £500. Chances are he will work on the vendor to accept the lower offer.
It is embarrassing at the moment being in this industry.
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I agree with Robert May.
A “bung” or “bribe” was a “bung” or “bribe” in the 1980’s as much as it would be now.
Every one of those sellers lost out on £500 that should have been added to the purchase price. He therefore did not pay the open market value and the agents failed to provide their clients with the required duty of care.
Shameful practice by him and the agents accepting the money.
Where did the cash come from? Suspicious behaviour? – a retrospective call to teh NCA might be in order.
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No one buys a low yielding property for the cash flow! The examples are all properties I would not choose to invest in due to low cash flow. It seems to be properties that are brought to gamble on house prices increasing, with the gambling being funded by the tax system….
Better examples show lesser declaim in post tax profits, but may lead to many landlords not expanding once they hit 40% tax rates.
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