Interest rates

[Mansfieldman750]

Ok then you do it your way but I’ll give you another couple of lines from that Kenny Rogers song.
Never count your money when your sitting at the table
There’ll be time enough for counting when the dealings done.

 

[andyinluton]

No, I’m not saying that BTL doesn’t work at IRs of 6% and rising. What I am saying is that for BTL to work at IRs of 6% and rising you need a good chunk of equity in your BTLs.

But don’t forget that BTL landlords get a 20% tax credit on any interest they pay. That has the effect of reducing a 6% interest rate to 4.8%.

And the 6% yield will be taxed as personal income - for most landlords that will be at 40% reducing the yield to 3.6%
Given the way tax on BTLs has been treated in the last few years there's a good chance that the 20% tax credit could disappear at any budget.

 

[Elmo3]

Ok then you do it your way but I’ll give you another couple of lines from that Kenny Rogers song.
Never count your money when your sitting at the table
There’ll be time enough for counting when the dealings done.

Absolutely. Wait until a load of 2 year fixes come to an end next year at peak covid bubble free money prices. Many will be downvalued and put on SVR’s, which could quite easily be 10%. No price falls? Yeah right, good luck with that. Too late to get out IMHO. Current asking prices and borrowing costs do not compute. Guess which one will fall first.

 

[Amarillo]

And the 6% yield will be taxed as personal income - for most landlords that will be at 40% reducing the yield to 3.6%
Given the way tax on BTLs has been treated in the last few years there's a good chance that the 20% tax credit could disappear at any budget.

Yes, it could disappear.

But a couple with no other income could earn a rental income of £25,000 and pay no tax, and 20% on the next £75,000 or so.

A combined rental income (less costs excluding mortgage interest) of £100,000 would be taxed £14,972. That’s under 15%.

 

[Mansfieldman750]

Yes, it could disappear.

But a couple with no other income could earn a rental income of £25,000 and pay no tax, and 20% on the next £75,000 or so.

A combined rental income (less costs excluding mortgage interest) of £100,000 would be taxed £14,972. That’s under 15%.

Right, you have just pointed out what the tax free personal allowances and tax bands are, for everyone, not just buy to letters.
Now get to the crux of the matter.
Is Buy to Let a sensible proposition for anyone under the present circumstances ?

 

[andyinluton]

But a couple with no other income could earn a rental income of £25,000 and pay no tax,

A couple with no hassle of BTLs can have £25k of income & pay no tax - you are not doing a very good job of persuading me that it would be a good idea........

 

[Amarillo]

Right, you have just pointed out what the tax free personal allowances and tax bands are, for everyone, not just buy to letters.
Now get to the crux of the matter.
Is Buy to Let a sensible proposition for anyone under the present circumstances ?

Not for everyone, but for those with sufficient equity, yes, it is a sensible proposition.

 

[Mansfieldman750]

Not for everyone, but for those with sufficient equity, yes, it is a sensible proposition.

I see. Leveraging used to be good now leveraging is bad.

Amarillo you have missed your calling. You could have been a great politician. You never ever admit you are wrong, you twist and turn, duck and dive, slither and slide.
I am in awe !

 

[BerndRos]

BTL is a travesty really….how can it be that if Jack & Jill on average wages can’t get a mortgage and buy a house/flat at a fair price, it’s seen as ok and market forces, it’s not, it’s a breakdown of societal reasonable norm.

Why do I hold this view ?

Having run a law firm for 40 years this year, I recall being aghast in the late 1990s acting for one person after another, doing Conveyancing for them on BTL…even then my thoughts were very anti and I thought…why can’t they be made to pay a surcharge on their mortgage interest rate & a corresponding reduction be offered to a FTB trying to get on the housing ownership ladder. Simplistic I know, but hey if we are honest, would we not agree that the more that share the pie, is better than not even allowing them crumbs.

The most basic requirement is that people can pay for a roof over their head, feed themselves & family & maybe aspire to luxuries…that has been largely taken from them.

 

[Amarillo]

I see. Leveraging used to be good now leveraging is bad.

Amarillo you have missed your calling. You could have been a great politician. You never ever admit you are wrong, you twist and turn, duck and dive, slither and slide.
I am in awe !

In 2012 I had mortgage debt of ~£750,000 on property worth ~£1,325,000. Heavily leveraged.

Today I have mortgage debt of ~£275,000 on property worth ~£2,250,000. Lightly leveraged.

Leveraging is good at times of low interest rates. It is not good at times of high interest rates. I think I have timed things well, perhaps by luck more than judgement, but de leveraging was a deliberate decision way back in 2012/2013.

But now we have moved into a different phase of the economic cycle. If interest rates have peaked or close to have peaked, could it be right to start leveraging once more.

I don’t know the answer.

 

[Mansfieldman750]

In 2012 I had mortgage debt of ~£750,000 on property worth ~£1,325,000. Heavily leveraged.

Today I have mortgage debt of ~£275,000 on property worth ~£2,250,000. Lightly leveraged.

Leveraging is good at times of low interest rates. It is not good at times of high interest rates. I think I have timed things well, perhaps by luck more than judgement, but de leveraging was a deliberate decision way back in 2012/2013.

But now we have moved into a different phase of the economic cycle. If interest rates have peaked or close to have peaked, could it be right to start leveraging once more.

I don’t know the answer.

That‘s madness. Leveraging only ever works if the value of the underlying asset goes up.
It’s a multiplier. It multiplies your gains and it multiplies your losses.

 

[Elmo3]

In 2012 I had mortgage debt of ~£750,000 on property worth ~£1,325,000. Heavily leveraged.

Today I have mortgage debt of ~£275,000 on property worth ~£2,250,000. Lightly leveraged.

Leveraging is good at times of low interest rates. It is not good at times of high interest rates. I think I have timed things well, perhaps by luck more than judgement, but de leveraging was a deliberate decision way back in 2012/2013.

But now we have moved into a different phase of the economic cycle. If interest rates have peaked or close to have peaked, could it be right to start leveraging once more.

I don’t know the answer.

Leveraging today against todays asking prices (you are suggesting 2.25M) at todays cost of borrowing is not sensible IMHO. The capital ‘value’ is way out of kilter with the current cost of funds. In short, if you had to liquidate tomorrow, the numbers would look different. You’ve been around long enough to see it all unravel, surely?

 

[Amarillo]

That‘s madness. Leveraging only ever works if the value of the underlying asset goes up.
It’s a multiplier. It multiplies your gains and it multiplies your losses.

I’m a cautious person, and I’m undecided. But if I do borrow it will not be to buy more BTLs. It will be to diversify. And it won’t be immediate.

Currently, 98% of my wealth is in property. That is not balanced.

 

[The Merle]

I’m a cautious person, and I’m undecided. But if I do borrow it will not be to buy more BTLs. It will be to diversify. And it won’t be immediate.

Currently, 98% of my wealth is in property. That is not balanced.

Is the 2% the beach, keep up the posts Tom always find them interesting.

 

[The Tall Luthier]

BTL is a travesty really….how can it be that if Jack & Jill on average wages can’t get a mortgage and buy a house/flat at a fair price, it’s seen as ok and market forces, it’s not, it’s a breakdown of societal reasonable norm.

Why do I hold this view ?

Having run a law firm for 40 years this year, I recall being aghast in the late 1990s acting for one person after another, doing Conveyancing for them on BTL…even then my thoughts were very anti and I thought…why can’t they be made to pay a surcharge on their mortgage interest rate & a corresponding reduction be offered to a FTB trying to get on the housing ownership ladder. Simplistic I know, but hey if we are honest, would we not agree that the more that share the pie, is better than not even allowing them crumbs.

The most basic requirement is that people can pay for a roof over their head, feed themselves & family & maybe aspire to luxuries…that has been largely taken from them.

You are right of course. Unfortunately the forces that keep the status quo are so much stronger than the forces for good. Rebalancing the situation for the good of society would take a hell of a manifesto,

Wilson managed such a thing by creating houses for ordinary folk, Thatcher sold them all to the tenants who sold them all to the market.

The 2010 government did alter Stamp Duty to make it more expensive to buy a second home as a private individual not a company. In my view an extension of this or a property tax on second homes would definitely be for the greater good. Phased in of course to prevent the wealthy from getting bloody noses.

 

[andyinluton]

The 2010 government did alter Stamp Duty to make it more expensive to buy a second home as a private individual not a company.

You pay the extra if you are a company as well.

Edited to add thats the extra stamp duty on any property bought by a company whether it's their first , last or only one and its charged on 100% of the purchase value.
So you now get hit as a developer if you buy a house just to pinch part of the garden, we have just exchanged on a £1.5m house thats going to get knocked down - £136k stamp duty! ok its tax deductable from the profit at the end but its a big lump to pay up front. That site will end up with 4 homes on it, each of which has had its price inflated by £39k to cover those costs.


For the same reason the prospect of buying large houses to renovate as a business has gone out the window,

 

[Lambeth Cali]

I have just listened to The Rest is Politics - Leading podcast - John Major part 2. In it he describes his first day as chancellor - interest rates at 14% and inflation nearly 10%. He describes how he got things back on track but how this caused people a lot of pain and how bad it made him feel. He remembers how growing up, his mother never bought herself a new dress and often had to borrow money from people. There can’t be any other prime minister who came from a poorer background.

He comes across as the definitive decent human being who tried to make people’s lives better.

When he was booted out in 1997 I was so happy I cried. I was 26 then.

Now 52, I find it mildly confusing just how much I liked him.

24: John Major: The Gulf War, Black Wednesday, and Populism (Part 2) — Leading — Overcast

overcast.fm

 

[Mansfieldman750]

I have just listened to The Rest is Politics - Leading podcast - John Major part 2. In it he describes his first day as chancellor - interest rates at 14% and inflation nearly 10%. He describes how he got things back on track but how this caused people a lot of pain and how bad it made him feel. He remembers how growing up, his mother never bought herself a new dress and often had to borrow money from people. There can’t be any other prime minister who came from a poorer background.

He comes across as the definitive decent human being who tried to make people’s lives better.

When he was booted out in 1997 I was so happy I cried. I was 26 then.

Now 52, I find it mildly confusing just how much I liked him.

24: John Major: The Gulf War, Black Wednesday, and Populism (Part 2) — Leading — Overcast

overcast.fm

Thanks for that, it was a great podcast. I always thought Black Wednesday was caused by George Soros shorting the pound so good to get the inside story.
Away from Interest Rates, liked the story about him and Albert Reynolds sitting down in a room with a bottle of whisky and agreeing to end terror in Britain and Ireland.

 

[The Tall Luthier]

I find that

I have just listened to The Rest is Politics - Leading podcast - John Major part 2. In it he describes his first day as chancellor - interest rates at 14% and inflation nearly 10%. He describes how he got things back on track but how this caused people a lot of pain and how bad it made him feel. He remembers how growing up, his mother never bought herself a new dress and often had to borrow money from people. There can’t be any other prime minister who came from a poorer background.

He comes across as the definitive decent human being who tried to make people’s lives better.

When he was booted out in 1997 I was so happy I cried. I was 26 then.

Now 52, I find it mildly confusing just how much I liked him.

24: John Major: The Gulf War, Black Wednesday, and Populism (Part 2) — Leading — Overcast

overcast.fm

Never understood why the man was a tory though!

I think he did a lot of great work in his short tenure. Principally the Maastricht Treaty ‘96. Signing us up to the EU Single Market was the ONLY reason we achieved peace in Northern Ireland. Blair took the credit, there was still work to do but Major removed the borders permanently.

My only regret is that he never broadcast from the roof tops the absolute amazing benefits that every Brit could live and work anywhere they wanted in the European Union. Anywhere!

Instead, twenty years later it got turned around as a negative by bad people.

 

[Amarillo]

I have just listened to The Rest is Politics - Leading podcast - John Major part 2. In it he describes his first day as chancellor - interest rates at 14% and inflation nearly 10%. He describes how he got things back on track but how this caused people a lot of pain and how bad it made him feel. He remembers how growing up, his mother never bought herself a new dress and often had to borrow money from people. There can’t be any other prime minister who came from a poorer background.

He comes across as the definitive decent human being who tried to make people’s lives better.

When he was booted out in 1997 I was so happy I cried. I was 26 then.

Now 52, I find it mildly confusing just how much I liked him.

24: John Major: The Gulf War, Black Wednesday, and Populism (Part 2) — Leading — Overcast

overcast.fm

“As I prepare to leave the House I wish to see it thrive, because, for all its shortcomings, it remains the best and least corrupt system of government that I have ever seen.”

I wonder if he would say the same now that both the former prime minister and present prime minister have fixed penalties for criminal wrongdoing while in office.

 

[Mansfieldman750]

A country of long shadows on county cricket grounds, warm beer, green suburbs, dog lovers, and old maids cycling to holy communion through the morning mist.
Load of tosh of course and inappropriate for a multicultural Britain but I liked the imagery anyway.
Long live John Major.

 

[Lambeth Cali]

Thanks for that, it was a great podcast. I always thought Black Wednesday was caused by George Soros shorting the pound so good to get the inside story.
Away from Interest Rates, liked the story about him and Albert Reynolds sitting down in a room with a bottle of whisky and agreeing to end terror in Britain and Ireland.

The episode where Rory Stewart loses his temper with Jonathan Powell is also excellent and funny.

 

[Lambeth Cali]

I find that

Never understood why the man was a tory though!

I think he did a lot of great work in his short tenure. Principally the Maastricht Treaty ‘96. Signing us up to the EU Single Market was the ONLY reason we achieved peace in Northern Ireland. Blair took the credit, there was still work to do but Major removed the borders permanently.

My only regret is that he never broadcast from the roof tops the absolute amazing benefits that every Brit could live and work anywhere they wanted in the European Union. Anywhere!

Instead, twenty years later it got turned around as a negative by bad people.

It’s a great listen. Enjoyable on many levels. Ultimately it’s good to have your views challenged. Cambell asks him “why were you a Tory” a few times.

 

[Lambeth Cali]

“As I prepare to leave the House I wish to see it thrive, because, for all its shortcomings, it remains the best and least corrupt system of government that I have ever seen.”

I wonder if he would say the same now that both the former prime minister and present prime minister have fixed penalties for criminal wrongdoing while in office.

He refuses to talk about Johnson.

 

[Amarillo]

I’m a cautious person, and I’m undecided. But if I do borrow it will not be to buy more BTLs. It will be to diversify. And it won’t be immediate.

Currently, 98% of my wealth is in property. That is not balanced.

I have crunched the numbers, and putting excess cash each month into a stocks and shares ISA rather than overpaying the mortgage is almost certainly going to be more advantageous.

It would be more of a gamble to increase borrowing to put a lump sum into an investment account as CGT would eat away at any profit.

So, it seems likely that come November and we remortgage, we shall be paying interest only and stuffing up to £40,000 each year into our stocks and shares ISAs. Historically we have achieved 7.5% growth, and so long as we can do better than 4.6% per year over 5 years it will be the right decision.