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Buy-to-let investors are drowning in debt

John Fitzsimons on 25 March 2010 |

66 comments

Increasing numbers of landlords are deep in the red, and that's a disaster for all of us.

Buy-to-let investors are drowning in debt

I’ve only rented property once, while I was at Uni, and I’d be lying if I said it was a pleasant experience.

Our landlord, for want of a better phrase, was utterly useless. For the best part of two years we had to put up with a kitchen door with a foot-shaped hole in it (a present from the previous tenants).

Thankfully, I’m well aware that such a shoddy experience is not the norm, and that the vast majority of landlords provide a great service.

A sea of debt

However. despite the vital role landlords play, an increasing number are falling perilously deep into debt.

A new report from debt solutions firm IVA.com has found a 53% jump in the number of buy-to-let investors struggling to pay their creditors.

In the firm’s own words, it has seen “near meltdown” among buy-to-let professionals, with typical debts in the range of £163,000 to £201,000.

A tough time for landlords

The last few years have seen some seriously difficult times for landlords. Not only has competition among the buy-to-let sector all but disappeared, leaving them with very few refinancing options, they have also seen serious problems with rental arrears, as tenants lose their jobs, or struggle with their own debts.

At the tail-end of last year, the National Landlord’s Association highlighted the problems many landlords have faced recently. Nearly three quarters of landlord members had experienced rental arrears – and almost half of those landlords had seen their tenants fall behind on rent in the preceding 12 months.

Things have improved

Thankfully, things have improved somewhat for the beleaguered landlord. Figures from the Council of Mortgage Lenders in February revealed landlord arrears levels had fallen 37% year-on-year, while repossessions had also dropped 25%.

While this is welcome, clearly a large number of landlords are still struggling, and in need of some serious help.

A helping hand with the mortgage

A huge problem in my view is that when the Government announced its various schemes to help struggling borrowers, it completely ignored buy-to-let landlords.

So while mainstream borrowers can take advantage of a number of different vehicles to help them get through their difficulties, no such help is available to landlords, who are forced to carry on regardless, even as their tenants fall further and further behind on the rent, and as a result they miss their own mortgage payments.

A boost for first-time buyers?

At this point, a fair number of you will no doubt be thinking: “Good."

Related how-to guide

Become a buy-to-let landlord

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After all, buy-to-let landlords are often blamed – and not entirely unfairly – for the difficulties many first-time buyers experience in getting on to the ladder. If a reasonably priced, smaller property is put up for sale, for every first-time buyer interested, there will also be a few interested buy-to-let investors. The result? Prices go up!

But, if buy-to-let landlords are struggling, there will be fewer investors sniffing around the traditional first-time buyer properties, thereby enabling them to snaffle up a few bargains.

Not so good for the market

However, I’m not so sure landlords drowning in debt can be seen as a good thing for the rest of us.

If you are a tenant, for your landlord to be struggling to get by is a disaster. For starters they may be unable to afford the improvements that your rented home desperately needs.

3 easy ways to reduce your mortgage bills

If the worst then happens, and the property is repossessed, you face huge uncertainty. While the lender will initially appoint an agent to collect the rent on their behalf, they may choose to sell the property. And where does that leave the tenant? You could be homeless in a matter of weeks.

It's also a problem for future renters. Buy-to-let investors are currently filling the hole left by the sale (and non-replacement) of social housing two decades ago. There is a property shortfall as it is, and if landlords are forced out of the market by this debt, that shortfall will only get worse. As a result, not only will choice disappear, but so will competition, meaning rents will creep up.

It’s not exactly good news if you already own your home either. A street full of repossessed rental properties is not going to do much for your own home’s worth is it?

Watch this video: Cut the cost of your mortgage! or adopt this goal: Become a buy-to-let landlord

Not popular – but vital

I’m not a buy-to-let landlord, nor do I aspire to be one. But whether you like it or not, landlords provide an essential service in the UK’s property market, one that the State has neither the resources nor the inclination to match.

And if they are allowed to drown in debt, we will all suffer as a result.

So I think landlords should be afforded exactly the same help as normal borrowers in order to give them a helping hand out of debt - and that it’s in all of our interests that they are given a boost.

But what do you think? Let us know using the comments box below!

More: Shave years off your mortgage | Over 65? You’re sitting on a £765bn goldmine!

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.

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49

peepobaby said

Complete nonsense. BTL landlords with debt are a zero productivity activity with zero contribution to real GDP.

Report on 25 March 2010 | Love 6 loves
44

bimber said

Yes, nonsense. If farmers stop farming there will be no food. If teachers stop teaching there will be no education. But if landlords "are allowed to drown in debt" then what will happen to the houses? Will they disappear or will they come on the market and be bought by owner-occupiers at realistic values and other landlords who have not leveraged up to suicidal extremes? Talk of a shortfall if landlords have to sell up is either naive or scaremongering.
Neither landlords nor owner-occupiers should be given money from the government to keep them in homes they cannot afford. The money would have to be taken from people who would be able to afford the houses if not for the debt-financed buying of the imprudent. If people find they cannot afford their house they should move. There will be some short-term pain for those who failed to plan or lost their jobs and cannot cope, but equally there will be pain for those who have to subsidise their lives if the government gives in to the sob stories. Cheaper housing is the best policy for the long term health of the country, so that is what the policy should be. It might mean more people having to move house, but the whole economy needs to restructure and this is a small part of that. The sooner we begin, the sooner we finish.

Report on 25 March 2010 | Love 4 loves
0

JoesQuest said

Landlords don't want to buy every single property on the market. They have very specific criteria and tend to go for certain locations so many of the homes that first time buyers want are of no interest to investors. How many landlords are buying £300-700k homes to rent out? It is clearly not landlords who have forced up the value of good sized family homes.
Many people have no interest in buying their own home, especially given the risks it can involve. Landlords do a valuable job of providing homes to millions of people, many of whom could not or would not buy regardless of the price and as you rightly point out, fewer landlords would mean much higher rents.
What tenants have been made homeless in a matter of weeks? The minimum notice required in a standard AST is 2 months.
As much as some help could be very welcome, this Government are certainly not qualified to deliver it, you may have missed the comments from David Cameron, the £250m (lack of) initiative from the Labour Government to assist struggling home owners has helped JUST 15 PEOPLE. I don't think it would be sensible to waste more of the taxes of hard working people.

Report on 25 March 2010 | Love 0 loves
273

Swarbs said

JoesQuest, the two month period only applies if the AST is binding on the lender as well as the landlord. If not, then the tenant has no security of tenure and the lender can apply for a possession order for the tenant at the same time as the landlord.
Re: the claim that fewer landlords means higher rents, this doesn't necessarily follow. Fewer landlords also generally means more owner occupiers, hence fewer renters and thus rents should stay roughly the same. Of course that assumes the repossessed properties aren't just bought by bankers to use as second homes...

Report on 25 March 2010 | Love 0 loves
1

richardshamilton said

Oooh some of these articles provoke comment don't they!? :-O
Buying a property with the intention of letting it is an entirely specualtive activity. The decision to do so implicitly requires an assessment of commercial risk.
A sustained period of unusually low interest rates, and a relaxation of the limits on borrowing, increased the supply of money available to everyone over the last 10+ years. Inevitably, (and a cynic would say in accordance with unstated Government objectives), the prices paid for property rose rapidly to find a new equilibrium at the new funding level. This inevitably delivered enormous increases in tax revenue to the treasury and is the basis for my own view that private borrowing has been deceitfully used to reduce the Public Sector Borrowing Requirement.
Buy-to-let landlords have in many cases jumped onto a passing bandwagon, accepting lower and lower yields, until their only prospect of profit arose from the anticipated capital gains which have now, predictably, evaporated. Many have made inadequate assessments of the risk and the bigger economic picture, or have invested out of a fear of missing out rather then from any great insight or business acumen. It is unthinkable to me that the rest of us should now be asked to bailout yet another group of inveterate and foolish risk-takers.
There is nothing new here, it happened to many greedy 'straw' property empires between 1989 and 1995, and it will happen again. The properties that are liberated by this process go back into the mix at sensible prices and the pendulum swings back through the mean. This is good news for the majority. It is bad news for the minority to whom wealth has been transferred over the last decade by this Government's feckless and dishonorable economic manipulation.
I welcome it.
In 1996, I was able to rent out a property bought in 1991 at a gross yield of 12.5% with interest rates at 7%. By 2001, the paper value of that modest apartment had doubled reducing my yield to 6% and wiping out the rental profit. The only gains made after that were capital gains and over the full economic cycle, these cannot exceed growth in average earnings because it is earnings that justify the borrowing to buy. The banks didn't even start marketing 'Buy-to-Let' until my net rental yields had dropped to zero.
I hear the echo - "If you see a bandwagon, you're too late!"?

Report on 28 March 2010 | Love 1 love
9

pablo411 said

I am a residential landlord (where did this buy to let acronym come from) I have been renting property for in excess of 25 years, I occasionally have bad tenants, also because of government interference (thanks you Mr Rackman)it takes about 4 months to legally evict for whatever reason, deposits if taken need to be placed with some other body so a small incentive of interest on that money has been removed,I now need energy certificates to let (no tenant in my experience has turned down accommodation because of that piece of paper), I have never retained a deposit unless it was very justified, my tenants range from retired to 18year olds, I organise and control my entire portfolio having tenants that have been with me for up to 17years in one instance followed by 13yrs, 11.5yrs 9yrs 7.5yrs etc means I am not a poor or a bad landlord (probably not the best but definitely not the worst) so BTL lanlords have only themselves to blame if they believed it would be easy money "try working your portfolio dont buy what you cannot afford and be fair with your tenants" end of lecture, my retirement is covered by getting off my rear end and grafting to run my business, I am content with both income and the potential future that it will give me.

Report on 28 March 2010 | Love 1 love
27

Iniq said

BUY-to-let landlords, who bought property with their own money, haven't got a problem, but BORROW-to-let landlords may well have, just as anyone might if they borrowed money to invest in anything else. Why don't people say what they mean? Why do people (including lazy journalists) euphemistically talk of "buy-to-let" when what they REALLY mean is "borrow-to-let"? Why not have the courage and honesty to say what you mean?
When lots of people bought dot.com shares it just caused a boom. But when they started to do so with BORROWED money, that turned it into a dangerously unsustainable bubble. Why should property be different?
It is grossly unfair that an innocent tenant who has paid his rent can be evicted if his borrow-to-let landord defaults on his borrowing. The law needs to be amended to give such tenants much greater protection, not just to protect tenants, but to make it harder for lenders to re-sell re-posessed borrrow-to-let properties.
This would discourage reckless, irresponsible lending to borrow-to-let landords and remove ONE cause of excessive property prices.

Report on 28 March 2010 | Love 3 loves
64

LandOfConfusion said

Another LoveBTL article published at the weekend (when I'm normally @ work on nights). Fortunately I'm on holiday this week.
JoesQuest said
"Landlords don't want to buy every single property on the market."
Nonsense. They would if they could; the only thing stopping them is money. Pure and simple.
"They have very specific criteria and tend to go for certain locations"
Of course, prospective yield and property cost are major factors. This is why so many flats in Leeds & surrounding areas are now being sold at a loss. They we initially sold at the right price and with a good prospective yield. Until the crash started that is.
"How many landlords are buying £300-700k homes to rent out?"
Ask the Wilsons.
"It is clearly not landlords who have forced up the value of good sized family homes."
House prices are all relative to each other. If the prices at the bottom go up, so does the 2-bed and the 3-bed and so on. By bidding up the price you cause the same to happen right up the chain.
"Many people have no interest in buying their own home, especially given the risks it can involve."
While that may be the case, I haven't met any. But I have met lots of FTB'ers who have been either priced out or outbid on their first home.
"Landlords do a valuable job of providing homes to millions of people, many of whom could not or would not buy regardless of the price and as you rightly point out, fewer landlords would mean much higher rents."
You mean landlords are doing the job that the public sector should be doing: housing social cases. And charging over the top for it in the process*.
"What tenants have been made homeless in a matter of weeks? The minimum notice required in a standard AST is 2 months."
It might have changes now but it used to be that Lenders could evict a tenant with only 2 weeks notice. And that's only if the Landlord told the lender the property was a BTL. Many didn't and the first the tenant got to hear about it was when the bailiffs came to repossess.
"I don't think it would be sensible to waste more of the taxes of hard working people."
At least we agree on something.
* I'd like to enter a quote just to re-affirm my point:
"I recently bought another BTL property in the Ballymena area. I bought it on the assumption the rent would be about £425 per month. Out of which I would have to cover a very small mortgage (accountants advice) and rates.
However I rented it to a single mum with 1 child on housing benefit with her dad as guarantor. The housing benefit is paid directly to me every 4 weeks in arrears. The housing benefit payment (which includes rates) is £115 per week, paid every 4 weeks giving me £460 every 4 weeks this equates to £5,980 per year or £498 per month.
Local housing authority also underwrote the security deposit, they will pay for any damage to the property so the tenant doesn't have to find the deposit to secure the property at the start of the agreement.
If the single mum has another kid I get a rent increase and if she has another one I get another rent increase.
While the local housing authority are paying out this kind of money, why not BTL?"
Source: http://www.housepricecrash.co.uk/forum/index.php?showtopic=138906

Report on 28 March 2010 | Love 0 loves
64

LandOfConfusion said

Juts one other thing (if the LoveBTL comments box will let me):
As the quote above shows, this government (and Maggie's for that matter) are actively trying to make people poorer.
What BTL legislation does is allow people to charge others' for the utility of the land. I don't accept the BTL nonsense that 'We're providing a service'. If that were so then why not remove right-to-buy, ban BTL and nationalise some of the housing stock? That way BTL'ers could continue to offer their 'service' (to those that rent from the state) but it would prevent them from charging for the utility of the land. It would introduce competition and mean that BTL'ers would have to actually compete for a change.
At the moment BTL'ers are getting a lot of money for very little actual work and from a productivist's point of view, are wealth destroyers.

Report on 28 March 2010 | Love 1 love
1

pamjoss said

As a BTL(Borrow to let) investor, I agree with a lot of points made regarding the need for additional decent housing to be provided.
I disagree that private landlords charge over the odds, as the last posters quote shows, rent goes up at the hands of the benefits system, a private landlord has to be competitive and charge the market rent if the property is well maintained, less if it is not.
I disagree that landlords push prices up and without attempting to provide lesssons in business, it is against everything most landlords (professional) aim for to pay more than anyone else in a market will for a given property. Where is the exit in a downturn if you need to cover a purchase price above new market value?. I and most investors I know, always buy property below current values.
Availability is not the current barrier to FTB'ers, it's MORTGAGES !! Deposit requirements and lenders' criteria.
First time buyers almost always compete with each other, not landlords and often fund deposits by borrowing from parents to effectively speculate.
I have rented and I have owned, happily the options were all available for me at the points in my life when I wanted them to be. As a student and when newly qualified, I had no certainty of living where I studied/worked in the long term and preferred to rent. When I was ready to buy, I had a good choice of borrowing although rates at the time were high.
Too easy and unjustified to say landlords cause all the problems.
Does borrowing to buy a car which 'definitely' drops in value during ownership cause the price of new cars to jump? I don't think so but I do know which is the more sensible borrowing between cars and houses.
Landlords would not buy all houses despite posts above stating they would. Houses are a business tool to a landlord and they would not buy a non- performing asset. If i had money to buy a house at £500000 with a rent of £1800, I would prefer to buy 2 @ £250000 with a rent each of £1200. If one is empty with all my money invested in it, I have a loss all the time it is vacant. If one of the smaller houses is vacant, I still have some income.
landlords do choose areas and types of property - those which will rent at a price which covers the outgoings - mortgages, insurance, safety certification,landlord registration, furniture replacement and void periods. Most professional landlords knew how to add up their known costs, allocate for the unknown but predictable costs and make sure that all were covered.
Lenders' were at the same time benefitting from repeated application fees from both residential and investor borrowers with most products expiring after 2-3 yrs. This has led to difficulty for all as the deposit requirements have risen simultaneously with values dropping meaning most of us have to find capital sums to enable a remortgage.
My point remains - It's Mortgages !!!
pamela

Report on 28 March 2010 | Love 0 loves
1

pamjoss said

Iniq
I should have included this above - I agree innocent tenants should not lose their tenancy because of a landlord's financial mismanagement. At the same time, I am very much of the view that innocent landlords should not lose their livelihood because the state supports tenants in prolonged non-payment of rent. I personally know that tenants can continue to receive benefit whilst not paying the rent and be advised that they do not need to leave the property. I understand the background of protective legislation but it is abused and most of all by council employees as they instruct re, continuing non-payment of rent.
This scenario is much more common than that of landlords being repossessed causing hardship to innocent tenants. Landlords wish to maintain their investment and will go without on a personal/family level to ensure commitments are met, even when rents are in arrears.
Pamela

Report on 28 March 2010 | Love 0 loves
64

LandOfConfusion said

pamjoss said:
"I disagree that landlords push prices up "
You're competing in a highly localised market which suffers from an inability to grow due to limited land availability. This competition pushes up prices.
"it is against everything most landlords (professional) aim for to pay more than anyone else"
I agree, but you miss two things:
1. Most BTL'ers are amateurs..
2. Most BTL'ers intend on making a capital gain.
The current price doesn't matter so much if the house's value will keep going up and up. Many amateur BTL'ers have been caught out by the fact that house prices do not go up forever.
"Where is the exit in a downturn if you need to cover a purchase price above new market value?."
My point exactly. I also take it that you haven't brought a flat in Leeds unlike so many others?
"Availability is not the current barrier to FTB'ers, it's MORTGAGES !!"
Not that argument again!
It's not a shortage of housing or a shortage of land or even a shortage of mortgages (which, incidentally have become easier to get as of late). It's a lack of affordability. Competition, especially from BTL'ers who use leverage to bid up prices, has ment that house prices have become unaffordable to most FTB'ers.
"First time buyers almost always compete with each other, not landlords "
Both groups buy the same kind of housing and within the same price range and yet are rarely in competition with each other...?!
"and often fund deposits by borrowing from parents to effectively speculate."
So they use their parents' equity to buy their first house? How's this different from your common amateur BTL'er who uses equity from their main residence to buy their first BTL?
"Too easy and unjustified to say landlords cause all the problems."
By no means am I saying that landlords cause all the problems - repeated governments have done much damage and all most professional BTL'ers have done is run a business. But BTL's very existence is corrosive and destroys wealth.
"Does borrowing to buy a car which 'definitely' drops in value during ownership cause the price of new cars to jump?"
And is this a weasel argument? A car is a product. Land is not. You cannot compare the two.
"Landlords would not buy all houses despite posts above stating they would."
Are you saying that a business would choose not to do as much business as possible? That doesn't make sense.
"Houses are a business tool to a landlord"
And a home to someone else, which is what they should be. Charge for the service, not the land.
"Lenders' were at the same time benefitting from repeated application fees from both residential and investor borrowers with most products expiring after 2-3 yrs."
More wealth destruction, this time from the financial services industry.
"This has led to difficulty for all as the deposit requirements have risen simultaneously with values dropping"
This is because houses have been (and still are) to heavily geared. Deposit requirements have to increase because of the risk that house prices might fall back to fair value or below.
"meaning most of us have to find capital sums to enable a remortgage."
So MEW (mortgage Equity Withdrawal).
"My point remains - It's Mortgages !!!"
Mortgages are debts. The risk associated with that debt has gone up. Are you saying that the government should step in with taxpayer money to protect yet another wealth-destroying industry?

Report on 28 March 2010 | Love 0 loves
27

Iniq said

I agre with you, Pamjoss, that landlords get a poor deal in much of the landlord-tenant legislation. (I am a landlord - never been a tenant.)
But my point was really a separate one - about the extent of the reckless over-lending to borrow-to-let landlords which has helped to push up property prices excessively.
Anythng which curbs this has to be a good thing, but it is far better that this should be achieved indirectly (such as by making the re-posession of b. I apologise if this is unintellible, but I'm afraid this sate seems to have no edit facilirt and posts do not seem to scroll properly.)orrow?-to-??let?? ?????????????properties??? more difficult) than it is by trying to micro-manage lenders' businesses for them with tedious, expensive and com,pliated legislation a?nd regulation.? businesses fro the? ?

Report on 28 March 2010 | Love 0 loves
277

nickpike said

Well done Gordon. This governement stoked the housing bubble on purpose, and now a lot of people have to pay the price. More fool them.
The fundamantal problem is that house prices are double what they should be. They will drop back when brown stops wasing billions of pounds to stoke the fake economy.

Report on 28 March 2010 | Love 1 love
4

Bumclucker said

A few years ago many BTL investers saw the housing market as a licence to print money. With year on year increase in house prices of 6%+, this looked a good investment, and it was/is providing the rent covers the costs. For those foolish enough to buy at the top of the market or who's rent bairly covered the mortgage their money making machine will have by now stoped working. When a tenant leaves it can take months to find a new one. During this time costs still have to be met by the landlord. Many would be landlords were looking for a quick buck and forced up house prices by taking property out of the owner - ocupier market. These people may now have the oppersite effect as a lot of ex BTL houses come onto the market. During the boom years some lost sight of the fact that house prices were rising too fast and this means that there will be a corection. Government folly, by spending billions of pounds of our money proping up the housing market has delayed this correction. Then add a the banks getting real in their lending, it is not suprising that many BTL investments have gone wrong.

Report on 28 March 2010 | Love 0 loves
4

Bumclucker said

A few years ago many BTL investers saw the housing market as a licence to print money. With year on year increase in house prices of 6%+, this looked a good investment, and it was/is providing the rent covers the costs. For those foolish enough to buy at the top of the market or who's rent bairly covered the mortgage their money making machine will have by now stoped working. When a tenant leaves it can take months to find a new one. During this time costs still have to be met by the landlord. Many would be landlords were looking for a quick buck and forced up house prices by taking property out of the owner - ocupier market. These people may now have the oppersite effect as a lot of ex BTL houses come onto the market. During the boom years some lost sight of the fact that house prices were rising too fast and this means that there will be a corection. Government folly, by spending billions of pounds of our money proping up the housing market has delayed this correction. Then add a the banks getting real in their lending, it is not suprising that many BTL investments have gone wrong.

Report on 28 March 2010 | Love 0 loves
0

mother7007 said

Land lords deep in debt, yes of there own doing, along with the rest of the country, the human greed has gone to to far. I think also estate agents are to blame for economic decline of this country, they have pushed and pushed the prices of houses to the point where there is nothing left to spend on anything else. i,ve heard storys where once the cost of the house and all the bills relating to owning there own property there,s just about enough to put food on the table with a little help from there flexible friend. Thats the real problem the very high cost of owning a house in england. there,s simply no money to spend on new furniture, new cars,new cloths , holidays , etc etc etc. It don,t take a leading expert to figure it out or where it all went wrong and this is from i regular guy who drives a taxi for a living, and have been called amomg outher names a rip off merchant. oh well perhaps i,ll get a booking in the next couple of hours and make me a fiver. bfn

Report on 28 March 2010 | Love 0 loves
24

exportlink88 said

BTL is a biz. Just like any biz, it has to make money. Just like any other biz, there are risks. Just like any biz, there are amateurs and there are professionals.

BTL is a capital intensive biz. Like all such biz, it calls for heavy gearing. House purchases have always been heavily financed since time immemorial. How else is anybody, whether BTL or FTB, going to buy anything without the ability to finance the purchase ? Without the ability to finance, there is no buyer. When that ability is excessive, supply and demand come into play. Without a doubt, it is the abundance of easy liquidity that pushed up house prices.

That abundance of liquidity might have allowed some FTBs and amateur BTLs to get on the ladder but it is not a good thing for the professionals. The pros are there for the long haul. Asset price increases are great for the young amateurs, not necessarily so for the pros who are mostly looking for income stability and a decent rate of return on their investment – just like any other biz. When property prices go up, rental yield goes down. And it got to a point of –ve cash flow. The entire biz sector becomes dead on its feet at this point for which BTL can continue to invest in that environment ? Sure he can reap capital gains which is part of the return on his investment, but then - do what ? Buy another place for the same price or more and end up in a –ve cashflow situation ? That’s not sustainable. Sure, lots of BTLs did that – kept upping their gearing by equity release from a previous purchase. And now they are in trouble. These are amateurs who do not understand the nature of the biz they are in or the risks they are taking on. The pros didn’t do that. They were already in the game well before the band wagon turned up. So they either did nothing when the yield was non sensible or they sold. And then they waited.

The world thought BTL was an easy number. Not so.

I think the BTL melt down is a good thing for both the professional BTLs and the renters.
There were too many rental properties forcing down rent. Most of these were crap properties and the new BTLs didn’t have the funds to do them up decently. They give the decent professional landlords who provide decent accommodations a bad name.

I don’t know whether there will be more or less or the same no of rental properties on the market after this clear out, but I know that when prices go down, yield goes back up and we could well be seeing the rerurn of +ve cashflow and a decent rate of return on investment. And the BTL biz could well be worth doing again – bar the ridiculous legislations that imposes a min 4-month wait to get rid of a non paying or otherwise contract breaching tenant. These guys get a place to live for free while the landlord gets repossessed for not servicing their loans. Then they complain about being kicked out of their home. What kind of justice is this ?

The idea that the government should help out with BTLs in trouble is a preposterous one. Bad bizmen shouldnt be in biz. Let them fail in the nature of the market place. Big brother government is bad for biz but I like the idea that all landlords should be registered and subscribe to a code of practice – provided that the law is fair to both the landlord and the tenant.

Report on 28 March 2010 | Love 0 loves
2

dgoodman said

I'm sorry, did I miss something, the level of debt is only important if you actively HAVE to sell. House prices will go up over the long term, unless something radical happens in this country and given that successive governments don't actually have the balls to do anything radical it seems it is unlikely.
Land of Confusion - what is your problem?
1. If I take equity out of my own home, what I do with it surely is up to me yes? It is a better stable long term investment in property than any other investment vehicle IMHO.
2. I'm sorry, but the banks lending at 5-10 times salary is what caused the majority of the housing issue. Typically FTB'ers will always outbid an investor (not speculator) because they want the home - and investor will always be looking for best price, unless a very rare yield situation occurs.
3. Please explain ur wealth destroyer perspective
4. Outside of dream world and less so today than ever before (more people own their houses today than any point in history) WHO if not the private landlord in your view will provide accommodation for those on benefits or who don't wish to own - and I know many people (whole families that never wish to own)
5. You ever tried renting the land to tenants, I find that they tend to expect some sort of quality product (e.g. a house), upon that land for them to live in exchange for their rent. Also most flats are leasehold and hence the landlord doesn't own the land.
Actually I find your land perspective intriguing, what exactly are you proposing - what do you want to do with the land? I'm genuinely confused how is it really any different to renting any building on land be it a house to live in, offices to work in, stables for horses - all are services utimately surely?
D

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dgoodman said

PS to land of confusion, if you really have a problem with use of land to provide extortionate mark-up of cost of service to actual value - might i suggest you look at most camp-sites and pretty much the whole holiday industry!

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dgoodman said

But tell me why for a residential mortgage I can get a 75% mortgage at 2.89% (still an appalling mark-up on BoE base rate). Yet as an investor its 5.89% - That is wrong - sorry, but it is

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adeas said

BTL/PROPERTY long term investments? How much will these investments be worth once we run out of OIL?

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cyril the squirrel said

'dgoodman' has a point. Why should an investor pay twice as much for a mortgage than a resident? Some might say it's more risky to fund an investor. On the other hand, the investors could be being exploited!

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LandOfConfusion said

dgoodman said:
"Land of Confusion - what is your problem?"
BTL'ers are parasites and this government seems to be doing whatever it can to support them and keep home ownership a dream.
"1. If I take equity out of my own home, what I do with it surely is up to me yes? It is a better stable long term investment in property than any other investment vehicle IMHO."
I'm not arguing with you on this point.
"2. I'm sorry, but the banks lending at 5-10 times salary is what caused the majority of the housing issue."
That's debatable. You could just as easily say that people caused the problem by taking out excessive mortgage debt.
IMO this current bubble has one main cause: The Labour government. They are ultimately responsible fior allowing it to happen, for allowing people to parasitise and now for keeping it going at the expense of future generation who will have to pay off the debts.
"3. Please explain ur wealth destroyer perspective"
If I make cars then I create wealth. If I consume that wealth (e.g I buy food and eat it) then overall I neither create nor destroy wealth. If I buy some land and then rent out that land, I haven't created any wealth. If I now spend that rental money then I am in many cases destroying wealth (net).
Now before you say that BTL'ers 'provide a service' I can provide you with examples where the BTL'er has employed someone else to provide the service (and therefore created wealth) but then charged several hundred percent more than that cost to the tenant. This difference is inherently wealth destructive.
"4. Outside of dream world and less so today than ever before (more people own their houses today than any point in history)"
Owner-occupier numbers are falling according to official statistics. Oh and 43% of mortgagees effectively rent from their mortgage provider as they are on interest only mortgages.
"WHO if not the private landlord in your view will provide accommodation for those on benefits or who don't wish to own"
We need to remove the property from the BTL. I have no problem with them providing a service and charging whatever they like for that service but I'm totally against them charging for the land. As land is the common asset it seems perfectly reasonable to me for the government to rent out housing while BTL'ers can provide the services to those tenants.
"I know many people (whole families that never wish to own)"
I know of exactly zero. And that seems logical after all, who wants to give up security of tenure and pay though the nose so that someone else's mortgage is paid off?
It doesn't make sense.
"5. You ever tried renting the land to tenants"
It's far from unknown for large investors (mainly land bank companies like Land Securities) to rent out agricultural land to farmers. In this instance the farmer maintains the land and uses it productively. The Owner does nothing except collect the rent. Fair?
"I find that they [tenants] tend to expect some sort of quality product (e.g. a house), upon that land for them to live in exchange for their rent."
A house is an improvement on a piece of land. It is not in itself a product (after being built, of course).
"Also most flats are leasehold and hence the landlord doesn't own the land."
Leasehold is quite interesting. The landlord retains ownership but defers utility over the long-term in exchange for rent. It's essentially a form of long-term BTL and is banned in Scotland.
"Actually I find your land perspective intriguing, what exactly are you proposing"
In a nutshell, make all land leasehold to the government. People pay tax (Land Value Tax) to the government in lieu of council tax. Some land is reserved for social housing and some land is reserved for local council/district council/county council (which ever works best) controlled rent. In the latter case they would be free to rent it out with BTL'ers given the opportunity of tendering their services to maintain those properties.
The rest would be 'owner-occupier' but with LVT on top to stop housing bubbles from forming.
"PS to land of confusion, if you really have a problem with use of land to provide extortionate mark-up of cost of service to actual value - might i suggest you look at most camp-sites and pretty much the whole holiday industry!"
Commercial areas (including purpose-build hotels etc) could be exempted and as for camp sites, I agree with you but they could get commercial exemption provided that their rates were within certain limits (no more that +10% over the LVT cost of that area, for example) and this would be allowed because they attract tourists and therefore bring money into the local economy.
This cake can be baked in many ways and zoning, (e.g. the commercial areas cited in the above examples) is are used in the states to good effect.
Also have a look at this [youtube video on LVT and the benefits of common land owership].

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exportlink88 said

dgodman : why do you bother to respond to land of confusion ? This guy takes some basic facts and make a quantum leap to end up in gagaland. Such men are dangerous.

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oddmoney said

As a HOME owner
and father of three grown up children with no hope of getting onto the property
ladder, you can see where I am in this debate, though I won’t bore you by
repeating the arguments. I would just say – have you seen the streets up and
down the country where BTL merchants have bought up the properties? Once
delightful streets have now become slums due to the greed of owners who don’t
have to live in their properties and have no wish to reduce their profits by
maintaining the exterior of the building.

I would simply mention Bath (Oldfield Park in particular)
where beautiful stone terraced streets have been ruined by people cashing in on
students from the two universities in the city, charging exorbitant rents for
slum-like accommodation.

Our towns and cities all over the country have become
blighted by this menace.

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Luniversal said

So we should be terribly upset because a handful of speculative property investors have got in too deep and can't repay their debts when the general level of interest rates is the lowest for 300 years?
How about the millions of thrifty people trying to support themselves on their savings with base rate at half a per cent?
Oh no, I forgot. Our place is to starve or freeze to death while the sacred First Time Buyer gets back on the ladder, in the country where 'home ownership' is the State religion. Silly me, forgetting governmental priorities again.

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Mike10613 said

Investors are fine, it's only people who borrow to speculate that have a problem. The stock exchange is in another bubble. It should rise at maybe 20% a year and we are seeing 50% over 6 months; there was a big rise last week. This boom and bust and no stability economics means you invest short term and take risk. If you get your fingers burnt in this free for all; no regulation economy - hard luck! It is the job of government to regulate. Mandy is too busy worrying about file sharing on the Internet to do his job properly.

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dgoodman said

Ah, ok Land of confusion, So let me get this straight, All land to be owned by the Government (or really you mean all of the people right?) So you would move to a system where as an owner I occupier, could rent the land from the government, but "own" my own house on that Land? or I could rent one from the government. I don't really see how this basically eradicates the problem are you see it though, because as a Landlord i would still buy the property, rent that out to tenants, including my Land Tax with the rents e.g. as I would now renting a flat out and encompassing the maintenance charges etc in the rent - basic economics - rent covers +x% all costs.
BTW, MONEY creates debt and wealth destruction, nothing else. Money once removed from any sort of standard e.g. Gold basically carries an inherent debt with it and to pay that debt you need more money. You point on car vs land fails to hold any water - not least because the car looses all its value over time. I buy a car because it serves a purpose, I rent a paddock/stable because it serves a purpose, I rent my house because it serves a purpose. You are also happy for me to come a pitch a tent in your garden and live in it as you don't believe that you own the land?
Presumably by your argument, we would return all utility companies to state ownership, because your same argument applies to water + heating as much as they do to land. But now we can get into a long debate on socialism (which is great on paper, until PEOPLE with their own interests actually get involved) v capitalism (which should in theory at least establish competition)...
Now, I would be happy to discuss a general principle of taxation across the board based on mark-up or value/cost, I think that would be a good way to help reduce the cost of living - but as I said no government will have the balls to do anything that radical
Your assumption is that all BTL'ers are thieving extortionists and that your benign government would provide a better, cheaper fairer service. Sadly i think you are either very naive or just plain misguided. I can give introduce you to members of my own family - who principle is "why would I want to own? its my all my problems to sort out if i do that?" and many others - who see there benefits disappearing if the own, but paid for them if they rent.
I am not saying that all landlords are great service providers, but neither are all councils or governments but then neither are all tenants, a BTL'er takes that risk and cost away from the state, in ur system the state would have to bear that cost
What determines rent is the local economic conditions, jobs and at the lower end of the social spectrum the housing authority. Landlords cant just charge what they like - they can charge, like any transaction, what someone is prepared to pay. In all honesty (and trust I could easily evidence this) the clothes and shoes you wear have way a bigger % mark-up than any investment property.
My final point is that almost *anyone*, with some research (which most amateurs don't bother to do) has the potential to become a BTL investor, even if you start of from a position of debt!
to exportlink88 - Because its good to understand others people perspective and then discuss, even if at the end of it you still disagree you have at least strengthened your own point of view

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dgoodman said

oddmoney and others - again a lot of people are mixing up investors with speculators and also the principle of investing in property and property legislation and enforcement. Not all owner-occupiers keep their properties immaculate.
Its also nonsense to say that noone can get on the property ladder, there are so many ways - just think a bit more creatively and stop seeing it as a right (or even a benefit).
Yes we had a major house bubble, not the first or the last, yes some people jumped on the bandwagon and threw money at property believing the growth rates were never going to stop short term - long term they will grow. Lots of people speculated on stocks and other investments too and they also lost out - that is the risk of gambling I guess and for those that did that and lost - well tough, you know the risks. Try investing instead, its a whole different mindset, that should be about creating value not stealing it.
This economic climate is largely the responsibility of this useless government - who inherited a strong economy (whatever else you may think of the last Tory government) and then basically ran a huge credit card way of living - telling the people that all was well and everything was good and like everyone who lives on mounting debt, eventually it unravelled, except unlike personal debt, noone is responsible for it - so it gets returned to us the tax payer, in which case I might just as well have managed my debt privately in the first place.

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Savvy chic said

I am a BTL landlord and it p*sses me off no end that the Councils concerned (ie in the areas where my properties are) seem to see me as nothing but a source of revenue FOR THEM!
I AM providing a Social Service which they are currently unable to do. I grudge paying them huge amounts of money for HMO certificates for them to tell me what I need to do to MY properties and for them to check that I am a Right and Proper Person to be a Landlord by way of Landlord Registration.

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LandOfConfusion said

exportlink88 said:
"dgodman : why do you bother to respond to land of confusion ? This guy takes some basic facts and make a quantum leap to end up in gagaland. Such men are dangerous."
I see that you like to use the strongest argument of all: Name calling.
Well, I guess it's a lot easier than thinking.
dgoodman said:
"Ah, ok Land of confusion, So let me get this straight, All land to be owned by the Government (or really you mean
all of the people right?)"
There are times when I wonder whether my debating opponent has actually bothered to read all of my argument before writing his reply.
First things first: I support capitalism, not social corporatism.
Capitalism is concerned with products, whether they be tangibles (e.g. goods) or services. Now based on this, what
is land? Is land created by someone? Is it a service provided to someone? If it's neither of these then how do we
handle it?
The solution to this problem has already been discovered and implemented and implemented very successfully. Given that land is part of the essence of a country and that the people of that country 'own' that country, land is therefore owned by everyone.
"So you would move to a system where as an owner I occupier, could rent the land from the government, but "own" my own house on that Land?"
Sigh. Firstly a house is an improvement on some land.
Secondly, you would have to pay everyone for the right to deprive them of the utility of that land. This payment would be based on the market value of the land and would be in the form of a Land Value Tax.
"or I could rent one from the government."
The government would set aside some land for social housing and some for transient renters, such as business people who need a place to stay for a few months/years but for whom buying is not economical. BTL'ers in their new form would be allowed to tender bids to maintain those properties.
"I don't really see how this basically eradicates the problem are you see it though, because as a Landlord i would still buy the property, rent that out to tenants, including my Land Tax with the rents e.g. as I would now renting a flat out and encompassing the maintenance charges etc in the rent - basic economics - rent covers +x% all costs."
Except as my original argument stated, you wouldn't. You'd only be able to charge for your services (+ profit) and not for the utility of the land. Otherwise you'd be charging someone for use of something that they already own. Renter Rents from the state buy pays the BTL'er for the maintenence services.
"BTW, MONEY creates debt and wealth destruction, nothing else."
I'm familiar with how fiat currency works. For anyone else reading this: people used to exchange goods & services for goods and services (i.e. barter). Now they exchange IOU's (known as 'money') but the IOU's are only as good as the person or country which backs them, which is what dgooman is getting at.
BTL destroys wealth because the amount of money in the system should track the amount of goods and value of services provided. By charging people money for just using land (a non-productive asset) you are getting wealth in return for nothing. When you use that money to consume wealth but without first creating it, as you would if you created a good or provided a service, then you destroy that wealth.
"You point on car vs land fails to hold any water - not least because the car looses all its value over time. I buy a car because it serves a purpose, I rent a paddock/stable because it serves a purpose, I rent my house because it serves a purpose."
You use a car and this use devalues the car. So in that way you are right BUT a car was first created. It's a product. You (in theory) had to create some wealth to buy the car. So in effect you're only destroying your own wealth. But with land, which is no one's product, yo are destroying the wealth created by others and without creating any wealth of your own. In terms of the bottom line, you are a net destroyer of wealth Whereas with the car you are netting out to no wealth created or destroyed overall.
"You are also happy for me to come a pitch a tent in your garden and live in it as you don't believe that you own the land?"
If I'm paying society for the exclusive use of the land then I'd obviously have a problem with that. Try re-reading my original argument.
"Presumably by your argument, we would return all utility companies to state ownership, because your same argument applies to water + heating as much as they do to land."
With water you're right. Water is regional and no one can compete, which is why we have large regional water companies who make astonishing profits. Faking competition with a hands-off regulator doesn't work. I also think that infrastructure should be nationalised because it's not open to competiton.
Heating and other forms of energy creation on the other hand is different. Many companies can generate energy and their role isn't structural. Also the market is open to new entrants so competition works.
"But now we can get into a long debate on socialism (which is great on paper, until PEOPLE with their own interests actually get involved) v capitalism (which should in theory at least establish competition)..."
BTL is monopolistic. By it's very nature it excludes competition. Defeat that and you will have a fairer, competitive and above all capitalistic housing market.
"Now, I would be happy to discuss a general principle of taxation across the board based on mark-up or value/cost, I think that would be a good way to help reduce the cost of living - but as I said no government will have the balls to do anything that radical"
This is very a common BTL argument and it always seems to be presented at the end of an argument.
You might be right but if we don't then things will only get worse (Ashford - see below).
"Your assumption is that all BTL'ers are thieving extortionists and that your benign government would provide a better, cheaper fairer service."
Not at all. I'm just saying that even if only a few of them are 'extorting' money by charging for the utility of the land then we should do all we can to stop them. Otherwise the problem will just grow.
To put it another way, if burglary rates are so low, why bother going to the expense of prosecuting anyone for it? See my point? Both are damaging socially and both need 'fixing'.
Also I assume that no government is 'benign', and that especially goes for this one. LVT and going back to common ownership negates government preference for corporate socialism of the land & housing markets. As a bonus LVT is also extremely difficult to hide.
"Sadly i think you are either very naive or just plain misguided. I can give introduce you to members of my own family - who principle is "why would I want to own? its my all my problems to sort out if i do that?" and many others - who see there benefits disappearing if the own, but paid for them if they rent."
???
Under the common land system, if you want to rent and have everything 'done for you' and at a premium to what you could do it for yourself then you still can. You can get rent (from the state) and get a BTL'er to provide their services or you can buy and do the same.
"I am not saying that all landlords are great service providers, but neither are all councils or governments but then neither are all tenants, a BTL'er takes that risk and cost away from the state, in ur system the state would
have to bear that cost"
Under the current system, social cases and the damage that they do to a house (and I've seen some horrendous cases) is paid for by the state. In fact, the state has an obligation to house them despite this.
While under my system this may not change (it's another, different set of laws which come into play) non-social case renters could just be blacklisted and would find that they couldn't rent anywhere as punishment. This would be a strong deterrent so ultimately problem solved.
I also note that BTL works and is very profitable despite the existence of these people.
"What determines rent is the local economic conditions, jobs and at the lower end of the social spectrum the housing authority. Landlords cant just charge what they like - they can charge, like any transaction, what someone is prepared to pay. In all honesty (and trust I could easily evidence this) the clothes and shoes you wear have way a bigger % mark-up than any investment property."
The products that I wear are products. They were created. BTL's yield comes at least in part though the charging of people for the utility of the land, not the creation of wealth. Also clothing is not subject to a monopolistic market.
It also seems to me that for many BTL'ers, the promise of hiuge capital gains far outweighs the lack of rental yield.
"My final point is that almost *anyone*, with some research (which most amateurs don't bother to do) has the potential to become a BTL investor, even if you start of from a position of debt!"
Maybe maybe not. Even if true that doesn't invalidate any of my arguments.
I'd also argue how long this can go on for? I note the the Wilsons mentioned above now own a very large part of Ashford in Kent. BTL ias a cancer which started with Maggie Thatcher went maglignant under New Liebour. If we don't stop it now it might spread until we've back in the 1300's with just a few powerful Lords of the Land and everyone else renting.

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LandOfConfusion said

Savvy chic said
"I am a BTL landlord and it p*sses me off no end that the Councils concerned (ie in the areas where my properties are) seem to see me as nothing but a source of revenue FOR THEM!"
Quoted from here.
"I recently bought another BTL property in the Ballymena area. I bought it on the assumption the rent would be about £425 per month. Out of which I would have to cover a very small mortgage (accountants advice) and rates.
However I rented it to a single mum with 1 child on housing benefit with her dad as guarantor. The housing benefit is paid directly to me every 4 weeks in arrears. The housing benefit payment (which includes rates) is £115 per week, paid every 4 weeks giving me £460 every 4 weeks this equates to £5,980 per year or £498 per month.
Local housing authority also underwrote the security deposit, they will pay for any damage to the property so the tenant doesn't have to find the deposit to secure the property at the start of the agreement.
If the single mum has another kid I get a rent increase and if she has another one I get another rent increase.
While the local housing authority are paying out this kind of money, why not BTL?"
Savvy chic said:
"I AM providing a Social Service which they are currently unable to do."
Yes I know. From that same source:
"I was at a meeting in the ECOS center recently, held by the Department of Social Services. They (DSS) seem to have changed their approach to the private rental sector. Why build houses for social housing then have to maintain those properties. Just make it more attractive for a private landlord to let a property to some one claiming housing benefit. No building or maintenance for the department to fund.
From what was said at that meeting there's going to be more "incentives" for private landlords in the near future. After the meeting I received a survey from the DSS asking how they could encourage more investment in the private rental market and what measures would incentives me to invest."
Savvy chic said
"I grudge paying them huge amounts of money for HMO certificates for them to tell me what I need to do to MY properties and for them to check that I am a Right and Proper Person to be a Landlord by way of Landlord Registration."
I know. Proving that you're not a con-artist and that your property is safe is so much work for such a few hundred percent mark up.
Kind of makes me wonder why anyone would BTL.
"It brings me in about £700 a month, minus about £100 managing agent fees."
[Source]

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dgoodman said

Land of confusion - Lack of understanding your arguments may come down to more than the other person "hasn't bothered to read your comments", perhaps your argument isn't clear or simply doesn't stack up? I am despite your derision actually very interested in your point of view - i'm more learning than arguing
To be honest, I still thing the land ownership is something of a red-herring, whilst understanding your point, lack of land isn't a problem in this country, Lack of housing is.
A house (as it has been created) is by your definition a product. As an investor, the first thing I do, is to invest in that house to create a desriable (rentable) standard of living and finish. And that is the point of your argument that I don't get - tenant really rent the product (the house) not the land - so please explain in simple terms how it will stop anyone renting out the house to someone else in exactly the same way as someone would "rent" out a golf cart for its period of use? as an aside, where would the incentive be for one develop land for its own sake? e.g cleaning up dirty sites or for e.g. building a golf course?
And this is why I think its a red-herring, simply because all you are doing is reverting to the old rates system except basing it on some nominal land value instead of property size, # of bedrooms etc. Assuming you still support owner-occupancy I don't understand how you see that preventing the BTL market. Because as a Landlord I own this physical "house" and will pay my land tax accordingly like a good citizen - but I will look to utilize my house as a service - tenant pays me money to live in my safe, secure and maintained house, in the same way that I rent a room every time I stay in a hotel - event though the tenancy period is the same, seriously what is the difference? or staying in a holiday cottage for that matter or even leasing my car to someone.
Finally, I'm still not clear how i'm really destroying wealth, today - I do the following
1. Buy a run-down property (re-investing equity (dead money) from my own home and taking a mortgage (service industry). Which yes could argue should be done by the state but isnt!!!!
2. Pay builders etc to renovate / improve and re-fit the property (direct investment into local economy)
3. Pay a letting agent / mgmt company to run the property (direct investment to local economy) on an on-going basis
4. Rent it out to suitable social tenants (paid for in part by my taxes) at the LHA rate or less (not controlled by me)
5. In time (as LHA rates rise in line with earnings) remortgage, refurb said property and use some equity to live off, taking myself out of both the job and benefits systems and some to repeat cycle
Please explain in what sense i really am destroying wealth?
Now I agree with reducing the costing of living, which would be a better economic cycle to get into - but, personally I believe companies who products/service are marked up at 300, 400, 1000% percent over cost cause this country far more damage than the £80-120 per month pre-tax profit that I might make per property, assuming my tenants don't cause more than anticipated damage during the tenancy and that they actually bother to pay the rent in the first place
I also am more than happy to give my tenant RTB if that is what they wish - please explain to me in what way (outside of making a modest living, but with a built in pension) I am damaging this country?
I think this article was originally about the issues for BTL not "I also note that BTL works and is very profitable despite the existence of these people."
I am honestly interested in going over this again, feel free to email to dsgg10@hotmail.com

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exportlink88 said

Land of Confusion : What name did I call you ?
You support capitalism and your idea is that all land should be owned by government ? Did you get this idea from China, Russia, Cuba, Vietnam. Laos where the communist governments there practice exactly this same idea ? Or did you get it from the Singapore government which permits development only when freehold land is converted into leasehold ?
I rest my case.

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bimber said

@dgoodman,
I've only scanned the conversation between you and LoC, so I apologise if some of this has been covered, but I think you might benefit by reading some of the philosophy of Henry George.
http://en.wikipedia.org/wiki/Henry_George
Land is not given value by the act of putting a fence around it and declaring it "owned", so what right does someone have to put up a fence and demand some of the value created by the users of the land? If the users of the land innovate so that their use of the land creates more wealth, then the landowner is able to extract more wealth from them and the value of the land increases. Why should the landowner keep all of the increase in the value of the land when he has done nothing to create any wealth? Increases in land value can also come from the construction of public (and private) infrastructure in the area. Why not tax land values to pay for the infrastructure?

You say "First time buyers almost always compete with each other, not landlords". Does this mean that the proportion of FTBs in private rented accommodation is very small? Where are they all living?
Someone suggested that FTBs and BTLs cannot be in competition with each other because BTL mortgages are more expensive. This is to misunderstand the nature of the house purchase in either instance. For an FTB a house is a savings vehicle, absorbing his capital and preventing him doing other things with it. For the BTL on the other hand, buying a property releases capital which he doesn't have. The two purchase types are total opposites and at any given price it is cheaper from the BTL's perspective because of the way they view the capital involved in the transaction.

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bimber said

@exportlink88
If Land Tax implies government ownership of land then what is implied by a tax on labour?
"I rest my case"
Did you make a case or ask for clarification?

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LandOfConfusion said

dgoodman said:
"I am despite your derision actually very interested in your point of view - i'm more learning than arguing"
I apologise if my argument wasn't clear it just that most BTL'ers & property investors are extremely hostile to anything which threatens their business model, as one of the above commenters shows.
"To be honest, I still thing the land ownership is something of a red-herring, whilst understanding your point, lack of land isn't a problem in this country, Lack of housing is."
I think you're partially right. Several factors are in play, housing availability is one and investors/speculators are another.
"A house (as it has been created) is by your definition a product."
You could look at it like that but then so is the paint work on your car. The common factor to both is that they are improvements on another tangible object and therefore inherently part of that object.
It would be impossible to build a house without some land to build it on and by the same token it would be impossible to rent out just the house and not the land.
"As an investor, the first thing I do, is to invest in that house to create a desriable (rentable) standard of living and finish."
This argument is familiar to me and I've had many a BTL'er tell me that part of their service is the development of the site. From my perspective the problem lies in that while the development is productive and creates wealth, the rental doesn't. If the developer just improved the land and then sold it there would be no problem.
"And that is the point of your argument that I don't get - tenant really rent the product (the house) not the land"
The problem lies in that the house is an improvement on the land, much like if a farmer fertilised a field. They've added value to the product (land) but they didn't create the product (land) in the first place, so they've improved something which isn't solely theirs.
Now the above is not capitalism and value-adders should be rewarded or at least allowed to profit from their wealth creating activities and this is usually met when they come to sell.
"so please explain in simple terms how it will stop anyone renting out the house to someone else in exactly the same way as someone would "rent" out a golf cart for its period of use?"
That's a good example as a golf cart matches the ideal capitalistic model for a product. It is discrete and it's existence doesn't rely on any common asset (land being a common asset). If it were a car however and the owner wanted to to run it on a public highway then payment to the owner of the highway would seem reasonable as they 'own' the road. In other words the road in this example is the common asset. In my opinion housing should work like this.
"as an aside, where would the incentive be for one develop land for its own sake?"
Capital gains? Before BTL was New Laborised many people developed land and sold it on for a profit. After that BTL became more and more pervasive, with developers mainly targeting developments which would yield high returns coupled with significant capital gains.
I would argue that buy, improve and then sell-type developers should be able to make money free of capital gains tax (provided the property was sold within, say 3 years) as an incentive for doing the hard work and improving that part of the common asset.
"e.g cleaning up dirty sites"
Another good use for LVT - under LVT the owner pays the tax until sold. If they don't use it then there is pressure on them to sell it to someone else who will and these people could, in turn be incentivised to clean up the site by, for example giving whoever owns that site a discount on their LVT over 5/10 years.
"And this is why I think its a red-herring, simply because all you are doing is reverting to the old rates system except basing it on some nominal land value instead of property size, # of bedrooms etc."
No, it's quite different. You are taxing someone on the underlying value of the land. If the land is situated in a dump then the LVT is low. Alternatively if the land is in a nice area then the LVT will be higher to account for this.
"Assuming you still support owner-occupancy I don't understand how you see that preventing the BTL market."
Because besides keeping lodgers (which are a special case which I will get to in a minute), owner-occupiers will by law not be allowed to rent out property. Simple.
Lodgers would be an exception to this rule. People pay LVT as a kind of rent in return for exclusive right to use some land. If they share that land with a lodger (and it must be a shared arrangement) then I would allow them to do so provided that the total amount charged was some fair fraction of the LVT. And I would also make that part tax free.
"Because as a Landlord I own this physical "house" and will pay my land tax accordingly like a good citizen - but I will look to utilize my house as a service"
And this is where it breaks down. The house is an enhancement on some land which, in turn is a common asset. No sub-letting allowed.
I've been in debates with BTL'ers where they claim not to be parasites as they create wealth by providing a service which is quite distinct from charging for the utility of the house. Their argument is therefore that the rental covers the services that they provide and only those services. If you charge for the house (which is in reality an improvement on some land) then you are creating no wealth but charging for it. In other words it is a unidirectional transfer of wealth (parasitism).
"tenant pays me money to live in my safe, secure and maintained house"
The safety, security and maintenance of the house is your service. What I'm suggesting is that these are kept separate and distinct from the land with it's house improvement. This way they are only paying you for your wealth-creating services.
"in the same way that I rent a room every time I stay in a hotel"
Again, you don't rent the room you rent the services provided to that room. Also in that example there is a wider benefit to society as this business brings in external money and under LVT could be zoned.
"event though the tenancy period is the same, seriously what is the difference?"
The difference is that you're charging for the house (+ land) as well.
"or even leasing my car to someone."
As I said, your car is distinct from any common asset unless you use a public highway).
"Finally, I'm still not clear how i'm really destroying wealth"
I'll explain:
"1. Buy a run-down property (re-investing equity (dead money) from my own home and taking a mortgage (service industry). Which yes could argue should be done by the state but isnt!!!!"
Firstly, the state really shouldn't get involved like that. While I believe and argue that infrastructure should be kept in national ownership, there is a better way of improving the housing stock. Like I've said would do so by incentivising private developers though tax breaks.
On the whole I sincerely believe that wherever possible the state should not get involved but by the same token that there are some areas where this will be impossible to avoid.
Secondly, equity isn't 'dead-money'. You're liquidating (converting to IOU's) part of your wealth by allowing co-ownership of a property. As you retain sole use of the land this isn't a problem and you would still pay the full LVT due.
"2. Pay builders etc to renovate / improve and re-fit the property (direct investment into local economy)"
Again I have no problem with this, although I would mention that you're improving the common asset and therefore should be entitled to incentives such as tax breaks.
"3. Pay a letting agent / mgmt company to run the property (direct investment to local economy) on an on-going basis"
This is where the wheels fall off.
Your agent in this context is creating wealth by providing services. But you're doing nothing except acquiring money. What's more you will probably make a capital gain (return on land improvement work) when you come to sell. This is wrong to me and constitutes parasitism.
My way would be to keep the land under public ownership where the public coffers get to keep the rent (LVT) but you get to operate in a competitive market, tendering your ability to employ an agent to do the work.
Of course in this instance you brought the property and so it wasn't in public rental and so you would either sell it and collect your incentive or keep it and pay the ongoing LVT.
"4. Rent it out to suitable social tenants (paid for in part by my taxes) at the LHA rate or less (not controlled by me)"
The Local Housing Authority rates system is a scam and it's got worse under New Labour. Under my system the LHA would be the beneficiary of the LVT and would be able to offer or tender maintenance contracts to BTL'ers. Provided no government interferes with this system then the free market should provide an efficient solution.
"5. In time (as LHA rates rise in line with earnings) remortgage, refurb said property and use some equity to live off, taking myself out of both the job and benefits systems and some to repeat cycle"
Except it doesn't seem to work like that.
Most BTL'ers re-mortgage and buy more former homes. Their empire grows and eventually they either have the sense to realise that the market is overheating and stop (pro-BTL'ers fall into this group) or just keep on going until the inevitable bankruptcies happen and tenants are on the streets (and the government belatedly steps in with 'deposit protection' et al).
I'd favour a system where people become wealthy though their own enterprise, not though forcing others to pay for something that they already own while at that same time excluding most of the competition.
This to me isn't capitalism and yet I'm usually the one being called a socialist!
"Please explain in what sense i really am destroying wealth?"
You're acquiring money (wealth as represented by IOU's) for doing nothing. Some of this money will go on keeping you alive and yet there is no corresponding wealth creation, so wealth is in net effect, destroyed .
"Now I agree with reducing the costing of living, which would be a better economic cycle to get into - but, personally I believe companies who products/service are marked up at 300, 400, 1000% percent over cost cause this country far more damage than the £80-120 per month pre-tax profit that I might make per property"
Maybe, maybe not. That's an argument for increased competition as my water company example shows. They make a lot of money and yet no one else can compete with them. Same with BT. The cost of laying what is known as the 'local loop' (the wire from the exchange to your home) is enormous. Millions of lines to millions of properties. When BT was privatised, this and the exchange system should of been kept under national control. No one else can afford to lay more cables and build new exchanges so BT became (and still is) a monopoly, charging others a fixed rate for the use of their exchanges and local loops.
Imagine how much cheaper things like phone calls and the Internet would of been if any telecoms company could install equipment and use the local loop for cost price and without having to pay their competitor for the privilege?
And now that in speed terms we're lagging behind other countries guess who's going to be taxed so that BT has the money to replace the copper wiring going to everyone's home with fibre optics?
Is this capitalism?
“I am honestly interested in going over this again, feel free to email to”
Thanks for your offer but I'd rather do this online as it gives me a resource to link to and use in future debates! :)

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LandOfConfusion said

bimber said
"http://en.wikipedia.org/wiki/Henry_George"
Thank you very much for that link. This man had views which are almost exactly the same as my own (and incidentally, the polar opposite of New Labour's).
Just to quote a few relevant pieces from that article:
"George advocated taxation, regulation or state ownership of natural monopolies."
These days large companies such as BP are used in partnership with the government for the exploitation of our natural resources. This relationship is beneficial to all.
"He supported a state-run telegraph service"
State owned local loop and telephone exchanges?
"and municipal control of water supplies."
What have I been saying?
"On railroads he was more flexible, sometimes suggesting that rolling stock could be operated privately so long as the tracks were owned by the state."
The national grid should be nationally owned but power generation should be left to the markets. Same with British Rail - why should we, the taxpayer be liable for their failure? Infrastructure should be nationalised. Everything else should be privatised.

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LandOfConfusion said

exportlink88 said:
"Land of Confusion : What name did I call you ?"
I would of hoped that you'd noticed that I was making a figure of speech. You like many others before you were implying that I was a socialist.
"You support capitalism and your idea is that all land should be owned by government ? Did you get this idea from China, Russia, Cuba, Vietnam. Laos where the communist governments there practice exactly this same idea ?"
There you go again. Now while I'm perfectly willing to admit that I'm not an anarcho-capitalist I'm not going to declare myself a socialist either. If you must know I'm aligned to Progressivism.
Source: http://en.wikipedia.org/wiki/Progressivism
Also:
"Although both advocated for workers' rights, Henry George and Karl Marx were antagonists. Marx saw the Single Tax platform as a step backwards from the transition to communism." [My emphasis]
Source: http://en.wikipedia.org/wiki/Georgism

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2

dgoodman said

Look, I see the point, I even have some sympathies with the point of view, although its too radical for any UK government let alone the House of Lords to ever attempt so largely its meaningless. Let alone the ability of any government agency to accurately assess the lands value, but then they cant do that today anyway.
However clearly i'm a little slow on the uptake
So in your proposed system how would I take control (ownership) of a piece of land and once taken my LTV is paid what - once (like Stamp duty) or presumably annually like income and council tax AND its the land itself that is taxed IRRESPECTIVE on what is on that land - as per your original link
So now I choose make an investment in that land using my money: - I can either
a) Decontaminate a piece of land - at my expense the result higher Land Tax next year - but if I sell it quickly you are happy for me to make the capital gain.
b) Now I choose to create a beautiful park, with gardens etc. I would like to charge people to spend time in my beautiful creation, that recovers over time my initial and on-going investments in the land (does my land tax go up compared to the wasteland that I started with and that is on the next plot still)
c) I build myself a house to live in (this is of course a liability and not an asset as so many people believe) so now I have to get a job to pay my bills and my land tax
d) Actually I build two houses - one for me and one I rent out - here is where I don't see what you actually propose making any difference - the 2nd house and use the rent to cover my Land Tax and my bills I still need to work to have a disposable income.
e) I have a better idea, lets squeeze 4 houses on here, one for me the other three rented to repay all my costs, taxes and provide an income for me for ever more
f) as I suspect your not in favour of d&e I sell the said houses take my capital gain - this your happy with right?
g) Sod it, I'll knock down all the houses and build a factory, now i'm good at building factories, in fact I build great factories its what i do best - however i don't want to run it, cos i'm rubbish at that so i know, I will lease (or rent) my factory to someone else who can use it to make widgets. That company doesn't want to buy my factory, because they need their capital elsewhere and they don't want the responsibility of owning the site. Actually my land tax is now insignificant compared to value I have added so I barely notice it as the factory rent dwarfs it - sadly noone actually wants my factory now cos they have switched the manufacturing to china.
h) I take my now unwanted factory and I turn into a huge health spa hotel, where people pay to come and stay overnight enjoying the warm friendly atmosphere of my room and spas - again if I sell this on completion and pocket my capital gain your happy...
Now to my simple brain, I cannot see the real meaningful difference between any of those choices - in each case (except possibly a) I either sell and pocket my capital gain for improving the site or I choose to make a long term commitment by offering my added value for a subscription charge - be that the garden (hourly subs), rented house (month subs), factory (multi-year lease) or spa hotel (daily rate). More worryingly I see maximising the value of the land - hence i'm much more likely to build a monstrous factory as opposed to the beautiful garden
To use another analogy, what you seem to be saying is if I buy a bottle of water in a shop I shouldn't have to pay for the water just the bottle and its production and i agree, but i still sometimes need that convenience of the bottle of water and that someone else made a business out of providing it
I think the problem I have with land tax, is that it doesn't seem reward the very enterprise you wish to encourage. It seems that you support short term development but not long term maintenance. i.e. your happy for my widgets to be sold at 1000 x cost, pushing up the cost of living but not for me to recover my costs from the value I add by investing in the land.
You know Im sure i must be missing something fundamental here. Because it seems to me this system punishes the dairy farmer who needs to continually invest heavily in this land and barely makes a profit on the 7p per litre he get for his milk, yet supports the big milk bottlers who have there huge factory, pushing that same milk out at say 70% profit per litre. I fail to see how this offers any improvement on the what we have today. How does it help stop the plethora of second homes in rural (low land value) areas? or ultimately the boom and bust of the private residential housing market with or without BTL.

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dgoodman said

to bimber:
I don't agree with you about FTB v BTL.
A FTB is more likely to buy a given house at or near asking price because most have no idea of the actual value of the property and its an emotional decision not a straight financial one.
Now the best situation for a BTL is where they can reduce the amount of capital needed to purchase a property in order to do this they either have to
1) Buy considerably below market value - This immediately puts them behind the FTB. It also increases the competition from other investors
and/or
2) Look for areas of high yield, often these are areas where there exists a "rental" mindset, which contrary to some opinions definitely exist across the country - These are often not the areas where FTB would choose to buy
Now I do agree that a speculator could just throw capital (assuming they have it) at a property and buy it any cost, thus preventing a FTB from obtaining it. However they have then tied up that capital so they cannot use to it to go on buying streets and towns and they run the risk to their capital in short term market changes. Personally as an investor I don't want either of those issues to occur - why use 100k to buy one house when i could use it to buy 10 in the bracket that are in less desirable locations and typically don't attract FTB'ers?
I guess the thing is BTL covers a lot of strategies and a lot of personalities and as with anything not all of them good
I personally believe that I add value to the often very rundown and barely liveable properties I buy, restoring and maintaining them to above good condition. I don't see the real difference whether make my money/living in one go by selling or over the longer term by renting them out - but as I prefer to not trust pension schemes my preference if over the long term.
Do I think we need better regulation on what is expected of both landlords and tenants and make breach of contract on either side clearer and more enforceable - yes of course I do. But I don't agree that the premise of buy to let is wrong - no I don't
Finally if the house blew up, the value of my "land" would be considerably less and its rent-able value virtually zero. Hence IMHO prooving that its the product (the house) that provides the majority of the value - not specifically then land

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richyrich said

Lots of people thought BTL = get rich quick. Same mindset as pouring money into shares at the top of a Bull market. No reason for anyone to help them, just like shares, if they don't have to sell then eventually they will come out on top. Either way the house is still there for someone, tenant or owner, to actually live in rather than gamble on.

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prometheus said

Seems strange no one recognises that many of these comments are the symptoms of a deflating bubble and a misallocation of resources.
Let it work out of the system (less Gov't interference) and a more natural balance of btl vs ft owners should emerge. Those that have borrowed too much should suffer the consequences of their error.
When it comes to wealth destroyers not only could you categorise BTL'ers but also much service orientated sectors of the economy but the biggest is the state - encouraging more public sector bloatedness is not a solution but a further misallocation of capital and resource.
Less "providing a service" and more "adding value/productivity" is what will be required in the future [to pay for those services].

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64

LandOfConfusion said

dgoodman said
"Look, I see the point, I even have some sympathies with the point of view, although its too radical for any UK government let alone the House of Lords to ever attempt so largely its meaningless."
It looks like the end of this debate is near. I know because it always ends like this - the BTL'er saying something along the lines of "yes I see your point but it won't happen because [insert government related reason here]".
We are probably at the brink of the best time since WWII to overhaul the tax system. Massive public service cuts are coming and with them massive tax rises. I addition to this house prices look set to fall so what better time to offer the public a fairer tax system?
Maggie tried poll tax in under these kinds of circumstances so obviously politicians agree. Also this is a far, far ,far fairer system and so much easier to sell.
"Let alone the ability of any government agency to accurately assess the lands value, but then they cant do that today anyway."
As a LVT proponent I'm always having to fight off non-arguments like this. And what's worse, they're usually the same ones over and over again.
The answer is simple: Let the market decide. LVT is concerned with the market value of the land and so all we do is use land registry prices to tell us how much to charge. Simples.
Oh, and that reminds me - one other thing I forgot to mention: while LVT should me levied against those who have utility of the land what do we do about those who have covenants against another's land?
Once again the answer is simple: as the covenant holder shares some of the utility of the land (in effect, by restricting it's use) then they should also pay some of the LVT tax. This has the additional advantage in that the covenants system at the moment is archaic. Rights holders can be 'lost' and it can be a lengthy and expensive process getting restrictions removed. If you charge some of the LVT to the holder(s) + a small yearly land registry fee then things become simple, fair and transparent.
"So in your proposed system how would I take control (ownership) of a piece of land and once taken my LTV is paid what - once (like Stamp duty) or presumably annually like income and council tax AND its the land itself that is taxed IRRESPECTIVE on what is on that land - as per your original link"
This is probably the second most common question, the first being "But isn't this communism?"
You buy the land like normal but then how the LVT could be levied is entirely optional. I'd seek to replace as many taxes as possible but you can cut the cake anyway you like. Council tax, business rates, income tax... LVT is fairer than them all.
"So now I choose make an investment in that land using my money: - I can either
a) Decontaminate a piece of land - at my expense the result higher Land Tax next year - but if I sell it quickly you are happy for me to make the capital gain."
Yes you can improve some land and benefit from tax-free capital gains. Or you can clean up some land and benefit from a period of reduced LVT, which you can then sell on with the land if you so choose.
"b) Now I choose to create a beautiful park, with gardens etc. I would like to charge people to spend time in my beautiful creation, that recovers over time my initial and on-going investments in the land (does my land tax go up compared to the wasteland that I started with and that is on the next plot still)"
As you stated with land which had an effective negative land value I would give you a period of years of LVT-free ownership. How you use that is up to you but any business which uses the land as it's selling point (i.e. rents out the land) would have to be zoned.
To be honest, in the above scenario I wouldn't see that being a problem as your doing society a favour.
"c) I build myself a house to live in (this is of course a liability and not an asset as so many people believe) so now I have to get a job to pay my bills and my land tax"
As the initial value of the land was negative, you would in my system enjoy a period of LVT-free ownership. Otherwise yes you could sell the land and take your profits (liabilities!?!) now or you could enjoy the wealth you created. Your choice.
"d) Actually I build two houses - one for me and one I rent out - here is where I don't see what you actually propose making any difference - the 2nd house and use the rent to cover my Land Tax and my bills I still need to work to have a disposable income."
So you break the land into two (as seen by the Land Registry) and seek to rent out the other bit of land? You get money for nothing (the rent) as you still hold sales title to the second property and are entitled to a capital gain on sale.
Let's put a bullet in this:
1. Renting out property is monopolistic: Supply is localised and cannot increase to match demand and so prices rise. This structural restriction also prevents new entrants into the market further compounding the problem.
2. Homes are the modern day form of shelter - a human need. People cannot choose not to have shelter and so they will sacrifice a significant amount of their income in order to live somewhere. This is further compounded by the current jobs market as people will usually try and get the best job they can and will make sacrifices to that effect.
3. It is almost impossible to put a value on the services that a BTL'er does let alone say what profit they should make.
These 3 key points conspire to make BTL'ing a potentially very lucrative business. A lack of competition, you control a human need and with obfuscated profiteering to boot.
I gave an example earlier in which someone was taking in £700 rent and paying a lettings agent £100 to manage the property (i.e. create wealth in this transaction). I'll accept that there may be some costs above that but not much and so most of that difference would be *unearned* profit.
There is also another point and that is that land is not a product. I support Henry George's point of view that all of nature belongs to all of humanity and if you accept this then you are renting out something which isn't entirely yours but are retaining all the profit.
Surely a better way would be to ban private rentals and allow people of offer their BTL-like services in what would then be a competitive market? In this scenario inefficiencies would be driven out and the market would naturally determine how much profit was fair.
"e) I have a better idea, lets squeeze 4 houses on here [...]"
This is in essence the same as argument d) above.
"f) as I suspect your not in favour of d&e I sell the said houses take my capital gain - this your happy with right?"
Once again, I have no problem with you improving land and then selling it for capital gain. In this event you have improved something owned by society and so are entitled to compensation in that respect.
"g) Sod it, I'll knock down all the houses and build a factory"
Planning permission and zoning now come into play.
"now i'm good at building factories, in fact I build great factories its what i do best - however i don't want to run it, cos i'm rubbish at that so i know, I will lease (or rent) my factory to someone else"
Another variation on point 'd)'. You are using a natural resource to parasitise wealth. Sorry not allowed.
"That company doesn't want to buy my factory, because they need their capital elsewhere"
If that company is productive then getting a loan shouldn't be a problem. On the other hand, if such a loan isn't forthcoming then is a fault with the financial services industry, a privatised structural service who's job it is to allocate monetary resources effectively.
In this event or alternatively they could approach the business secretary who then buys the factory from you and rents it out on behalf of the state. The public coffers get the unearned income, you get your capital gain and the tenant gets to make widgets with the addition of security of tenure. Simples.
"sadly noone actually wants my factory now cos they have switched the manufacturing to china."
So you're a failed developer? Business failures happen, this is the nature of capitalism. Just don't expect a bailout.
"h) I take my now unwanted factory and I turn into a huge health spa hotel, where people pay to come and stay overnight enjoying the warm friendly atmosphere of my room and spas"
Zoning comes into play (again). Also people would be paying you for your transient service and you would be subject to competition.
And in addition you're not depriving anyone of shelter, just running a pure business so points 1, 2 and 3 are all satisfied.
"More worryingly I see maximising the value of the land - hence i'm much more likely to build a monstrous factory as opposed to the beautiful garden"
I mentioned zoning in one of my other replies Did you not read them?
"To use another analogy, what you seem to be saying is if I buy a bottle of water in a shop I shouldn't have to pay for the water just the bottle and its production"
No, I'm not saying that. We currently have a working system for mineral extraction in this country. It works because the government stays as far as possible out of the business sector but business aren't allowed to solely profit from this country's natural resources. So a compromise has been reached where a pre-agreed percentage of all profits goes back to to public coffers.
This results in this country getting efficient utility from it's mineral wealth and the company gets to exist and make money.
North Sea oil works like this, for example.
"It seems that you support short term development but not long term maintenance. i.e. your happy for my widgets to be sold at 1000 x cost, pushing up the cost of living"
Capitalism encourages competition. The only times that your example would happen is:
(1) In a monopolistic environment (e.g. Microsoft Windows) or
(2) If the market failed, e.g. a shortage of plumbers or
(3) Or if the process was so efficient that the mark up still meant that the end product was insignificantly cheap and there wasn't sufficient profit in the product for competition to enter.
Incidentally I don't know of any markets where #3 happens. Can you give me any examples?
"but not for me to recover my costs from the value I add by investing in the land."
You get that from selling it.
"Because it seems to me this system punishes the dairy farmer who needs to continually invest heavily in this land"
Do they really invest in land? Grass self-fertilises and cows keep succession down. It's what's known as an environmentally sustainable model.
"and barely makes a profit on the 7p per litre he get for his milk"
This is the result of cartels forming between the supermarkets and because it's cheaper for non-British competition to produce milk. The earlier is allegedly being sorted by the OFT and the latter is being supported by EU sponsored corporate socialism (CAP et al).
"yet supports the big milk bottlers who have there huge factory, pushing that same milk out at say 70% profit per litre."
I don't know of any dairy farmers who aren't part of a bottling company but anyway, this whole process is actually below cost price because of the reasons I mention above.
"I fail to see how this offers any improvement on the what we have today."
Milk is cheaper in the retailer's view and yet we all pay for it though taxes (corporate socialism).
I would also like to point out that both the farmer and milk producer are (sort of) subject to capitalistic pressures, government interventions not withstanding.
"I fail to see how this offers any improvement on the what we have today."
That's because your example is flawed.
"How does it help stop the plethora of second homes in rural (low land value) areas?"
Another non-argument!
Second-home owners compete with both local residents and each other, driving up the price of land. This in turn increases their LVT liability which in turn puts the breaks on second home ownership (and local house prices) as they're paying for something that they don't fully utilise and there's a long-term penalty for paying too much.
"or ultimately the boom and bust of the private residential housing market with or without BTL."
With regards to my last argument, ditto and ditto! LVT suppresses prices as you will have to pay the tax as well as paying for the land. If you don't use it then why keep the land and pay the tax? If you don't use all the land then why keep it and and pay all the tax? Why not get a smaller property and/or move to a cheaper (LVT) area?

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64

LandOfConfusion said

dgoodman said
"to bimber:
I don't agree with you about FTB v BTL.
A FTB is more likely to buy a given house at or near asking price because most have no idea of the actual value of the property and its an emotional decision not a straight financial one."
Huh? Both FTB'ers and BTL'er target cheap properties. Market dynamics mean that those near centres of employment are valuable to both groups as are houses in nicer areas and so sought by both groups.
Now I realise that you like to add on a re-development process to your BTL but from experience most BTL'ers don't. They just want to make as much money as quickly and as easily as possible and this usually means buying quality.
You also have to remember that most BTL'ers look forward to future capital gains and so properties in nicer areas will fit this model better than those in a dump.
"Now the best situation for a BTL is where they can reduce the amount of capital needed to purchase a property in order to do this they either have to
1) Buy considerably below market value - This immediately puts them behind the FTB. It also increases the competition from other investors"
Again, most BTL'ers don't care too much about 'current market values' as they're looking forward to future rises in HP'es. As it happens this is almost certainly going to hurt the numerous late comers to the party and hence the probable reason for this article being written.
"2) Look for areas of high yield, often these are areas where there exists a "rental" mindset, which contrary to some opinions definitely exist across the country - These are often not the areas where FTB would choose to buy"
The only 'high-yield' areas I'm familiar with are areas where people cannot get a mortgage, mainly because the job prospects are so poor.
"Now I do agree that a speculator could just throw capital (assuming they have it) at a property and buy it any cost, thus preventing a FTB from obtaining it. However they have then tied up that capital"
Mortgage Equity Withdrawal (MEW), although to be fair this doesn't work so well no but it used to.
"so they cannot use to it to go on buying streets and towns"
I've already mentioned the Wilsons.
"and they run the risk to their capital in short term market changes."
And? There's risk in any business.
"Personally as an investor I don't want either of those issues to occur - why use 100k to buy one house when i could use it to buy 10 in the bracket that are in less desirable locations and typically don't attract FTB'ers?"
And why not MEW those 10 when prices go up and use that withdrawn equity to buy more houses?
"I guess the thing is BTL covers a lot of strategies and a lot of personalities and as with anything not all of them good"
Agreed.
"I personally believe that I add value to the often very rundown and barely liveable properties I buy, restoring and maintaining them to above good condition."
I agree again. This is what developers do.
"I don't see the real difference whether make my money/living in one go by selling or over the longer term by renting them out"
The difference is whether you make capital gain OR make capital gain + some unearned income.
"Finally if the house blew up, the value of my "land" would be considerably less and its rent-able value virtually zero."
Same if I brought some agricultural land and sucked all the nutrients away. But then I'd make a capital loss at subsequent sale. And in your case that's why insurance companies exist.
"Hence IMHO prooving that its the product (the house) that provides the majority of the value - not specifically then land"
A house is an improvement on some land. If you damage that improvement then you damage the value of that land.
For example, the paint work on your car is a product and it improves the value of your car. If it gets damaged then the value of your car as a whole drops. This happens because the two of them compose the product and the value of each one relies on the existence of the other, much like a house on some land.

Report on 30 March 2010 | Love 0 loves
25

Mick James said

Any chance of a character limit on these posts?

Report on 30 March 2010 | Love 2 loves
66

MrRee said

LandofConfusion ..... you really need to get out more! ;-)
At the end of the day I cannot see many tears for buy-to-let landlords ... no-one would mind one way or another if they went bust.

Report on 31 March 2010 | Love 0 loves
2

dgoodman said

I agree entirely with a complete tax overhall and I don't have an issue with the basis that all land is effectively commonly owned (i'm sure many land owners will though). On the subject of Tax - Personally, as I alluded to earlier, I think the key is to reduce the cost of living and the best way to do that is for a banded mark-up tax and a banded VAT.
On BTL - I see throwing tying a whole lot of capital up in one more expensive property and relying on capital as being speculation - in the same way as buying shares is speculation. I personally believe I invest in properties and in the on-going refurbishment and maintenance I do believe that I offer a service. My principle (which i know you will object to) is not sell, I do remortgage - but don't forget all this actually does is increase my net personal debt.
Lets clear some points up though, and check that I have understood.
I cannot "buy" the land I will never own it - I in effect lease ("rent") the land from the people. A bit like leasing a car and paying road tax?
You keep saying that the property adds to the value of the land - but the link you sent me to suggest that LVT is based on the Land alone ("This ignores buildings, improvements, and personal property....") and that two identical plots side by side, one with a house and one without would be subject to the exact same LVT?
Given that its then left to economic forces (without government interference), the real value of that land will come down to what someone is prepared to lease it for - correct?
Now the crux of where we disagree (I think) is that I consider - The warm, secure house, that is well developed and maintained through my investment as my sell-able product that you can now choose to...
a) Purchase from me at an agreed price today, you take over all aspects of its maintenance immediately
b) Purchase from me over a time period RTB, you take over all aspects of its maintenance at the end of that period
c) Lease from me and never own. I retain all costs in accordance to maintenance of said property.
These are exactly the same options you have when you enter a car dealership
Actually, I think what you really are saying is that someone shouldn't profit from providing a basic human need e.g. shelter Now to some extent I agree and that is what the LHA should ensure. However this neglects the fact that beyond this, the sort of house you choose to live in and how you choose to pay for it is free will and a lifestyle choice (as far as disposable income allows). However how the LHA or private individual sources their homes is and should be open to some market pressures but with an agreed Service Level (Landlord) and contract (tenant). I agree that today people can rent dumps for extortionate prices and that clearly, morally isn't right.
I think you overestimate the number of people who "want to work" and for that matter "want to own". There are a large number of people (by no means all, before someone has a pop at me) who desire neither. But yes many of the high yield properties are in these areas, the LHA prefer private landlords as they carry the risk of Tenant damage / non-payment - the reality is that these costs are covered by the private landlord.
I don't agree with your point 2nd home owners, these are essentially luxury items and those that can afford them and by what you wrote - this will increase the Land value and LVT in that area - still, as today, making it harder for rural "locals" to be able afford a home in that area.
I think the point ultimately is that I don't share your perspective, though I think I have a better handle on it now, so thank you. If go onto the Malvern hills, I can access a free natural resource (spring water) its free it costs me nothing. However for convenience I can buy the same water already packaged and bottled- for that I have to pay money, because its taken labour, materials and transport to "productise" it in that form. (now I essentially re-cycle both the bottle and the water) and next week I pay again for that bottle of water. If choose to buy all these bottles or water and not consume them - in principle, the capital value of that water (bottled) could go up, but now its expensive and you cant buy the water yourself outright, not because I choose what to charge but because that is what the market defines that people will pay but I will let you have it for regular payments - but I retain ownership of the bottle. Have I charged for the water or productisation of it. Now charging me a Water Value Tax for holding all that water, will just mean that the market value of those water bottles will increase (as I have to cover my ever increasing WVT) meaning that less people will be able to purchase my water and more will need the payment scheme. However if you tax me on the markup in a banded way between my purchase+storage cost and my effective selling price, then I am more likely to end up in a competitive situation with other water suppliers lowering the price of the water.

Report on 31 March 2010 | Love 0 loves
2

dgoodman said

Mick - would you prefer a collection of "soundbites" as opposed to old fashioned debate and discussion? This desire, is why we choose our political leaders based on looks and marketing rather than what they actually stand for and that is why this and many western countries are such a shambles.

Report on 31 March 2010 | Love 1 love
64

LandOfConfusion said

dgoodman said
"Mick - would you prefer a collection of "soundbites" as opposed to old fashioned debate and discussion?"
Well said. It's just a shame that people like this have the right to vote and are in the majority.
"and I don't have an issue with the basis that all land is effectively commonly owned"
That is refreshing to hear from a BTL'er.
"On the subject of Tax - Personally, as I alluded to earlier, I think the key is to reduce the cost of living and the best way to do that is for a banded mark-up tax and a banded VAT."
I'm not a tax expert (there's a guy called 'Mark Wandsworth' on the HPC site who knows a lot more that I do about this area, should you want to discuss it more) but both of these types of taxes are taxes on consumption and therefore taxes on wealth creation (bad).
LVT is a tax on people's utilisation of our shared environmental resources and is therefore much fairer.
"On BTL - I see throwing tying a whole lot of capital up in one more expensive property and relying on capital as being speculation"
I agree but from my discussions with both amateur and professional BTL'ers this is a key feature of their 'business' model.
"in the same way as buying shares is speculation."
It's not quite the same thing. Shares can be used as a speculative vehicle (think so called 'Investment bankers') or as they can be used as they were originally intended - as a way of helping a company to grow and then sharing in the profits.
Obviously there is some speculation in that last example but it is negated to some extent by people doing their home work and allocating investment wisely, which incidentally is what was originally envisioned.
"I personally believe I invest in properties"
And you do so as a developer.
"and in the on-going refurbishment and maintenance I do believe that I offer a service."
But this is the problem. It is impossible to separate the unearned money you acquire for letting the house from the earned money you make from your services. If we banned BTL then all the unearned money would go back to everyone. In this model you would still be able to offer your services and a true, capitalistic market would form.
"My principle (which i know you will object to) is not sell, I do remortgage - but don't forget all this actually does is increase my net personal debt."
Total debt = value of all assets - money owed.
So in theory then you only temporary owe more than you have in assets but in reality this would be rarely be the case, provided the housing market inflates.
"I cannot "buy" the land I will never own it - I in effect lease ("rent") the land from the people. A bit like leasing a car and paying road tax?"
Not quite. You in effect buy a lease. This lease does not allow you to sub-let (apart from the lodger exception I've already mentioned) but allows you to discount some Land Value Tax ('rent') if your sole use of the land is compromised by the existence of covenant(s).
"You keep saying that the property adds to the value of the land - but the link you sent me to suggest that LVT is based on the Land alone ("This ignores buildings, improvements, and personal property....") and that two identical plots side by side, one with a house and one without would be subject to the exact same LVT?"
Yes. This is because on selling you'd make a capital gain and if we based the tax on the land + property it would have a corrosive effect on development.
So using your example you would then have the choice of either paying LVT + 'purchase' money for a nice house OR LVT + 'purchase' money for a not so nice house.
The additional investment from whoever built the nice house therefore is rewarded and development encouraged.
"Given that its then left to economic forces (without government interference), the real value of that land will come down to what someone is prepared to lease it for - correct?"
Essentially, yes. Land value makes up approximately one-third of the cost of the property and this would come down in the event that LVT is implemented. In other words LVT suppresses prices.
"Now the crux of where we disagree (I think) is that I consider - The warm, secure house, that is well developed and maintained through my investment as my sell-able product"
Which you can sell and make a capital gain.
"you can now choose to...
a) Purchase from me at an agreed price today, you take over all aspects of its maintenance immediately"
In this case you would be a developer so this is fine.
"b) Purchase from me over a time period RTB, you take over all aspects of its maintenance at the end of that period"
Hire-purchase? This sounds like mortgage provided that you are only charging for your money (interest + repayment) and not for any add-on service. Really I don't see a problem with that provided that the potential buyer has the option of doing either a or b (at their option).
"c) Lease from me and never own. I retain all costs in accordance to maintenance of said property."
I don't allow sub-letting like this because of the reasons already mentioned (competition exclusion, unearned profit etc).
"These are exactly the same options you have when you enter a car dealership"
Except the profit isn't unearned (a car depreciates both physically and monetearly with use) and this market is subject to fierce competition, keeping costs down and profit to what the market regards as reasonable. Cars also aren't a natural resource.
"Actually, I think what you really are saying is that someone shouldn't profit from providing a basic human need e.g. shelter"
Not quite. BTL and housing in general is highly localised and monopolistic. These things combine to prevent market forces from working and so aren't capitalistic.
The way in which BTL works also allows for unearned profit (very bad) and have a major advantage in that you can compel people as you have control over a vital need.
This is also made worse by your use of a natural resource which you didn't make and therefore don't solely own.
"Now to some extent I agree and that is what the LHA should ensure."
I'm extremely hostile to government intervention. Regulators and quasi-regulators (incl. LHA's) are not the right way to go about things. They ultimately break, become fat & inefficient and mean that all but a few wealthy and powerful people suffer.
"However this neglects the fact that beyond this, the sort of house you choose to live in and how you choose to pay for it is free will and a lifestyle choice (as far as disposable income allows)."
That's right. You can rent form the state and take their services, rent form the state and take up private services (BTL) or buy. In all cases you pay LVT and this will affect what choices you make.
"However how the LHA or private individual sources their homes is and should be open to some market pressures but with an agreed Service Level (Landlord) and contract (tenant). I agree that today people can rent dumps for extortionate prices and that clearly, morally isn't right."
How the Housing Authority sources homes is a bit of an intransigent problem only partially solved by that fact that land is structural and so it's management is or should be a government-only area.
I would run social housing by first condensing social cases into social estates and siting those on cheap land. I'd also allow for some publicly run rental accommodation based on business needs and local demand.
And on that last point, you could easily determine allocation by looking at housing waiting lists. Otherwise everything else would be up to free market forces.
And if I might digress for a moment, my views on morality is simple:- business should not get over-involved with it. Businesses exist to make money and that should be it. Social issues should be handled by the government who's job it is to balance public pressure & concerns with the need for a wealthy, healthy and productive society.
"I think you overestimate the number of people who "want to work"
On the other side of my town there is a massive social estate so I'm quite familiar with this problem. I'd attack it by offering minimal-standard housing (think towerblocks) to non-workers and encouraging them to work for a better life.
Anyway it works with illegal immigrants, why not layabouts?
"There are a large number of people (by no means all, before someone has a pop at me) who desire neither."
If they want to 'live' in a warehouse or towerblock then why not? Provided they don't breed that is.
"But yes many of the high yield properties are in these areas, the LHA prefer private landlords as they carry the risk of Tenant damage / non-payment - the reality is that these costs are covered by the private landlord. "
I've already quoted from a source showing that this just isn't the case. The LHA effectively underwrites any damage and pays though the nose for it.
"I don't agree with your point 2nd home owners, these are essentially luxury items and those that can afford them and by what you wrote - this will increase the Land value and LVT in that area"
And so they will have to pay for it. Of course we could always tax 2nd homes at a higher rate or favour local residents by charging them less LVT.
"If go onto the Malvern hills, I can access a free natural resource (spring water) its free it costs me nothing."
And if it's on public land (i.e. no one has sole utility or rights to the spring - see my point on mineral extraction) and if you're happy to take a chance then I don't see a problem with this.
"If choose to buy all these bottles or water and not consume them - in principle, the capital value of that water (bottled) could go up, but now its expensive and you cant buy the water yourself outright, not because I choose what to charge but because that is what the market defines that people will pay but I will let you have it for regular payments - but I retain ownership of the bottle. Have I charged for the water or productisation of it."
A key feature of the 'product' that we call land is it's immutability. It can't be moved nor really destroyed. This is not so with your spring water example. Now as I have already illustrated, natural resource extraction (specifically minerals but spring water could also be classified as such) are treated as being nationally owned. What the government does is allow private companies to extract those natural resources (extracting their value in the process) and then share the profit with the public coffers.
In your example the government would only allow you to extract the water provided that (a) it's then sold and (b) a percentage of the profits goes back to the government. Oh and if you were inefficient then the government would have the right tender the extraction contract out to someone else.
"Have I charged for the water or productisation of it."
You've charged me for the extraction and value-add and because it's a natural resource everyone shares in the profits.
"However if you tax me on the markup in a banded way between my purchase+storage cost and my effective selling price, then I am more likely to end up in a competitive situation with other water suppliers lowering the price of the water."
No because your "Malvern Hills" spring water is a unique product and you have a monopoly on it as a natural resource!
And if there were several "Malvern Springs" then this would be a monopolistic market but still acceptable as contracts would still be tendered and profits shared.

Report on 31 March 2010 | Love 0 loves
14

rightoncommander said

This is utter nonsense. How can you possibly suggest that a speculative investor deserves the same support as somebody who is struggling to keep the roof over their heads?
I fail to share your vision of social collapse should BTL landlords fail. The mechanism for this collapse doesn't exist. The houses will still be there. Other landlords will be free to buy them for the benefit of the same or new tenants. If the house is unoccupied, which is very likely if a landlord's in trouble, it can also be bought by a first-time buyer (a downsizing cash buyer is unlikely to be interested in most rental property). No FTB in his right mind will buy a tenanted property, and even if he wanted to I doubt he'd get a mortgage, so the mythical evictions will not come to pass.
So what is the consequence? Some people who invested in the middle of a bubble will lose some money. Anyone who thinks that this is a bad thing must have been asleep for the last two years.

Report on 01 April 2010 | Love 1 love
0

sarlea said

rightoncommander, I absolutly agree.
BTL is a business - if they get into financial trouble they should be treated exactly the same as any other business.

Report on 01 April 2010 | Love 0 loves
1

truthful said

Boo hoo!! BTL is a business, and in a recession some businesses do badly, like our own. Should the government bail out every business? Obviously bankers are especially deserving of taxpayer help (!) but why should anyone else get help? Let's face it, when it all picks up again, will BTL pay extra tax to compensate for any help they got? No, they will just pay the ordinary amount of tax any other business does. They got into it to make money for themselves, and good luck to them and hard luck on everyone else. It's what you call CAPITALISM.

Report on 01 April 2010 | Love 1 love
2

Rogue Economist said

Firstly I disagree BTL landlords should receive additional Government help. BTL is another investment vehicle, the Government does not compensate people who invested in the stockmarket just before the crash!!
There are approximately 2 million homes lying empty in the UK which the Government could take on, repair and rent out!!
As for rents creeping up, a 'professional BTL investor would know exactly when to increase rent and that would not be in the middle of a recession, however rents will rise as they have fallen due to the recession, then they will continue to rise as supply and demand equals itself out. The rent will increase/decrease to level of demand and supply offered, basic Economics.
Best,
Den

Report on 01 April 2010 | Love 1 love
26

SiGl26 said

I'm a residential landlord; like most in the UK I'm an amateur businessman. If I can't meet my debts, I go bust, like anyone else. Boo hoo, as truthful says. I don't want, need or deserve any special protection.

Report on 01 April 2010 | Love 1 love
2

dgoodman said

Thing is, I dont think any of us think BTL landlords deserve any special measures. That said the "problem" is the injustice in mortgage rates with BTL at ~5.5% and that is not right.

Report on 01 April 2010 | Love 0 loves
64

LandOfConfusion said

"Thing is, I dont think any of us think BTL landlords deserve any special measures."
Unfortunately you provide or rather now occupy a structural position in society. Labour has allowed this as they have allowed the banks. And just like them any serious failing will hurt the economy.
"That said the "problem" is the injustice in mortgage rates with BTL at ~5.5%"
I don't see why. A BTL'er is much more likely to default as it isn't their main home. It's also a business and like any other it is vulnerable to a market downturn and all this liability has to be priced in.
And as others have said, you'd be mad to enter the BTL market at the moment.

Report on 02 April 2010 | Love 0 loves
0

Andrrew said

Keeping within a well defined character limit (?), could I put forward another scenario. I take the land, in an attractive area, and build extra properties. Because of the area, the state (in the form of the local planning department) insist that I cannot be a BTL landlord, or developer to sell the properties individually, so must offer a service (holiday cottage rental). Does that make me a business, or an investment?
If a business, could someone let Mr Darling know please, as he has decreed otherwise.

Report on 03 April 2010 | Love 0 loves
2

dgoodman said

evan allowing for finance I would say now was the almost perfect time to to get 'into' BTL - because if a property stacks now, its pretty much set IMHO

Report on 03 April 2010 | Love 0 loves
64

LandOfConfusion said

Andrrew said
"I take the land, in an attractive area, and build extra properties. Because of the area, the state (in the form of the local planning department) insist that I cannot be a BTL landlord, or developer to sell the properties individually"
Huh? You can build properties but not sell them? Why would that be a condition (it is important for me to properly answer your question)?
"so must offer a service (holiday cottage rental). Does that make me a business, or an investment?"
Well, assuming that you can't sell(?!) your developments you would have to obtain zoning, which I assume would be granted as a condition of planning permission. So you'd be a business, paying business rates in a commercial zone (no residential developments allowed).

Report on 03 April 2010 | Love 0 loves
64

LandOfConfusion said

dgoodman said
"evan allowing for finance I would say now was the almost perfect time to to get 'into' BTL"
We agree again! In fact I think that now would be a brilliant time to get into BTL. After all, property only ever goes up!

Report on 03 April 2010 | Love 0 loves
0

Andrrew said

Thanks for the thoughts
LandofConfusion said
Huh? You can build properties but not sell them? Why would that be a
condition (it is important for me to properly answer your question)?
God bless the National Parks - thats correct. We can sell the entire site, but only as one complete unit, not as separate bits
Well, assuming that you can't sell(?!) your developments you would have
to obtain zoning, which I assume would be granted as a condition of
planning permission. So you'd be a business, paying business rates in a
commercial zone (no residential developments allowed).
The PP puts strict limits on what can be done, and how long any one person can stay (28 days), and yes, we do pay business rates, CCL on fuel etc, but as of last years budget holiday cottages are no longer considered by HMRC a business, so no capital allowances, IHT relief, entrepreneurs relief etc. And as a result, no more development. The figures just no longer stack up. Alastair Darling has, according to the Yorkshire Tourist board, put 2500 jobs in our area at risk. A number of smaller operators, such as us, are now asking why we need to be VAT registered, pay business rates etc, when we have non of the associated advantages.

Report on 04 April 2010 | Love 0 loves
64

LandOfConfusion said

Andrrew said
"God bless the National Parks - thats correct. We can sell the entire site, but only as one complete unit, not as separate bits"
I see. I assume that the development was allowed as a single unit because the planning department saw that as preferable to multiple independent businesses. In this particular case the restriction may be logical because of the nature and overall use of the site, although I'd personally allow multiple smaller 'businesses' to form as that aids competition and may increase reach (multiple operators = more tourists).
"The PP puts strict limits on what can be done, and how long any one person can stay (28 days), and yes, we do pay business rates, CCL on fuel etc,"
This seems fair enough. Your business model is discretionary and so you're a commercial operator working in a commercial zone doing a job which attracts discretionary spending into your local community which, in turn benefits. This is how it should work.
"but as of last years budget holiday cottages are no longer considered by HMRC a business [...] Alastair Darling has, according to the Yorkshire Tourist board, put 2500 jobs in our area at risk."
My dislike for this government is well known and it's the issues like this which really matter but are rarely heard. Interestingly enough, a large part of Yorkshire and surrounding areas is supported by public sector spending. In other words because so many people in and around Yorkshire are employed in the public sector, any reduction in their numbers will hit your local economy hard.
And you'd never guess which party was warning us about that.

Report on 05 April 2010 | Love 0 loves
600

Mike10613 said

Have a meeting down the pub and set up a charity for down on their luck Buy to let landlords; it was down the pub half stoned that most of them got in to it in the first place or in some wine bar. You speculate to accumulate or lose your shirt...

Report on 09 June 2010 | Love 0 loves
1

OneKillWonder said

The only reason borrow-to-let seemed like such a good bet was rampant house price inflation, caused in part by the borrow-to-let boom. But like all bets there is a chance that you could loose so I don't see why prudent people should pay for other people's folly. The fact is that house prices are just too high, and it is no good blaming the banks for not lending more - if the banks had not let so heavily in the past then we might not be in this mess. No one should ever be allowed to borrow more than they can afford to pay back and 100% mortgages are a complete joke.
Until house prices come in line with actual earnings this country will be on its knees, as over priced housing is one of the fundamental causes of many of the issues we have today. I really hope that this government understands this and puts us on course to correcting house prices and the greater economy, though I am sure that many people won't be very pleased.

Report on 09 June 2010 | Love 1 love

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