Best of the Week
Most Popular
1.Canada Real Estate Bubble - Harry_Dent
2.UK House Prices ‘On Brink’ Of Massive 40% Collapse - GoldCore
3.Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - Nadeem_Walayat
4.Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - Marc_Horn
5.5 Maps That Explain The Modern Middle East - GEORGE FRIEDMAN
6.Gold Back With A Vengeance As Bitcoin Bubble Bursts - OilPrice_Com
7.Gold Summer Doldrums - Zeal_LLC
8.Crude Oil Trade & Nasdaq QQQ Update - Plunger
9.Gold And Silver – Why No Rally? Lies, Lies, And More Lies - Michael_Noonan
10.UK Election 2017 Disaster, Fake BrExit Chaos, Forecasting Lessons for Next Time - Nadeem_Walayat
Last 7 days
Last Week’s Rally in Gold Stocks Erased - 26th Jul 17
Dollar, Bitcoin, Markets - Is There A New Flight To Safety? - 26th Jul 17
Central Banks ARE The Crisis - 26th Jul 17
Iran: Public Image Versus Historical Reality - Part 1: An Abridged History to the 20th Century - 26th Jul 17
Trump Fails To Understand One Critical Thing—Our Trade Partners Have Options, Too - 26th Jul 17
Stock Market and Gold Stocks Trend Forecast Update - 25th Jul 17
Saving Illinois: Getting More Bang for Its Bucks - 24th Jul 17
3 Stocks Sectors That Will Win in The Fed’s Great Balance-Sheet Unwind - 24th Jul 17
Activist Investors Are Taking Over Wall Street, Procter and Gamble Might Never Remain the Same - 24th Jul 17
Stock Market Still on Track - 24th Jul 17
Last Chance For US Dollar To Rally - 24th Jul 17
UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - 22nd Jul 17
Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts - 22nd Jul 17
Warning: The Fed Is Preparing to Crash the Financial System Again - 21st Jul 17
Gold / Silver Shorts Extreme - 21st Jul 17
GBP/USD Bearish Factors - 21st Jul 17
Gold Hedges Against Currency Devaluation and Cost Of Fuel, Food, Beer and Housing - 21st Jul 17
Is It Worth Investing in Palladium? - 21st Jul 17
UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - 21st Jul 17
The Fed May Show Trump No Love - 20th Jul 17
The 3 Best Asset Classes To Brace Your Portfolio For The Next Financial Crisis - 20th Jul 17
Gold Stocks and Bonds - Preparing for THE Bottom - 20th Jul 17
Millennials Can Punt On Bitcoin, Own Safe Haven Gold For Long Term - 20th Jul 17
Trump Has Found A Loophole To Rewrite Trade Agreements Without Anyone’s Permission - 20th Jul 17
Basic Materials and Commodities Analysis and Trend Forecasts - 20th Jul 17
Bitcoin PullBack Is Over (For Now): Cryptocurrencies Gain Nearly A 50% In Last 48 Hours - 19th Jul 17
AAPL's 6% June slide - When Prices Are Falling, TWO Numbers Matter Most - 19th Jul 17
Discover Why A Major American Revolution Is Brewing - 19th Jul 17
iGaming – Stock Prices - 19th Jul 17
The Socionomic Theory of Finance By Robert Prechter - Book Review - 18th Jul 17
Ethereum Versus Bitcoin – Which Cryptocurrency Will Win The War? - 18th Jul 17
Accepting a Society of Government Tyranny - 18th Jul 17
Gold Cheaper Than Buying Greek Villas in 2012 - 18th Jul 17
Why & How to Hedge the Growing Risks of Holding Stocks - 18th Jul 17
Relocation: Everything You Need to do for a Smooth Transition Abroad - 17th Jul 17
A Former Lehman Brothers Trader: It’s Time To Buy Brick And Mortar Retailers - 17th Jul 17
Bank Of England Warns “Bigger Systemic Risk” Now Than 2008 - 17th Jul 17
Bitcoin Price “Deja Vu” Corrective Sequence - 17th Jul 17
Charting New Low in Speculation in Gold and Silver Markets - 17th Jul 17
Bitcoin Crash - Is This The End of Cryptocurrencies? - 17th Jul 17
The Fed's Inflation Nightmare Scenario - 17th Jul 17
Billionaire Investors Backing A Marijuana Boom In 2017 - 17th Jul 17
Perfect Storm - This Fourth Turning has Over a Decade of Continuous Storms to Come - 17th Jul 17
Gold and Silver Biggest Opportunity Since Late 2015, Last Chance at These Prices - 17th Jul 17
Stock Market More to Go - 17th Jul 17
Emerging Markets & Basic Materials Stocks Breaking Out Together - 16th Jul 17
Stock Market SPX Uptrending Again After Microscopic Correction - 15th Jul 17

Market Oracle FREE Newsletter

Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts

Buy-to-Let Property Boom Over Despite UK House Prices Grinding Higher

Housing-Market / Buy to Let Oct 26, 2015 - 10:47 AM GMT

By: Nadeem_Walayat

Housing-Market

Britain's 2 million strong army of buy-to-let private landlords with well over 5 million properties in their portfolios face a perfect storm of new regulations, tax hikes and benefits cuts that looks set to turn their and their tenants finances upside down, converting profits into losses, this despite UK house prices expected to continue to grind ever higher and thus increasing portfolio valuations.

The fantasy sales pitch of seminars of buying properties to rent out at huge potential returns had convinced many thousands of investors over the past decade to become buy-to-let landlords, especially given the abysmal rates of bank interest of the past 6 years. However, reality has never matched expectations for many buy to let investors who soon realise that buy to let is actually a second job rather than an invest and forget exercise, as they tended to face a string of problems at the top of the list are problem tenants, a situation greatly worsened by mass migration from eastern europe and the myriad of scams they tended to pull on unsuspecting landlords, leaving behind wrecked properties that will cost far more to rectify than any rental income gleaned from such properties.


Nevertheless, buy-to-let investors who learned from their initial mistakes and thus managed to avoid the bad tenant pitfalls have been able to build significant property portfolios that they view as their pensions to fund their retirements with, the whole business model of which is now being systematically undermined, due to the fact that 6 million private renters have now become a huge voting block that the Conservative government is attempting to attract / bribe ahead of the next general election.

Mortgage Interest Tax Relief

At the top of the buy-to-let sector hit list to be implemented from April 2017 is the end of mortgage interest tax relief, which means tax will now be due on virtually the total amount of rent earned before mortgage interest costs less a 20% tax credit on the mortgage interest as the below table illustrates:

  Now 2017
Rent £15,000 £15000
Interest £10,000 £10000
Other Costs £1000 £1000
Taxable £4000 £14000
Total Tax due @ 20% less tax credit £800 £800
Total Tax due @ 40% less tax credit £1600 £3600

So for most higher rate buy to let tax payers with mortgages the amount of tax due will effectively DOUBLE. And what's worse, many basic rate tax payers will be pushed into the higher rate tax bracket as taxable income will now include the mortgage interest that is currently being deducted i.e. in this example the buy to letter will see a £10k increase in taxable income. In which case transferring a property to spouses who pay little in tax would help preventing going into the higher tax bracket.

Selective Licensing

Many of Britain's major cities have seen the implementation of selective licensing schemes since the start of 2014 in select areas that amounts to an additional local council tax on landlords at a typical cost of £1000 per annum that is in addition to existing fees covering multiple occupation properties.

Immigration

From 1st of Feb 2016 landlords will effectively be required to act as UK border guards, to check that prospective tenants are not illegal migrants and face a potential fine of upto £3,000 per property rented out to illegal migrants.

Deregulation Act 2015

As of 1st of October tenants gained more rights and protections against being evicted that contains many pitfalls for landlords such as failure to supply tenants with x,y,z piece of paper on time, all aimed at making it now far more difficult for landlords to evict bad tenants that looks set to turn renting out properties into a legal mine field to the advantage of tenants such as by complaining about non existant issues and then preventing landlords from making the repairs under local authority issued improvement notices.

Universal Credit

Another impact on small buy to let investors, with perhaps just 1 or 2 properties will be the introduction of Universal Credit that replaces Working and Child Tax Credits. The big difference between the two is that Tax Credits are based on INCOME, whilst Universal Credit is based on CAPITAL, therefore many small time buy to let investors with 1 or 2 properties can and do receive substantial tax credits each year, whereas under Universal Credit no one with capital of more than £16000 will receive any benefits.

Benefits Cap and Cuts

And lastly there is the benefits cap which is set to be cut from 26,000 to 20,000 outside of London and £23,000 in London from April 2016. The reason why this will hit landlords hard is because the top / first benefit to be cut will be housing benefit and it is only when that benefit has been fully exhausted that the other benefits are cut. Similarly cuts in Working and Child Tax credits will make families over £1k worse off annually the consequences of which in large part be felt by landlords as many more tenants fall into rent arrears.

Impact on the UK Housing Market

All of the measures are clearly aimed at increasing supply of housing by forcing landlords to sell through erosion of profits, especially at the lower end of the market which should at least result in house prices significantly under performing in the worst hit areas, though more probably see outright falls in house prices in pockets of cities right across the UK that in reality have already been underway for some months. So clearly the Conservative governments measures are aimed at INCREASING the supply of housing for potential Tory voters, especially at the bottom end of the market that will attract first time buyers interest.

Another measure that will appeal to prospective Tory voters is the extension of the Right to Buy scheme to 1.3 million Housing Association tenants from April 2016. Which if following the example of council housing then within this parliament 50% of social housing could be sold off thus further increasing supply at the lower end of the market.

Therefore the Conservative government appears to be already laying the property market groundwork for the 2020 General Election, one of far higher supply of first time buyer properties, all without increasing the construction of new builds significantly as effectively many hundreds of thousands of today's renters become property owners.

Meanwhile a fall in supply of properties available for rent will logically result in an increase of rents. Whilst proving costly to renters. However, mortgage free landlords can profit from at least some of the consequences.

UK House Prices 5 Year Forecast

It is now 22 months since excerpted analysis and the concluding 5 year trend forecast from the then forthcoming UK Housing Market ebook was published as excerpted below-

UK House Prices Forecast 2014 to 2018 - Conclusion

This forecast is based on the non seasonally adjusted Halifax House prices index that I have been tracking for over 25 years. The current house prices index for November 2013 is 174,671, with the starting point for the house prices forecast being my interim forecast as of July 2013 and its existing trend forecast into Mid 2014 of 187,000. Therefore this house prices forecast seeks to extend the existing forecast from Mid 2014 into the end of 2018 i.e. for 5 full years forward.

My concluding UK house prices forecast is for the Halifax NSA house prices index to target a trend to an average price of £270,600 by the end of 2018 which represents a 55% price rise on the most recent Halifax house prices data £174,671, that will make the the great bear market of 2008-2009 appear as a mere blip on the charts as the following forecast trend trajectory chart illustrates:

In terms of the current state of the UK housing bull market, the Halifax average house prices (NSA) data for Sept 2015 of £202,781 is currently showing a 4.5% deviation against the forecast trend trajectory, which if it continued to persist then in terms of the long-term trend forecast for a 55% rise in average UK house prices by the end of 2018 would translate into an 11% reduction in the forecast outcome to approx a 44% rise by the end of 2018.

The decline in momentum remains in line with my long standing expectations for house prices momentum to fall in the months following the general election. However, again don't take this post election slowdown as a harbinger of anything other than a mild correction as I expect the over-riding bull market trend to reassert as the fundamental drivers reassert themselves.

The bottom line is that the mega-trend drivers of out of control immigration, lack of house building, flood of foreign capital, and the UK governments perpetual inflation of the debt bubble ensures that the UK housing bull market will continue despite the hit that the buy to let sector is and will be taking right upto the 2020 general election. All of which ensures that probability continues to strongly favour an outright Conservative election victory in 2020. - 08 May 2015 - UK House Prices Correctly Forecast / Predicted Conservative Election Win 2015.

Ensure you are subscribed to my always free newsletter for ongoing in-depth analysis and concluding detailed trend forecasts that include the following planned newsletters -

  • US Dollar Trend Forecast Update 2015
  • US House Prices Forecast
  • Stock Market 2016
  • Islam 3.0

Also subscribe to our Youtube channel for notification of video releases and for our new series on the 'The Illusion of Democracy and Freedom', that seeks to answer questions such as 'Did God Create the Universe?' and how to 'Attain Freedom' as well as a stream of mega long term 'Future Trend Forecasts'.

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2015 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

R.E.B
26 Oct 15, 17:19
Buy to let properties

"So clearly the Conservative governments measures are aimed at INCREASING the supply of housing for potential Tory voters, especially at the bottom end of the market that will attract first time buyers interest"

One problem they may have with this is that many of the buy to let landlords mop up bottom end properties in areas that many do not want to buy, and rent them to bottom feeders who have no option and will never buy anywhere. I have many dealings with such landlords and properties. If these houses are not profitable to rent, and there are no buyers at a reasonable price, what then. Will they have to be boarded up, or given away?


peter_m7uk
26 Oct 15, 19:43
BTl

Hi Nadeem,

Always interested in your articles, thanks for this. My opinion is that these changes will simply slow down price growth in BTL properties, whilst rents continue to rise, resulting in higher yields for landlords. The higher yield will be used towards paying for the extra taxes and charges, the market will simply adjust to the new reality. Population growth will assure a steady supply of tenants, even if more renters become FTBs. The fact is that long-term leveraged gains on property, in a world of money-printing, are just too good to put people off, even with these changes. More landlords will also go into Limited Companies when the taxation is more favourable.

Regards


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife