Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
THE INFLATION MEGA-TREND QE4EVER! - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend 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

© 2005-2019 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

6 Critical Money Making Rules