Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

War on UK Buy to Let Property Market Sector Intensifies, Flats Particularly Perilous

Housing-Market / Buy to Let Apr 04, 2016 - 04:54 AM GMT

By: Nadeem_Walayat

Housing-Market

The latest bad news to hit the UK buy to let rental property investment sector was the announcement from the Bank of England to make conditions on buy to let mortgages much more stringent by going beyond the current norm of just mortgage interest being covered by the anticipated market rents, instead it has been proposed that at a minimum rent should be at 125% of mortgage interest payments, as well as taking into account all other costs incurred such as repairs, tax and voids, as part of a continuing trend to to make more properties available to first time buyers, that property investors have been busy buying up for well over a decade that has resulted in making it near impossible for first time buyers to step onto the bottom rung of the property ladder in many areas of the UK.


This comes on top of the 3% stamp duty tax hike on investment properties that came in force on the 1st of April that earlier had triggered a mad dash to bolster portfolios as I explained several months ago -

26 Nov 2015 - George Osborne's War on Buy to Let Sector Trending Towards Doomsday

The following table illustrates the effect of the increase in stamp duty from April 2016 which will especially hit the bottom end of the housing market where for instance tax on a £150k property will jump from just £500 to £3,800, an increase of £3,300! Which is precisely where George Osborne wants to target the most pain so as to increase the supply available for first time buyers that buy to let landlords have been soaking up for many years.

Value Existing / Single Property Owner Buy to Let from April 2016 Extra Tax
£40k-£125k 0% 3% £2550
Upto 250k 2% 5% £6300
Upto 925k 5% 8% £26550
Upto £1.5mil 10% 13% £51300
Over £1.5mill 12% 15%

The clear strategy is for buy to let investors seeking to expand their portfolios to act before the April 2016 tax hike, therefore this could result in a temporary surge in house prices over the next few months, especially at the lower end of the market which will be set against those buy to let landlords who have had enough and decide to sell their portfolios into temporary strength before the next negative measure is announced. Of course there is one way for landlords to avoid the tax hike as was the case for avoiding the end of mortgage interest relief which is to INCORPORATE.

In fact I have been warning investors for over a year that the buy to sector's days are numbered and far longer to avoid flats, and to expect a whole host of announcements that will seek to tax and penalise the buy to let sector literally into oblivion -

26 Oct 2015 - Buy-to-Let Property Boom Over Despite UK House Prices Grinding Higher

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.

So this trend should not come as much surprise to readers of my UK housing market articles that even before the May 2015 general election warned of the forthcoming dire consequences for buy to let sector investors, conditions that are only going to steadily get worse with each passing year as the political parties would increasingly seek to woo the 6 million strong army of private renters in the run up to the 2020 general election as illustrated below:

14 Apr 2015 - Conservatives Bribe Labour Voters by Extending Right to Buy to Housing Association Tenants

Private Rental Sector Crisis

To date approx 40% of the right to buy council homes have ended up in the hands of private landlords who then rent out these properties to those on benefits or low incomes. So whilst Council house tenants and soon to join them Housing Association tenants are in receipt of 70% discounts (bribes) of upto £102,000! Those in private rental accommodation get NOTHING! In fact the rents in the private sector tend to be substantially higher than for social housing and the properties also on average tend to be in far poorer state of repair.

Therefore at the end of the day the winners will be private landlords as the supply of buy to let sector properties increases. Meanwhile those waiting on the ever expanding housing lists are going to face even less choice as now even housing association properties will soon start to evaporate so that all that will be left will be some 6 million private landlord rental properties.

The big question mark is what bribes will the politicians come up with to appease the 6 million private rental households? Will a future government announce the right to buy your private rental property, especially as it would be a relatively easy votes winning calculation for a left of centre party to make. Something for today's would-be landlords to ponder the consequences of as they mass property empires that they could be forced to liquidate.

Therefore the Conservative government is continuing to lay the property market groundwork for the 2020 General Election, one of far higher supply of first time buyer properties, all without significantly increasing the construction of new builds as effectively many hundreds of thousands of today's renters become property owners, which paints a bleak picture for buy to let investors as each year many new measures are announced that chip away at profit margins until they turn into losses that mushroom into unserviceable debt mountains and thus are forced to sell.

So if your a buy to let investor, don't stick your head in the sand and think things are going to get better, they are NOT, instead things are going to get MUCH worse and if your hands already not very strong, then it may be wise to think about exiting before you are forced sell at a significant loss.

The current assault on the Buy to let sector just confirms that ultimately the trend is towards a buy to let doomsday, that of the right to buy scheme being extended to private sector tenants.

UK House Prices

In terms of the outlook for UK house prices, it is now over 2 years and 2 months since excerpted analysis and the concluding 5 year trend forecast from the then forthcoming UK Housing Market ebook was published:

30 Dec 2013 - UK House Prices Forecast 2014 to 2018, The Debt Fuelled Election Boom

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:

UK average house prices (£206,320) are currently showing a 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 a 13% reduction in the forecast outcome to approx a 42% rise by the end of 2018.

And where the buy to let sector is concerned, my consistent message for 2 YEARS! has been to avoid FLATS, for they are likely to be hit HARD over the coming years as this earlier video illustrates -

Ensure you are subscribed to my always free newsletter (only requirement is an email address) for new analysis and forecasts including the the following :

  • US Dollar Trend Forecast
  • UK Housing Market Trend Forecast
  • US Stock Market
  • US House Prices Detailed Trend Forecast
  • Gold and Silver Price Forecast

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2016 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.


Post Comment

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