I’m a serial tenant. There’s nothing wrong with renting. On the whole it’s a worry-free life. If the washing machine breaks, I call my landlords and they are good people so they get it fixed up as soon as they can. I rent privately so my exposure to dreaded estate agents is (mercifully) low. I’m also free to move as frequently as my contract permits, which is flexibility I appreciate. However I get fed up with the limitations. It’s hard to have real pride in a place which is never really your own. And when I want to drill a hole in the wall I want to pick up a drill, not write a carefully worded email (with illustrations) to my landlord. I wouldn’t mind those tens of thousands of pounds sitting in my name in one of the most consistent investment markets either. Instead I give them to somebody else to make money for them.
And so it is that every six months or so I go through the optimistic but ultimately heartbreaking process of looking for a place of my own, with the eventual realisation that between arrangement fees, stamp duty, deposit, valuations and the rest, I just can’t afford to buy. Pretty much the only people I know who can have parental assistance which I would prefer to get by without even if the option existed.
Around a month ago, with a failed attempt to move due to inflated rental rates behind me, I embarked on this process once again. After a few days of enthusiastic chats with mortgage brokers I drew the sickening conclusion that I could only stretch to buying a house at this stage if I didn’t live in it. That is to say most brokers would offer me a buy-to-let mortgage with a better rate, lower tax, and higher LTV than an equivalent owner-occupier mortgage.
I am being priced out of the rental market and the government are doing their best to make sure that I can’t take that wild leap onto the property ladder by giving buy-to-let landlords a tax break.
I am struggling to see the motivation for such a move. Perhaps some genius saw an illustration of the current rental market and quizzically pondered “how can we relieve the burden on our strained rental market?” Having presumably been employed for his/her encyclopedic knowledge of economics and ability to think outside the box, supply and demand principles must have come to mind. And as supply typically comes before demand, in the phrase if not alphabetically, our hero rushed to the conclusion that we must get more individuals investing in properties they intend to let. And as such, eyes straining from the glare of the light bulb above his head, Johnny Treasury drafted a range of incentives to encourage those potential buy-to-let homeowners in search of additional income through extended borrowing against the incomes of their future tenants.
I could ramble on for hours. And no, I’m not qualified to. Adam Smith I am not. But I do have to get to the bank before I miss my landlord’s next mortgage payment.
Wow, I didn’t know about this tax break. I don’t fully understand it, but without consulting anybody but my cob-webbed memory, it seems that the proposed (and contended) main point of this bill is that “professional” landlords (normally those with 10+ properties) who go on property “shopping sprees” (of 2+ properties, within 3-6 months – these are called linked transactions) at the moment have to pay an added stamp-duty premium. This bill intends to somehow do away with implications of said linked transactions.
As to the property ladder…I guess it’s what’s important to a potential buyer. There are all kinds of ways to get on the property ladder, if you are not inordinately rich, and am pretty sure they all involve some sort of compromise. I could talk you through the pros and cons of each…Will try and break down a few here:
.BTL – not living in the property.
+potential source of income through rentals and capital growth of the property’s value
-any profit per month/yr adds to your income tax liability.
-more mortgage restrictions (generally worse for a first-time BTLetter)
-less preferential rates (at the time of writing I can see 2.39% for an owner-occupier and 3.19 for BTL)
-higher deposits needed (again, I don’t think we have above 75% LTV for BTL, but I think you might get 85-90% for an owner occupier)
-10-20% pcm to a letting agent (from memory Foxton’s are 17% or so)
-Liability for certain other costs like ground-rent, landlord’s rental insurance, landlord’s building insurance.
-capital gains tax when remortgaging or selling if the value of the property increases and this value is “cashed in”
-risks: expensive repairs, replacement of damaged goods, late rent from tenants, void periods, drop in rental values, increase in mortgage payments above rents, having to maintain a multiplier on rental income (e.g if your typical rent for the property is £1250pcm, you cannot get a BTL mortgage if the mortgage will be more than £1000pcm…this ratio varies per mortgage)
These risks basically mean that without a healthy cash buffer of a rich investor, any unexpected costs have the potential to affects one’s credit rating and hence make the mortgage a bigger burden, making one more likely to miss payments, and affect one’s credit rating…ad infinitum (or repossession)
.BTL – living in the property and multi-letting the other rooms
As above, plus
+relief from capital gains tax on realising an increase in the property’s value
+more control of risks associated with bad tenants
+no need for property management fees
-landlord’s contents insurance costs
-more tenants to deal with: more people involved, greater risk something will go wrong.
-more pressure to provide a higher level of service/value for money (as “tenants” have constant contact with landlord) – basically you have to do your normal job AND be the property manager.
In both BTL cases you may also have to stomach the costs of credit checks, Tenancy Deposit Schemes, etc.
+Benefits of property value increase with no capital gains tax
-Costs of maintaining a property (as in “risks” above), including building insurance, ground-rent, service charges…(if applicable, especially on flats)
Also consider that you can rent out a spare room and make approx £6,000 p.a. tax free (although I have to check the IRevenue’s exact position on this)
You’d also have to buy a more expensive property to do this/live in a cheaper area…and then you inherit the risks of tenants from above
.Part buy, part rent
+Benefits of normal purchase, with proportionally smaller risks/entry costs
-not always available in the areas you are thinking of living; may also be restricted by income, occupation, etc.
Highest on BTL
Lowest on Part buy
To me this adds up to “there is no such thing as a free lunch” but you can make any of the approaches work if you plan carefully, manage your finances extremely well, and can be disciplined to blend the risks involved and choose the option that works best for you
For example (and especially in the case of if you want to save up a deposit)
This may mean living with parents/relatives/friends and not having the privacy you want until you can save up enough.
It may mean having a joint application with someone you would rather not live with so you can both get a foot on the ladder.
It may mean buying a property in the North of England where 2-3 bed properties are available at less than £100k
It may mean that once you have a property, again you have to live with people you don’t particularly like until your circumstances improve
All of this pretty much makes my point for me. I am not a low earner and I could live a more frugal lifestyle to make the numbers add up but fundamentally I believe that I am typical in that I would like to live my life with my property as a base, the foundation for everything else. Not as a source of income or cash flow. The majority of people I know are tenants. I know that they would also buy if they could. But they can’t and so they prop up a rental market which will continue to grow in the favour of landlords until people can afford to buy, which they won’t as long as landlords continue to purchase to let. I’m not sour about this situation. It’s not a jealous rant. If buy-to-let were so easy I’d just do it, or simulate the returns by investing in a property fund.
If the market was serving the broader population rather than investors I would be able to choose between buying and renting based on my requirements (flexibility, responsibility, time horizons etc.). Instead I rent because I only have one realistic option at present.
Bottom line is: I don’t feel I should have to make sacrifices to live in a property which I own. When I’m busy trying to get the rest of my life to make sense why should I have to move in with my mum, live in zone 8 or relocate to Glasgow just to get on the property ladder? Like I said, I see a property as a home; a constant and a cornerstone around which I can build a life and make memories. This is naive I know – don’t worry, I’m not as innocent as I sound. I’ll just continue to rent and campaign against those who use property for profit until I can afford to settle down.
Agreed on most counts; I think I just approach this from the direction of what could be done by someone in your situation to eventually be able to afford a home to call a base, foundation, etc, which is a desire I, and as you say countless others, share. Definitely admire the dedication to championing a cause you believe in, and that you’re not hypocritical enough to campaign against BTL whilst simultaneously engaging in it.
Indeed. Like so many issues there is no black and white. I appreciate that the rental market is necessary. Many people choose to rent over buying but I’m concerned that many renters today are not being given the opportunity to make that choice and incentivising buy-to-let will do nothing to address the underlying reasons for the increased demand for lets. It’s a typical ‘band aid’ approach from a government who ultimately need people to be investing in property to cushion the blow when they realise that the state pension will not make a dent in their cost of living once they reach retirement.
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