To me it feels like they’re forcing the market to undergo some kind of transition. Which wouldn’t necessarily be a bad thing but considering how the UK Government are overlooking many inefficient aspects of the economy (which we know the only REAL way of increasing GDP is by maximising productivity and efficiency) tells me they are resorting to primitive styles of raising tax revenue and capital such as: creating new taxes, squeezing more money out of pensions, increasing costs for the average citizen and business which they deludedly believe will make their situation better will ultimately be the catalyst that makes it worse as consumer spending drops in the long-term and businesses will be starved of growth potential in the form of lost revenue potential because of these ridiculously desperate taxation tactics. They need to step aside and let the people grow and thrive and have an efficient, predictable and flexible tax system that benefits everyone not just the government’s façade. This country’s economy only grows when the people invest, by robbing the people they’re robbing potential investment and by robbing potential investment they’re effectively robbing growth potential and it becomes an endless cycle as they desperately try to compete with the world economies with increasingly archaic tactics. There needs to be a restructuring of our current policies and it needs to be made simpler and more flexible
Well done James, you have given me some great points to bring up in my meeting with my MP. I did a lot of research and before I was 28, took out a personal pension with Equitable Life. That was enough to cause me not trust pension companies. If this is new to anyone, just Google "Equitable Life Scandal" and check out the first entry. I have been a buy to let investor since 2002. At one point I had 11 buy to let properties - I have sold 8 over the years, as tenants left, and currently have 3 rented out to tenants and 1 empty with a sale hopefully close to completion. A sale price has been agreed for the empty one (a lovely 4 bed detached family home, in Northamptonshire, built in 2005, with a garage and enclosed garden in a nice neighbourhood). In March 2022 the average asking price suggested by four estate agents was £385K the outliers were £375 and £390K. I put it on the market with an asking price of £280K. I finally agreed a sale in June 2023 for £300K (A 20% drop from the lowest suggested asking price of £375K). I bought the house in 2007 and assuming it does actually sell for £300k, I calculate that the value of the house has grown by about 2.6% per year i.e. about the same as inflation. I think my wife and I will pay about £16K capital gains tax on the "gain". So basically we will be taxed on inflation. In November 2021 the mortgage on the now empty house is with a zombie lender, appointed by the government and tracks the Bank of England Rate plus 1.19%. This lender refused to extend the duration of the loan (expiring in a few years time) and refused to offer a fixed rate mortgage. In December 2021 the monthly mortgage charge was £214.61. But from 1st September 2023 the monthly mortgage charge will be £1,072.26. Has any family faced a £857 in increase in their rent? But in addition to that another change in law introduced by the Cameron government means that I have been paying a bit more than £200 in council tax for every month that the property has remained empty, despite my best efforts to sell it. In my opinion one political party is ideologically opposed to landlords and would not be unhappy if they all went bankrupt, while another political party thinks it can pick up votes if more people own their own homes and would be happy if landlords were driven out of business. Which party should I vote for? Neither political party has addressed the problem that not enough houses have been built in the last two decades (if not longer), nor have they ensured that an adequate amount of social housing was made available to low income tenants. Instead one political party introduced the so called "bedroom tax" and ensured that the Local Housing Authority rate is well below the rate for market rents, while the other political party thought that local authorities should not pay rent directly to landlords, almost guaranteeing that benefits supposedly intended to pay rent never reached the landlords. I think the penny is beginning to drop with both main political parties that landlords provide an important service - but many landlords no longer trust either main political party and have decided to be part of the "exodus" of landlords leaving the private rented sector. Meanwhile I have to decide how I can afford to rent to our three remaining sets of tenants, two of whom have been my tenants since 2007 and the other since 2010. Because all my income comes from rent, I am not eligible to put more than £2,880 per year into my pension. So even your hint of a solution is not fully available to me. I am not after sympathy, but wish to point out that my attempt to provide a pension for myself and my wife whilst simultaneously offering a roof over families' heads has basically been sabotaged by UK politicians and in doing so, they have created a monumental crisis in the rental market that they are not clever enough to solve.
Like any investment I take a long term view - there are good times and bad times. It’ll be 1-3 years of pain with rates so trying to balance debt and reduce leverage. Only selling as a last resort.
Hi James - your client should absolutely go the airbnb route or sell and put the good profit they’ve made into a less leveraged / higher yielding btl. If they were further north all these numbers would be more favourable.
Build-to-rent was announced as a new investment class in the same year as the mortgage interest changes were made. Lloyds, BlackRock, John Lewis, etc all entering the market. Small landlords out, corporate landlords in. None of this is an accident.
@@essa6315agreed, you have way more recourse against a large company that has a reputation to lose. These pensions landlords so to speak are the worst I've dealt with, never want to spend money, gaslight you over your rights as a tenant and hike rents because of the 'market' despite them having said at the start of the rental agreement that they've owned the property for years and the mortgage is very cheap for them so they wouldn't 'hike on you to much because they care'.
Thanks, it's a relief to see someone else actually saying this. There's loads of American firms here buying up everything. Nuveen are another, subsidiary of some massive private equity firm.
@@essa6315I think your corporate landlords could be worst as they really really won’t care about renter just there profit which in turn which will make rents more expensive
@@MrSebastianBlake that's not the case. They're actually running a business as opposed to amateur landlords who see the place you live in as their pension. Corporate landlords have a public profile to maintain and proper maintenance contracts in place.
At first I was thinking “wow, this government is actually doing something progressive for society for a change!” And I say this a a landlord myself; albeit in a country way less generous than the UK has historically been to investors. Then the truth comes out; they’re screwing smaller middle-class investors in favour of the monstrously huge property companies that should be taxed out of existence. They’re absolutely shameless.
Career politicians are only in it for themselves, you scratch my back, I'll scratch yours. This is just another way for them to scratch the big corporations' backs.
I'd rather the big facesless corporations drive the smaller landlords out. Big companies don't throw out people from their homes as long as they pay the rent. Small landlords are scum
Very well explained and nice clear charts. I rent out 2 houses to social tenants, hence lower than market rent, and it was to people I knew were in unfortunate circumstance so it was to help them out. This was 12 years ago so I have subsequently been subject to all the measures you nicely and correctly list. I can not survive the present circumstances for much longer so my goal is to get out, like many others. I would get a better return on the money if it was rotting in the bank. I 100% blame the last 13 years of this government, particularly Osborne, for creating this mess and its getting worse. My houses are energy rated D, there is no economically viable way to get them up to C.
Bit late to the party here but many councils have access to funding for low energy rated properties housing social tenants to get them up to scratch. Sounds like you've been doing a good thing but there may be a way to modernise the property, reduce your occupants bills and avoid incoming restrictions. Best of luck. I live in Sheffiled where this is the case.
Brilliant video, you have confirmed and supported my reasoning for selling our buy to let properties. I'm out. Been moving money into tax efficient strategies like the ISA and SIPP. Keep up the good work
@@simonbarrett9537 he already has a proper job. This is him using his money he earned from his job to make more money. Diversifying your income streams.
This is the same for me too. I saw what was happening and sold my property two months ago. Money is now split between ISA, Pension and Gold, or waiting for something else to come along/the market to change.
I’m a landlord and I don’t agree with the panic. I started my portfolio two years ago. I’ll be buying my third property this year. It’s been brilliant as the profits are good and the time required is small. If landlords are good and treat tenants well (like I do) investing in property is the best wealth generator.
As a renter with friends that are renting, most of us are paying between 60-80% of net income, depending on salary and where in the country we live (which are both correlated anyway). After food and bills there’s literally not much more they can squeeze out of us for rents to continue rising.
As a landlord, the government want thier tax on rent, even if the net income doesn't cover the mortgage, costs to repair, plus agent fees and etc. The prices have gone up, but I still own 1 property and the money has been devalued, just more of it is exposed to cgt. Debased currency just means the government owns more of your home, the number is higher but you can't buy more if you sold, you get less because more is taxed
@@Jay-xr3sb Yes, this was well explained in the video and I do have genuine sympathy for those honest independent landlords who are being screwed here. Unfortunately it’s not an oversight or accident. The government have squeezed every drop from the renters and working class and now they are coming for the landlords and the middle class. A lot of the current politicians and their associates belong to the elite ‘mega rich’ class and they would prefer… or at best be indifferent to …having a two tier class system. Same is happening in North America.
10:00 no, terrible analogy! The landlord didn't go out to work for the day, they set the rental price and used their tenant's wages. What they did is actually find out their costs were higher than their income. Not at all the same.
Switching a property from the individuals name to a limited company is generally unviable, they will have to sell to the limited company incurring 2 sets of solicitors fees (sale & a purchase), plus stamp duty plus the additional 3% stamp duty. The government likes to tax and increase landlords costs, thinking this is a vote winner (possibly is) however like any other business, eventually all these costs will be passed onto the customer, in this case the tenant. All these government policies promoted as benefiting tenants have the opposite effect in most cases
Excellent presentation. Two points… 1. EPC changes have currently been pushed back to 2028 for ALL tenancies and are likely to be pushed back again. 2. For higher rate taxpayers it’s even worse. They could lose their child benefit too.
Yup, we fell into the possibility to be landlords when myself and partner moved in together. We considered it a retirement investment, with about 50% paid off. We have sold last year as it was just getting too difficult, as landlords with empathy we always did repairs no matter how small - this often meant we made no profit that year. Then a tenant who didn’t report a leak cost us massively. Followed by all the changes you point out. we just bailed out just in time and I’d never invest in property again, all profit now tucked away with investments.
If you can get 5% or more in something passive you’d be absolutely daft to be a small scale land lord. You definitely made the right move IMO. It just isn’t worth the hassle apart from a very few rare circumstances.
You were not ‘landlords with empathy’. You were doing your job. How bad have things got when you think you’re hard done by for just doing what is expected of you. Also, whether you made a profit or not, you were still winning because the tenants were paying your mortgage
@@crayontom9687I don’t think they were making the point to make themselves sound like good people, but rather if you do what is expected of you then there isn’t anything to be made in being a landlord - which is the reason they are pulling out. I agree, landlords should be caring for their properties and managing them - but they should also charge a few hundred extra to cover the costs that rogue landlords don’t have to pay. But then no doubt you’ll also complain that landlords are fleecing you.
@@CosmicBrain21 that all sounds reasonable and sensible but even if they are only breaking even each month… they are still getting what is essentially a free asset at the end of the mortgage term. So the notion that they’re hard done by and put upon is risible
@@crayontom9687 It’s not a question of being hard done by, it’s a question of whether it’s worth doing. Hoping that your asset might beat inflation is not enough incentive to pour money into something that doesn’t generate you an income.
What a great video James, the only place I've ever found a detailed non-biased honest description for this part of the UK housing market so very well done mate. Hope u get to 100k subs v soon.
I came into an inheritance about 10 years ago and thought about getting a property to rent out . Even then it didn’t make much sense as the only ones making money were the letting agents as far as I could see. It seemed like a lot of work for about 2% more than I could get by just putting the money into savings. Glad I did that as it’s got a lot harder since
@@NoNonsenseJohnson hmmm. Yet after 5 years i have a house that has increased in value by 5%...and is -7% IRR all cashflows considerd. The asset CLASS has on average returned about 5% p.a period straight, compounding, non leveraged return not accountign for costs. When you buy a house, to a certain extent, you buy a lottery ticket; you don't get the average returns.
The main issue is interest only mortgages. I have a portfolio of houses I currently let, and not one of them was bought on an interest only basis. I ensured that the available rent covered both interest and capital repayment, and took out longer mortgages with this in mind. Unfortunately many investors have been taking properties on interest only mortgages for 2-5 years, taking advantage of historically low interest rates and then dumping (selling) the house at the end of the mortgage period. Essentially B2L became a "get rich quick" scheme, rather than a long term investment. This has led to too many shitty landlords in the market, alot of dissatisfaction from renters, and most recently, alot of people finding they suddenly cant afford their repayments because of the interest rate changes, not to mention dropping house prices meaning they will be lucky to cover their capital repayment when they sell. If the gov wanted to actually change anything, they should ban interest only mortgages for residential B2L. Simple as that.
Nah CR mortgages would be pointless. No business uses them jf they have any sense. The power of leverage should always be used. Obviously one retains the capital part of the mortgage payment in a savings account. Do when the mortgage comes to term in about 35 years time the funds are there to redeem the mortgage rather than selling to redeem. IO is always the way to go as payments are cheaper. 16:41
I believe that BTL leverage should be no more than 50% LTV. Had that been the case for me then I would have bought two BTL properties rather than the 4 I did. It would certainly have made the properties more resilient. In hindsight I wish the 50% LTV stricture was in place when I invested. Residential mortgages should be IO at 95% LTV with no repayment vehicle required.
@@paulgbar666 it seems to me that the main reason house prices go up is for the very reason you guys see it as an investment , a self fulfilling prophecy, the only way property prices will drop is is buyers buy because they need somewhere to live rather than use property as an investment, it could be crypto , gold , water , coal etc but houses was your choice and renters have been the captive driving force for your sheep like behaviour. UK PLC has suffered immensely from the cost of housing and much of it now owned offshore too
@dolphine675 Nah Renters could have purchased had they bothered like LL did. LL didn't magic up money. They had to work hard for their investment capital. Any aspirant homeowner could have done the same thing. There is no sacrosanct right for any particular person to be able to buy any form of asset. If tenants DONT buy and LL do then the tenants will have to rent off the LL. It is a market economy. Those with the financial resources are ENTITLED to outcompete those who DONT!
@@paulgbar666 it's never been a market forces position , primarily landlords either inherit and or aim for the cheapest property available , so they are in a better position than the tenant when they inherit , they may not inherit the house that they rent out , they may inherit a good education or a mortgage/ rent free existence leaving them with a vast advantage over those forced into renting in terms of disposable income . Things maybe changing more recently but a landlord also has a tax advantage over a private buyer who is looking for property that either needs work or is at the bottom of the price ladder , the reason for this is because so called ladder is because of the " house prices always go up " being the main cause of house prices going up so owning one is free money . If it was a free market then the theory of being a landlord would only work for those with money to store in assets and rents would be equal to mortgage payments making no room for landlords , banks and the tax man to make a profit at the expense of a tenant looking for somewhere to live in a choked supply of homes . We have become a nation of selfish careless individuals who's lives are spent competing with each other resulting in the rich and powerful getting richer and the growing number of poor being supported through tax payer handouts and created charities
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Maybe I am wrong in thinking this but... The sting of selling a house you bought for £150k and selling for £250k is a £28k capital gains tax bill. (28% of 100k). I can't see an investment that could gain that £28k back in any time frame, so might aswell keep the house rented for the long term.
After many big banks announced they’re going to be moving into the letting market, the government has simply started assisting them to acquire property as cheaply and easily as possible.
Great video, I had one property on a BTL and sold up for these very reasons last year. I could sense the tide was turning on landlords and in my pocket. I managed to get out without taking too much of a hit but I was one of the lucky ones!
Great video James, I’m in the north east we have two properties neither have a mortgage. One is leasehold and the management company are a nightmare to get any work done. They don’t answer the phone after 1 pm. Second property is freehold, we jump on any maintenance as it’s protecting the property. We are both 63 and I can see us renting for another 3-4 years and then possibly selling them both. I see regular postings on other media channels trying to attract investors in BTL through various management companies, the costing illustration they always use is 25% deposit, interest only mortgage then re mortgage after 3-5 using increased value of the properties for deposits on other houses. I just see that as being highly leveraged AND massively at risk when the rates have jumped. Definitely feel the Government is looking to have bigger housing groups control the rental market. Will be interesting if labour do anything different not holding my breath
When my tenant moves out then I will be selling up. Government makes no allowance for the risks landlords take. Too much control and legislation. Good landlords are being punished.
Absolutely Right Sir, just doesn't make sense anymore, just taxed from start to finally selling, the Govt still takes its cut without all the additional costs the Landlord absorbs or passes on !! Sticking to maxing out ISA allowances until the bstards change the rules on them as well !!
Great video! I will be showing this to my staff - we are planning consultants so our clients are directly affected by this. Oh & a permanent change to Air B&B needs planning permission 😊
Great video James, really interesting to see a real worked example! Your point at the end around the composition of households changing is an interesting one - rentals tend to house more people per square foot (although would be interesting to see some numbers on this). Ultimately, property prices will have to come down in real terms dramatically (and probably nominally as well!). I would argue this is just a reversal of easy money which has led to property values-to-median income ratios that were at record highs in mid-2022. Hold on for the ride - it could get bumpy...
The reality in the situation you describe is that the flat in Oxford is probably worth a lot less now than the £250k quoted and it will be a pain to sell
What's the obsession with buying a home (usually with leverage) ? We have had multiple properties in the past, and could afford to buy the flat we rent, but choose to remain tenants. The flexibility, predictability of costs, and lack of responsibility result in a much happier existence. Plus I'm free to use my capital to invest in tax efficient ways, rather than get hammered with stamp duty, fees, maintenance costs and interest rates...
@@clifthammer Your happier existence might not be the same as others. Putting financial arguments aside (I agree renting can be cheaper) I would always own my property so nobody can kick me out or increase the rent. I know I'd be free to live the rest of my life there and renovate it to my taste. Plus the kind of houses I like (character properties with lots of land) aren't often rented out.
@@clifthammer Having to move three times in three years, the last time because the landlord decided "he could make more money from two flats" made me give up on renting. I even submitted evidence to a Government enquiry about that although my story wasn't anything like as bad as some. p.s. That sort of thing never happens in Germany where the Landlords are entities like pension funds and tenants are happy to buy a brand new kitchen for their rental property knowing they will still be there in ten years time.
Most properties I looked at in the rent price 1500-1600 pounds a month in nice areas 2-4 zones 6 months ago - did not have any repairs done, everything was more or less 10 years old and when asked if tiles will be fixed (some were missing in the bathroom!) Or if they plan to fix taps - the answer was no. They should tax heavily those who have 2 or more rental properties not those who have 1.
I’m midway through selling my rental property. No mortgage, and £10,800 rent on a £250k house just isn’t worth the hassle. Minus costs as well and it’s about 3.7% yield. House prices are pretty stagnant (if not going down…) so it’s not like I’m gaining any capital either at the mo. Like James said I can put it in a bank and do better. Most of it is going into my pension where £30k instantly becomes £37.5k thanks to tax relief, plus as a higher rate tax payer I get a cheque for another £7.5k. That’s quite the return! Why on earth would I want to go through the hassle of more calls on a Friday night about the boiler breaking down when I can just relax, do nothing, and simply make much, much more money?!! We’re all selling up, and it’s really no wonder. Of course we are. Anyone would. Where that leaves the state of the property and rental market, we’ll have to see…
This. Part of the idea of pressuring private landlords to get out is that they are likely to invest in productive ventures, like the stock market. Great comments like the above show that this is actually happening; a win for society, productive business and former landlords!
@@loc4725yep! I saw a comment the other day from someone who closed down their business and made some ~10 people unemployed so they could invest in a BTL portfolio instead. A proper “WTF?!” Moment at how ridiculous this situation has been allowed to become
Excellent video as always. I rent out a single house that was inherited, so no mortgage, but it’s still a huge hassle. Luckily I’ve always had good clients who pay on time, but there are always things to be done- fences blown down, central heating leaks, new boiler, etc. Last year a new bathroom installation took all of the income from the whole year’s rent! It’s an old 1920’s property, so who knows how much it will cost to get it up to the new EPC standards. And then, of course, in 2030 I’ll have to be thinking of a heat pump. Property investment is a good portfolio diversifier, but not at all like most other forms of investment in stocks and bonds. Imagine Glaxo SmithKline ringing you up on Christmas Eve to say that the central heating isn’t working and then trying to organise someone to go and fix it!
Consider letting to a social housing lease provider who will take on the property and anything to do with it for a decade. No more tenant issues or maintenance problems
Completely agree. Renting houses is essentially a service business. It's nothing like owning a bond. You have to approach it with the mentality of running a small business, and trying to keep your customers (tenants) happy.
The move is to force out smaller investors/landlords and let the larger ones registered as companies, often with government members holding shares in those companies, mop up imo.
What a great film James, thank you. I think Gov wants small landlords out and corporate landlords in (less entities to chase for tax, etc). Look at BlackRock and John Lewis, etc. Tenants will have to deal with faceless call centres, centralised tenant database in corporate landlord world. Think of the big 4 supermarkets verses local shop owners. Local has been structured to be unviable and so will disappear. Also, social landlords and private sector landlords are different. Just as all tenants are not the same. Some tenants want to buy and can't for whatever reasons. Some tenants want to rent for mobility, freedom and/or lack of responsibilities that renting enables. Esp when younger. I think what we are seeing is supply falling and the corporate landlords stalling in entering the market (who would invest when house prices growth slowing and gov legislation too restrictive to satisfy shareholders).
So if you want to rent a car, do you prefer a professional company like Avis or James down the pub, who started out as an accidental car owner when he inherited his Grandmother's old banger then used the profits on that and a bank loan to buy a few more ? Actually there is a fundamental difference which has been the Governments complete failure to hit House building targets. A shortage of cars would mean more being imported, but while we seem to be good at importing people they aren't doing very well at importing homes so every BTL means someone priced out of buying. If anyone is wondering I bought my first house in 1986 for three times my junior engineer's salary. That wasn't a coincidence as the idea of borrowing more than 3X or having more than one mortgage was unheard of.
@@MrDuncl You'd prefer to hand your money over to a multibillion pound corporation than a middle class man who's worked his arse off for an ounce of financial freedom? That's the problem right there.
@@PerfectSnowballI would much prefer to just simply own the home I live in. As for that hard working middle class guy it would be far better if he invested that money into a business that will in turn invest in training a young person, so that that young person might be able to afford to own the home they live in as well.
Thank you James, as potential 1st Rental landlord I am well and truly waiting on the sidelines for markets to adjust. I could be in for a long wait - good job I'm patient!
Great video! Many people don’t realise that the more unfavourable the government makes things for landlords, the worse it gets for tenants. All comes down to supply and demand like you said.
If BTL sell - housing supply increases, reducing prices. I think many tenants would welcome the opportunity to buy - rather than provide income for rent seekers.
With respect it’s hard not to laugh at all these “the worse it gets for landlords the worse it gets for tenants stuff”. It’s hardly been great for tenants even during the good times for landlords because it’s the landlord’s job not to give the tenant even the steam off their **** if they can at all help it. Whilst landlords have been getting all sorts of perks to enter the market rents have only ever gone in one direction, faster than wages thus hobbling the average tenant’s attempts to escape the private rented sector. Throw in the lack of security through no fault eviction (which those in europe are insulated from) and it’s never really been a good time to be a tenant in this country. Well maybe in the 1950s when rent controls were in place and the average rent was 10% of income, but Thatcher soon saw to that in the same way as when she privatised utilities by wittering on about how things would be cheaper with more choice and in fact the exact opposite has happened to everything she touched. The rental market being no different. No matter who is in charge the renter will suffer either way
Landlords hike rents as much as they possibly can. Lets not pretend this is an altruistic business, you gouge tenants with little regard as to whether they can save money for the future themselves. It's a parasitic practice that hides behind providing a service. Most amateur landlords are hopeless at business and have been riding a wave of beneficial circumstances. The more of them leave the property market the better, they'll accelerate price drops and increase choice for buyers.
Spot on James that's exactly the situation. I'm in the final throws of selling my 1 rental property that I've had for 15 years for whatever I could get for it, completion next week. I had a long term tenant, max year rental increase was 7% on the contract. I started making a loss all the time he was there 6 months ago increasing loss every month since, mortgage is over £1k a month now, it's a killer, and if I paid off the mortgage the yield is much lower that I can get with a risk free government bond. Lots of landlords are selling up, once that works it's way through the system expect headlines about a rental crisis, nowhere to rent
If there is going to be a rental crisis / shortage, isn’t it worth hanging on? Surely the scarcity will allow landlords who stuck in there to reap the benefits?
@@marcsolloway3941 well yes if the tenants can afford big rent increases that's taking longer than I'm prepared to wait, I'm losing so much money I decided to get out and take the 18/28% taxed capital gain hit. If the situation improves a lot in the future I may go back in. Most likely I will stick to investing in the stock market only with a bigger pot, it's much less hassle. I'm investing in REITs as it's market I know very well so I think I have an edge, they are very out of favour currently so yields are high
A more succinct explanation is that landlords used to borrow at 2% tax free and rent it out at 4%, pocketing the margin. Now they have to borrow at 5% at higher rate tax and rent it out at 4%. The whole model collapses as it was only tax free leverage that made it worthwhile. It was a borderline investment at best without that.
Thank you for this. The issue now is that you can’t actually just turn flats into Air BnB anymore because of strict licensing laws. The Government is anti middle class and anti business. All the people on here blasting landlords take note, this affects renters badly too! If you actually paid attention you’d see that this exacerbates the housing crisis, leaving a lot of people homeless or unable to get reasonably priced accommodation. I reckon this is a sinister decision on the government’s part. There must be an ulterior motive for this and it’s only going to get worse.
Nothing sinister. They were getting slated for lack of new housing stock and prices becoming less affordable so they targeting the easiest group least likely to fight back. The middles classes rarely organise to defend their rights, and they own a large illiquid asset tied to the personal bank account. Short sighted and unfair. Hedged index ETFs and bonds need care and attention. Owning a rental or two as a retirement income is easy to understand. An alternative vehicle should have been put in place first for the small retirement investor. Phillip.
You put a huge amount of knowledge and data in all your videos. Despite being different in style from the others, this one says it all about the current BTL crisis. Well done, James!
Great video! Would be good to compare income from a property to that of a stock portfolio. I think people get lured to BTL because it’s easier to conceptualise - I.e. you buy property and live off the rental income eventually when the mortgage is cleared.
I must admit, I'd always assumed property was the best thing to invest in but having watched a few of James' videos I'm getting quite the education! 😂 Still not convinced I understand investing yet though!
@@burnmw1987 a lot of people with money to invest can get £20,000 in their pension for the cost of £12,000. With instant returns like that, and tax free growth, the value is all in the planning. The investments are important, of course, but the concept of using £120,000 to create £200,000 and having no CGT, potentially reducing IHT etc is a lot more powerful than paying tax and using that £120,000 to buy property where you pay tax on entry, on the income, on selling it or on dying with it. Property is accessible through a pension anyway (directly through commercial property, or indirectly through well diversified funds). It's incredible how working people in the HR tax band want more income to be taxed on.
Most BTLer's seem to buy another property rather than paying down the mortgage. I do have investments in property as funds in my ISA. Of course it is more difficult to leverage an ISA than it is to gamble with a BTL mortgage and high leverage.
You are right about maintenance and repairs, my splendid 3bed HMO had 10yr old Bosch boiler die, cost £3300 for a quality Valiant. Next- same age Mira electric shower failed, then large fridge freezer needed replacing. Plus new carpets after I allowed tenant to have a [destructive cat during lockdown] for her mental wellbeing. To refit and redecprior to re-let cost £8k, and that is with me doing all the redecoration. No agents. Have owned house 28yrs, and put such a lot of work into it, it is a responsibility providing an A1 grade home for people. I just love all these guru guys 'buy 22 properties with other peoples money' etc for their entertainment value.
You clearly have no experience of salary vs tax (& cost of living) in other countries. Eg the exodus of doctors and nurses to Australia a couple of years ago was based on false dreams, and many are now returning to the UK NHS.
I've been a BTL investor for the past 7 years but have now just agreed the sale of my house. As the property was mortgaged and due to the interest rates going up, I was looking at a mortgage payment of £1100 per month and as the property was in a rural town in East Yorkshire that most I could get was about £850 per month in rental income. By the time you subtract letting agent fees and maintenance, it just doesn't make financial sense to keep it! I have decided to sell up and place the money that I gain from the built up equity into my S&P 500 index fund where I can hope to make a conservative 6-7% return passively.
It depends on where you live and your tax status as to whether BTL works for you. I'm self employed via a limited company so I always keep myself under the higher rate threshold - it's low cost living here in Leicestershire. I have 2 nice flats that were both bought in the £85k region in 2017/18 and rent for a generous £550pm (could get more but I have fantastic tenants). For me, it works as I intend to have them for decades and into retirement to go alongside my pension for diversification, but also to help me retire early before I can access my pension. Once the mortgages are paid off I should get £9k-10k a year in today's money on average which alongside my other investments suits me perfectly. If I had a salaried job or many other different circumstances like living in the south east it wouldn't work for me at all. Also, if this drives out the dodgy landlords that cut corners and treat tenants badly this will be good for society.
I am similar, have 8 properties in my own name and 9 in my limited company name. I personally keep my income below the HRT threshold and the limited company fully funds my pension, so there is no Corporation tax to pay. Just about works…. For now.
Another great video. I have so many friends who have had bad tenants. And the hassle of maintenance and declaring rent. I've never been a fan of property. This makes me realise my pension is the best option for me. But each to his own 👍👍
Excellent break down of buy to let investing. This is a situation that affects a lot of people so love to see you do a 2024 version. Only a few details have changed but your analysis is so clear. Excellent charts with easy to compare and read set and such an important topic for tenants and investors to understand.
A depressingly accurate summary. It’s even worse when you factor in the cladding crisis and the impossibility to get an EWS1 certificate. Some have no choice but to be a BTL landlord as their properties are unsaleable.
Yep literally the case for me this week, I am now officially an accidental landlord. I am looking at it more as loss prevention then profit making right now.
Excellent video! Thanks! Rents will keep rising when more and more landlords sell off their BTLs as it certainly reduces the overall housing supply. And if the government puts a cap on rental increases, landlords will offload their BTLs in droves and the situation will become dire. BoE is still not done with interest rate hikes, seeing that the inflation rate is still in the multiples of the desired 2%. This is indeed a very challenging problem for landlords on high LTV as they will encounter deeper negative cash flow. Unless they don't mind doing charity of a few hundred quid a month, most will just sell off and lick their wounds.
Increasing Interest rates is the wrong approach. Commodity prices will continue to go up for the West considering the BRICS formation, the stranglehold that hedgefunds have over global commodity supply and downfall of the US dollar. We are approaching a tipping point. The only thing that continues to go uphill are energy stocks, Oil and Coal far outstripping the well known names on stock exchanges.
@@opentrail It’s Brexit. Brexit introduced a lot of barriers and additional trading costs to cross border trades with EU. This plus the dropping pound. There was a time when the pound was twice its present value. Now everything that the UK imports is way more expensive. The pound needs to strengthen to lower inflation but UK economic growth is anaemic for the present so will be the rate of increase for the value of the pound.
Excellent video. Sums up the PRS perfectly. I’m a small HMO landlord. I purchased my properties in 2007 in order to have a pension later on when I retire! Currently my 2 hmo’s are cashflowing quite well BUT only because I was able to reduce my mortgages/pay one off. I’m actually looking to buy more and transfer into a company. I still love property. I’m also a letting agent too and purchase property to renovate and flip, but it’s not for everyone! It’s very hard work and sometimes stressful. I’m slso looking at other ways to invest along with property
This is a brilliant video! Thanks man! I've been against buy-to-let residential property investments for a long time but you went into the detail for the UK market and explained just how risky it is. I love how you ended things off by explaining that there are other tax-efficient way to build wealth (but you left out that they tend to be more cost-effective and effort-efficient).
Leverage in the market is behind increasing house prices. This is one way to take leverage out of the market and depress prices. Prices need to come down 50% in real terms and stay there. Ltd company rental income should be subject to a similar levy. The Airbnb scam also won't last forever.
Buy to let and furnished holiday lets in UK has become out of control. Housing should be for homes in a small island with limited supply and not for the wealthy to make money. End of.
@@cantbendknee There are lots of other markets to invest in that generate wealth and cause far less damage to the less fortunate. The UK housing "market" is only lucrative because of lax and biased Government legislation that is now, finally, being tightened up. So many complainers who got greedy and don't like change. Adapt or die.
To say that buy to let’s have become out of controll is a bit of a ridiculous statement, have you seen all of the new legislation that is well in favour of tennants? If you remove private rental properties, you’d be making a hell of a lot of people homeless. People that are against landlords can’t seem to grasp this pretty basic point.
@@tomday_td Domestic property in the UK should NEVER have been available to amateur investors. Small island, increasing population, limited supply. Not sustainable. We are finally seeing the consequences of bad policy decisions made decades ago with increasing imbalances in home ownership. The Government is doing it's job and changing policy. That's what Governments do! Investors need to stop complaining and understand the shift as part of their investing strategy. It will not make lots of people homeless - there will be a rebalance of the UK housing market and yes, some investors will lose out. So be it. We have cultivated a cohort of lazy "landlords" that don't do anything productive or add value but think they can sit and "mange" their portfolios while other people work for a living and generate the wealth. It's time for those so-called "landlords" to get off their arses and do a proper job of work! And no I am not a renter I own my own home and I do support the Government policy on this one as do millions of others.
Well said. I will be selling when the market improves. One less rental on the market, one more rent increase due to lack of supply. Good news is rent caps will then be introduced leading all landlords to exit and we will all wonder why so many people are living on the streets, in caravans or temporary council accommodation. Well done government for thinking through this….or…maybe they did and this was the outcome they want?
No landlords = Affordable mortgage rates Landlords create homelessness by restricting people from buying due to artificially inflating housing pricing You've freeloaded for long enough
I am a BTL investor and my strategy hasn’t changed. I will continue to enjoy buying the stock off BTL investors that are willing to exit the market. The rental yield and cashflow of the property should not be the driving factor in decision making. The real money in property is made through capital appreciation and this has historically averaged 3-4% per year. This coupled with a 75% LTV mortgage equates to an extremely profitable “average” ROI of 12-16% per year in capital appreciation over the actual cost basis in “average” areas. A few years of higher interest rates, where zero or even slight negative cashflows does not affect the long term return of the investment. The cashflow from rent should be viewed as a “bonus” like a dividend from stocks. I believe people have become too enamoured with the low-interest environment since the great financial crisis. Buying through a LTD company has never been more prudent. And the shortage of BTL properties and increased rental demand over the past few years is only going to keep driving these cashflows up over the long term, leading to a further compounded ROI. Thanks for the video James, always tune in to see a well-balanced discussion.
You are aware that, once taking inflation into account, properties are worth no more than in 2005? In other words, you've seen no capital appreciation over that period.
@@alanbuckingham8788 I would say most properties are tracking slightly above inflation. However, let’s say both the capital appreciation and rental income washes it face (exactly offset) with costs plus inflation then you will still have gained though leverage eg you only had enough for £20k deposit but then you have £100k at the end as your loan is paid off by someone else
This all sounds good, until you compare it to investing in the stock market through a SIPP.. . The instant 20%/40% tax relief, higher average historical returns, lower purchase fees, lower ongoing fees, better tax treatment on capital gains, lower effort. My rough numbers put SIPP investors significantly better off. Even investing through an ISA could have done better historically than leveraged BTL (when considering tax).
@@clifthammer depends what you invest in. For example the FTSE 100 has massively underperformed buy to let property even with the tax relief. Don’t forget you still have to pay tax on the way out when taking money back out of a SIPP. Of course if one had been smart enough to invest in the US market only you have outperformed, but most UK pension funds are a load of crap, and charge huge fees.
Insightful as always. I have been a landlord for over 15 years now and strive hard to provide good quality homes to good tenants. I feel the government has labelled me as a rouge landlord who must just be legislated against and brought to book. To give you an example, one of our properties is in a rural location in a village without a main gas supply so the heating and cooking is via a bulk LPG tank. The EPC for the property is severely penalised for this and despite enacting upgrades to the property we only just meet (after applying the penalty) current legislation. We have no option for the energy supply, there is no mains gas! With impending new EPC legislation this property will be unlawful to rent and fall out of the rental market. In this manner the government is creating problems for landlords and therefore tenants as well. This will lead to yet more pain for people in Britains troubled housing market.
why are you talking about mains gas? sounds like your property needs an induction hob and heat pump water heating. if you are forced to rectify, sounds like EPC working exactly as intended.
@@tim_1_ £20k is around 2-3 full year's rent for a 2 bed house in a nice area where I am (Yorkshire). It would have been around 5-15 year's total profit on a property before mortgage rates went up, depending on what other maintenance was needed over that period. With rates as they are, it could be 20-40 year's profit on a property or it could be impossible to save as the property may be costing more tax than its profit. Note also that capital improvements do not count as an expense for income tax purposes, so the landlord will still be paying tax on the money used to fit the heat pump. The landlord will only get a tax deduction for capital improvements when they sell the house and a capital gains tax bill is generated.
The UK housing stock is grossly overpriced at this time. What you have outlined here just confirms my thoughts that with the pressures on BTL market alone, and I say alone, because there is a lot more pressures other than on BTL, the UK housing sector is in for a ‘correction’ and a lot of very hurt people. Hope I’m wrong.
I became an accidental landlord in 2020 when I moved abroad. It has been a lot of headache and financially not profitable at all (that was never my goal anyway but would have been nice to make some money since I provided a home for someone). In return I have seen an unmaintened garden, late rents, endless estate agents fees, severe water damage which took 7 months to resolve with an insurance during which I had to still pay council tax (at reduce price because the property was uninhabatable) and ever increasing mortgage... I cannot secure a fixed mortgage because I reside overseas. I know there is a rental properties crises but honestly it is not worth it. And with the new renters rules coming in I am not surprised many small landlords are trying to sell their properties.
James assumes property is equivalent to other investment classes - it's not. Property has social, cultural, economic and political dimensions which together easily outweigh investment value. Owner occupation is optimal since it households who would otherwise be renters gain a real stake in our societies success.. The Government rightly wishes to ensure that first time buyers are not outbid by amateur BTL investors.
It's worth mentioning the cladding scandal. Many people are now utterly unable to sell their homes, which means if they need to move for work or school catchment areas. They may simply want to let out their property so that they can write off the mortgage costs, and rent elsewhere. All these interventions and the extra three I mentioned in my other comment, make this whole thing suck a lot. I agree with this video that these interventions could really mess up the entire rental economy. And it's hurting medium income people, not the rich.
Another great video James thanks. I've always liked the idea of investing in property but for various reasons I'm not keen on being a residential landlord. It would be great if you could do a video on commercial letting and whether that is a viable investment option. There's a lot of people on TH-cam trying to sell seminars and tutorials on commercial investments. But I would like to hear from you on this, any real life scenarios and client stories would be really helpful. Thanks. Keep up the good work 👍
Outstanding video - thank you. Very clearly explains the BTL situation for private landlords. My view is that, for whatever reason - likely nepotistic - the government is aggressively corporatising the BTL market; vilifying private landlords whilst companies quietly buy up discounted properties. I refuse to be shaken out because I think the UK is moving back to a rental era with large companies controlling the housing market - I want to be on the right side of this change!
Completely agree! Government policies are designed to financialise the housing sector so that massive players have an enormous advantage. If we want to solve housing crisis we should prioritise kicking the big players out by for example introducing 80k VAT threshold for properties let via an Ltd and giving opportunities for small landlords. I feel thst even through ISAs government incentivises big players such as Vanguard and the like because you have to go through them to take advantage of a tax-free wrapper. It also artificially inflates the stock market as people have little choice if the want to invest in a tax-efficient way.
Don't you think that a new block of 12 flats being split up between a dozen BTL "investors" is highly inefficient? The biggest profits are probably being made by the 12 mortgage brokers advising them. p.s. A few years ago I would have loved to have invested £60K in the property market if I knew that the investment would be split over 6000 professionally managed properties.
Amazing video. Love the break downs of finance. New Zealand did an “interesting thing” in 2021, we effectively locked property investors out of buying existing homes by making the interest on the mortgage no longer tax deductible. Making the majority of interest only rentals cashflow negative. We have some of the highest house prices compared to income in the world. We also have a demographic where more people own multiple homes, than people own a home. In 2021 we also, raised the deposit required to purchase an existing home to 40% of the value. The govt incentived investors to buy New Builds, by keeping the deposit required at 20% and keeping them tax deductible. We then had a massive house building boom…. But covids supply chain issues crashed that (NZ is very hard to get to with materials etc) Again in 2021, The govt then brought in for all buyers, Loan to Value caps on mortgages. This is due to the extreme cost of housing compared to incomes. This all happened in a matter on months. Once the LVR was introduced it was a hand brake on lending, the supply chain issues crashed the building boom, investors couldn’t buy existing homes and were also selling their stock of existing homes to get rid of them before they became cashflow negative. First home buyers were hamstrung by the LVR’s and no one could really buy or sell. The housing market started to crash in August 2021. The average house dropped by 20% since then. We are only just now seeing an end to it.
Own 3 properties, tenants happiness is top priority. But the changes are getting outrageous , if we get one bad tenant we’ll sell up - the constant assumption we’re villains is wearing thin.
It's not, you're just a liar. Your top priority is that the venture is profitable and viable.. otherwise you wouldn't just 'sell up' at the slightest bit of hassle. I understand why you're mad, the government is actually making an effort to address the complete disaster of a housing market we have. Must hurt losing them easy gains and that ever growing pile of equity at the expense of others.
@@Tedmason897 you don’t know me. Absolute clown. if it was I’d be jacking the rent up at every opportunity, which I don’t. No annual rise ever for my tenants.
@@dsmithuk no annual rise ever? When did you buy them 8 months ago, or are you just burning cash for fun? Your rebuttal is fantasy level ridiculous, of course you got into property investment primarily concerned with growing your financial portfolio not 'tenants'.
@@dsmithuk laughable my friend, of course you have hiked your rents in the last 7 years. Stop spreading the mythology that landlords 'care', they don't care.. the clue is in the name 'buy to let' it's an investment instrument. That's exactly why you're a landlord, investment, not tenants. Your investment opportunities come at the expense of others on the bottom end of the market. Collectively buy to let investors have out bidded first time buyers keeping them out the market, raising prices on more affordable houses and thereby forcing them to rent that same stock they could of brought for more than a mortgage would cost them and with no ability to get anything back for it. Open your eyes, you're part of the problem. Not on a personal level but collectively you are very much are.
James, Yes there are other wealth building tools other than BTL... but none others that allow you to use leverage to multiply gains in such a safe way. Investing in a diverse portfolio of funds will always produce returns proportional to your original capital investment. Example: £250k in stock market could average 6-10% returns per year on the £250k (Cap growth + some reinvested dividends). But with £250k in BTL you can buy £1m of property and earn 3-8% of yield on that £1m (Cap growth + yield). There is no easy direct replacement.
These policies are not there to help renters, they are mostly in place to help huge corporate property holding firms. Blackrock and similar companies have very very deep pockets.
Massively under estimated those costs James! As a Landlord I can assure you these are much higher! It is definitely more palatable to put your money into a Paragon or Marcus account 5% plus interest rates! I will NOT be buying any more rentals but will be selling off along with THOUSANDS of landlords.
WEF - endorsed. They have different ways according to the country in which to achieve "You will own nothing but will be happy" In the USA Hedge funds are scooping up great swathes of housing . Wake up people before there is no route back to personal independence and freedom.
Great video James, with good delivery, but suggest a tidy-up on your spelling on the graphics, viz; mins-in ... 1:50 , 6:30 , 7:17 , 13:30 Relif = Relief Rateing = Rating 3:02 , 4:34 , 11:59 , 12:35 incurance = insurance 4:14 Procceeding = Proceeding 5:52 Capita = Capital hope that's a help!
Great video that clearly explains the challenges of the BTL investor. One point missed in the analysis is that houses are not liquid assets like shares that you can sell tomorrow. So this will take a numbers of years to play out. The housing market currently is very quiet and unless you are willing to take a significant hair cut on your asking price you won’t have a buyer. So I personally think that the full impact of the government decision will only be felt in 3-5 years time.
Fancy that ! The gravy tap has just turned a little tighter . Looks like some folks will have to work for their money . Amazing . I’m sure it’s good for the individual landlords wellbeing in the long run .
BTL has distorted the housing market for the past 30 years. When a government reinstates the Rent Act 1968 as abolishes shorthold tenancies so that landlords cannot sell their properties with vacant possession first time buyers can reenter the market as prices fall.
Very interesting video James......looks like a lot of people are going to get caught out......taxes in this country are totally over the top.....I live in Scotland its even worse here for higher tax payers
My opinion on this issue is that what landlords are doing is using their credit rate to buy a property they cannot afford and then expecting the renter to pay for it.
I sold my house last year. Worked out that I'd have had better returns if when I moved in 2016 if I'd sold then and stuck into a tracker. Of course moving into EFTs when Putain decided to start a war has been painful albeit I am sure it will bounce back. My wife is pretty much certain she'll sell up too when when the current tenancy ends.
First time viewer to the channel , and may i say very impressed! Clear, Concise, educational and fantastic charts to detail points covered. you have a new subscriber.
The problem with moving your property to a limited company is that any increase in equity that you may have built up over the years will be heavily taxed ,as you are essentially selling it , although you may be the owner of the limited company
I do think that far too many people saw the BTL market as risk free because property “Always goes up”. Very few small investors actually understood the risks.
I’m an ex-pay in the US and these tax laws are insane That said - I would never buy property outside of an LLP/LLC That said - here’s how I view my rental investments - are they cash flow neutral, meaning I invest for cap gain, not income.
Being taxed on a loss due to mortgage interest is former Chancellor George Osborne's brainfart and unique contribution to economics. In many Councils, you now have a raft of other costs like registration, legionalla tests, electrical item tests etc etc
The issue with leveraged investment (i.e. using borrowed money) is that it works both ways. In a rising market leverage amplifies gains, but as described here it also compounds losses. Unlike shares or bonds that can quickly be sold, It's a highly risky strategy to use leverage with an illiquid asset like residential property, because it's impossible to quickly close out to stop losses. What's clear from this analysis is that property returns rely entirely on 'investors' bidding up prices using underpriced debt, rather than any fundamental value. Now the prop is removed, the market turned and it's unlikely to return anytime soon, because housing affordability has become a popular political issue so any inflationary policy (e.g. H2B) will be controversial.
6:25 ROI increases from 3.9% to 6.9% not decrease to 3.5% for the current owner (before tax changes). The 3.5% number you get for a new buyer borrowing same amount of 125k as they would invest 125k deposit instead of 65k due to the increased house price.
Nope. The price increasing in value means the owner's equity increases from 60k to 125k, so the 'investment' part of return on investment, the bottom half of the fraction is bigger. Investments are always appraised against current fair value. What you paid for it is not relevant.
This is the error that many landlords make, they calculate their return based on what they put it rather than based on what the value of their capital is now. It’s like me investing £1000 in the stock market in the 1990s and then saying I’m getting a 50% return every year now. But that only because it’s now worth £5,000 and getting a 10% return. So that you can compare different investment you need to calculate return based on the value of your capital at the start of each year.
Thanks both for explaining this. I now see how it makes sense to use the increased equity to compare returns and if you could liquidise cheaply then you could invest that increased amount in a government bond and get a higher rate. The bit that caught me at this part of the video was how the value of the property increases, the cashflow increased but somehow it is a worse deal. I get that now and moved to looking at the unrealised gain (or loss) which is realised if you sell - it does not get counted in the yield - which I imagine is convention with property but I wonder why. The equivalent investing in equity would be to ignore the growth and only look at dividend yield. James does mention 3-4% growth on the property but this is like a side note. The example client averages 4.68% pa, 3.37% considering 28% CGT, there would be other costs for transactions. It seems sensible to not predict the same growth in the current short term (given market data, sentiment and the great explanation in this video) so fair enough. Though if it was equity we'd say you can't predict the market, you invest for the long term where you can expect returns of X%. There are similarities but also differences, like you show property can give you negative cashflow which must be a factor to why the accounting is setup this way for BTL. Still interesting if growth is ignored or considered flat. Maybe it is when inflation adjusted or maybe doesn't have as predictable long term trends as equity. Just want to say thanks for the video which helped my understanding in this area, my comments are just the details I don't know yet, thanks for explaining.
You forget the risks of future Green policies, like heat pumps, EPC ratings, etc. I’m in the Rhondda in wales and the thought of trying to make a typical stone built terrace energy efficient is frightening😳
@@essa6315 firstly, I'm not a landlord. But some of the houses in the Rhondda are not capable of higher EPC ratings, at least not without major structural work at a significant cost, which would then mean that you couldn't make anything near a reasonable yield on your investment - which is the point of the video - why landlords are giving up on buy to let.
You can't compare house renting to car renting, house renting means people not been able to afford places to live. Landlords and greedy investoes had/have to be stopped, this has already gone too far
Interesting video but flawed analysis. Comparing the current yield on a property to a savings account is not a sensible comparison for investment purposes. You must consider that the yield on your savings account is most likely at records highs, and will not stick around at these levels forever, and will almost certainly fall at some point in the future. In the meantime however, the rental income from the property should at least keep up with inflation, in addition to the long-term capital appreciation. The effect of this over the long term is enormous. Same principle with investing in the stock market.
Between Feb 2009 and May 2022 B of E interest rates were 1% or less. I wonder how many buy-to-let landlords lived off their net cash profit instead of using some of it to pay down their mortgage debt during this period?
Sounds like a lot of properties are going to turn up on the market at reasonable prices. Landlords will just have to find some other way to invest their money (although, if they only are only paying interest on these mortgages, I guess they aren't really investors since they have no capital).
They do have capital in the investment as they typically need at least 25% of the value of the property in equity. The other 75% is leveraged as debt to accelerate the ROI. Providing rental accommodation to the population that cannot/choose not to buy is arguably just as important as investing in business in our economy.
@@TheTommowgAre James’ BTL clients landlords because they want to supply homes, or are they landlords as an investment? Disincentive BTL as an invest and you will get a fall in prices (helping those that want to buy) and opportunities for landlords where there is demand for rental (higher yielding rentals).
@@gregm9447 I would say it’s almost always for investment, but it’s a side bonus that it is providing something for people. Not everyone wants to buy, quite a lot of people like the freedom of renting. The government needs to focus on hitting its house building targets, which they have missed by an insane amount. This is what is causing the supply squeeze on the property market
If amateur/middleclass/mom'n'pap landlords will now realise that if you connect rental 'yields' (ugh) to perceived property 'values' all you do is create an unstable environment for everyone which will always, always, collapse, then so much the better. Sad that finance was twisted in this way in the first place. Rents should always be linked to the value of the area not the mortgage, and they should always be stable.
In terms of total income, you need to include capital appreciation of the property. The numbers you put down isnt technically net of tax return of capital. Surprising landlords just completely exclude the growth rate of houses in their return calculations, assuming that it is just a bonus.
I wonder if groups of private landlords could become 1 company, or work under an "umbrella" company much like some contractors do ? Maybe Letting Agencies (who must be losing business as well) could set this up ?
Regardless of the type of investment you decide to make, I think the Main message here, or rather for me, is to start your investment no matter how small. Don’t jump into anything you’re not completely sure about. So of course you can always build from there.
@@MarcelRainer Buying stocks is easy, but choosing the right stocks and preparing to invest without a time-tested strategy it is incredibly difficult. I’ve been trying to grow my Investment portfolio for quite some time, it seems I am either buying at the high point of the market or selling at the Bottom of the market, and that’s pretty pathetic.
@@MarcelRainer Great comment! I see many young and old doing mistakes I don’t think they should be making. Seriously They believe everyone should have an investment Plan that will increase your financial performance From triple figures to six figures investment can Be it your retirement plan or your future plan, whatever you want but the most important thing is That you have a worthwhile investment plan.
@@ThiagoDavidson-pl7rp The most important thing that prevent me from starting my investment It’s not fully understanding what I’m invested in and how the whole investing thing works.
Its a bigger problem when you work full time and can't afford to buy your own property or the majority of your wages goes on rent, this System we live in is flawed and struggling to move forward, it wouldn't surprise me if a lot of the next generation emigrate for a better fairer life and with such a low birth rate because people put their careers first you may understand why the government have taken these moves on advise from the experts.
If you’re a BTL investor, how have these changes affected you and what do you think it means for the future of the market?
To me it feels like they’re forcing the market to undergo some kind of transition. Which wouldn’t necessarily be a bad thing but considering how the UK Government are overlooking many inefficient aspects of the economy (which we know the only REAL way of increasing GDP is by maximising productivity and efficiency) tells me they are resorting to primitive styles of raising tax revenue and capital such as: creating new taxes, squeezing more money out of pensions, increasing costs for the average citizen and business which they deludedly believe will make their situation better will ultimately be the catalyst that makes it worse as consumer spending drops in the long-term and businesses will be starved of growth potential in the form of lost revenue potential because of these ridiculously desperate taxation tactics. They need to step aside and let the people grow and thrive and have an efficient, predictable and flexible tax system that benefits everyone not just the government’s façade. This country’s economy only grows when the people invest, by robbing the people they’re robbing potential investment and by robbing potential investment they’re effectively robbing growth potential and it becomes an endless cycle as they desperately try to compete with the world economies with increasingly archaic tactics. There needs to be a restructuring of our current policies and it needs to be made simpler and more flexible
Well done James, you have given me some great points to bring up in my meeting with my MP.
I did a lot of research and before I was 28, took out a personal pension with Equitable Life. That was enough to cause me not trust pension companies. If this is new to anyone, just Google "Equitable Life Scandal" and check out the first entry.
I have been a buy to let investor since 2002. At one point I had 11 buy to let properties - I have sold 8 over the years, as tenants left, and currently have 3 rented out to tenants and 1 empty with a sale hopefully close to completion. A sale price has been agreed for the empty one (a lovely 4 bed detached family home, in Northamptonshire, built in 2005, with a garage and enclosed garden in a nice neighbourhood). In March 2022 the average asking price suggested by four estate agents was £385K the outliers were £375 and £390K. I put it on the market with an asking price of £280K.
I finally agreed a sale in June 2023 for £300K (A 20% drop from the lowest suggested asking price of £375K).
I bought the house in 2007 and assuming it does actually sell for £300k, I calculate that the value of the house has grown by about 2.6% per year i.e. about the same as inflation. I think my wife and I will pay about £16K capital gains tax on the "gain". So basically we will be taxed on inflation.
In November 2021 the mortgage on the now empty house is with a zombie lender, appointed by the government and tracks the Bank of England Rate plus 1.19%. This lender refused to extend the duration of the loan (expiring in a few years time) and refused to offer a fixed rate mortgage.
In December 2021 the monthly mortgage charge was £214.61. But from 1st September 2023 the monthly mortgage charge will be £1,072.26.
Has any family faced a £857 in increase in their rent?
But in addition to that another change in law introduced by the Cameron government means that I have been paying a bit more than £200 in council tax for every month that the property has remained empty, despite my best efforts to sell it.
In my opinion one political party is ideologically opposed to landlords and would not be unhappy if they all went bankrupt, while another political party thinks it can pick up votes if more people own their own homes and would be happy if landlords were driven out of business.
Which party should I vote for?
Neither political party has addressed the problem that not enough houses have been built in the last two decades (if not longer), nor have they ensured that an adequate amount of social housing was made available to low income tenants.
Instead one political party introduced the so called "bedroom tax" and ensured that the Local Housing Authority rate is well below the rate for market rents, while the other political party thought that local authorities should not pay rent directly to landlords, almost guaranteeing that benefits supposedly intended to pay rent never reached the landlords.
I think the penny is beginning to drop with both main political parties that landlords provide an important service - but many landlords no longer trust either main political party and have decided to be part of the "exodus" of landlords leaving the private rented sector.
Meanwhile I have to decide how I can afford to rent to our three remaining sets of tenants, two of whom have been my tenants since 2007 and the other since 2010.
Because all my income comes from rent, I am not eligible to put more than £2,880 per year into my pension. So even your hint of a solution is not fully available to me.
I am not after sympathy, but wish to point out that my attempt to provide a pension for myself and my wife whilst simultaneously offering a roof over families' heads has basically been sabotaged by UK politicians and in doing so, they have created a monumental crisis in the rental market that they are not clever enough to solve.
Like any investment I take a long term view - there are good times and bad times. It’ll be 1-3 years of pain with rates so trying to balance debt and reduce leverage. Only selling as a last resort.
A 60 grand profit on a 65 grand deposit in 6 years - you'd *never* make that anywhere else as low risk as bricks and mortar.
Hi James - your client should absolutely go the airbnb route or sell and put the good profit they’ve made into a less leveraged / higher yielding btl. If they were further north all these numbers would be more favourable.
Build-to-rent was announced as a new investment class in the same year as the mortgage interest changes were made. Lloyds, BlackRock, John Lewis, etc all entering the market.
Small landlords out, corporate landlords in. None of this is an accident.
Having rented from a corporate landlord they are far better and more accountable than the 'it's my pension' crowd who cry about repairs
@@essa6315agreed, you have way more recourse against a large company that has a reputation to lose.
These pensions landlords so to speak are the worst I've dealt with, never want to spend money, gaslight you over your rights as a tenant and hike rents because of the 'market' despite them having said at the start of the rental agreement that they've owned the property for years and the mortgage is very cheap for them so they wouldn't 'hike on you to much because they care'.
Thanks, it's a relief to see someone else actually saying this.
There's loads of American firms here buying up everything. Nuveen are another, subsidiary of some massive private equity firm.
@@essa6315I think your corporate landlords could be worst as they really really won’t care about renter just there profit which in turn which will make rents more expensive
@@MrSebastianBlake that's not the case. They're actually running a business as opposed to amateur landlords who see the place you live in as their pension. Corporate landlords have a public profile to maintain and proper maintenance contracts in place.
At first I was thinking “wow, this government is actually doing something progressive for society for a change!” And I say this a a landlord myself; albeit in a country way less generous than the UK has historically been to investors. Then the truth comes out; they’re screwing smaller middle-class investors in favour of the monstrously huge property companies that should be taxed out of existence. They’re absolutely shameless.
Career politicians are only in it for themselves, you scratch my back, I'll scratch yours. This is just another way for them to scratch the big corporations' backs.
Progressive? How could you ever fall for that?
100% this! And the Left are clapping along unaware how disastrous this will be especially for the young!
@@45graham45 hope springs eternal!
I'd rather the big facesless corporations drive the smaller landlords out. Big companies don't throw out people from their homes as long as they pay the rent. Small landlords are scum
This is a spectacularly detailed video and extremely educational.
Great work bud
Very well explained and nice clear charts.
I rent out 2 houses to social tenants, hence lower than market rent, and it was to people I knew were in unfortunate circumstance so it was to help them out. This was 12 years ago so I have subsequently been subject to all the measures you nicely and correctly list. I can not survive the present circumstances for much longer so my goal is to get out, like many others. I would get a better return on the money if it was rotting in the bank.
I 100% blame the last 13 years of this government, particularly Osborne, for creating this mess and its getting worse. My houses are energy rated D, there is no economically viable way to get them up to C.
Bit late to the party here but many councils have access to funding for low energy rated properties housing social tenants to get them up to scratch. Sounds like you've been doing a good thing but there may be a way to modernise the property, reduce your occupants bills and avoid incoming restrictions. Best of luck. I live in Sheffiled where this is the case.
Brilliant video, you have confirmed and supported my reasoning for selling our buy to let properties. I'm out. Been moving money into tax efficient strategies like the ISA and SIPP.
Keep up the good work
Yes get out get a proper job
@@simonbarrett9537 he already has a proper job. This is him using his money he earned from his job to make more money. Diversifying your income streams.
This is the same for me too.
I saw what was happening and sold my property two months ago.
Money is now split between ISA, Pension and Gold, or waiting for something else to come along/the market to change.
I’m a landlord and I don’t agree with the panic. I started my portfolio two years ago. I’ll be buying my third property this year. It’s been brilliant as the profits are good and the time required is small.
If landlords are good and treat tenants well (like I do) investing in property is the best wealth generator.
Down to the last 2 property's and glad to be shut of them
As a renter with friends that are renting, most of us are paying between 60-80% of net income, depending on salary and where in the country we live (which are both correlated anyway). After food and bills there’s literally not much more they can squeeze out of us for rents to continue rising.
As a landlord, the government want thier tax on rent, even if the net income doesn't cover the mortgage, costs to repair, plus agent fees and etc.
The prices have gone up, but I still own 1 property and the money has been devalued, just more of it is exposed to cgt.
Debased currency just means the government owns more of your home, the number is higher but you can't buy more if you sold, you get less because more is taxed
@@Jay-xr3sb Yes, this was well explained in the video and I do have genuine sympathy for those honest independent landlords who are being screwed here.
Unfortunately it’s not an oversight or accident. The government have squeezed every drop from the renters and working class and now they are coming for the landlords and the middle class.
A lot of the current politicians and their associates belong to the elite ‘mega rich’ class and they would prefer… or at best be indifferent to …having a two tier class system. Same is happening in North America.
That extra money you pay out of your post-tax income is going straight to the government.
10:00 no, terrible analogy! The landlord didn't go out to work for the day, they set the rental price and used their tenant's wages.
What they did is actually find out their costs were higher than their income. Not at all the same.
Switching a property from the individuals name to a limited company is generally unviable, they will have to sell to the limited company incurring 2 sets of solicitors fees (sale & a purchase), plus stamp duty plus the additional 3% stamp duty.
The government likes to tax and increase landlords costs, thinking this is a vote winner (possibly is) however like any other business, eventually all these costs will be passed onto the customer, in this case the tenant.
All these government policies promoted as benefiting tenants have the opposite effect in most cases
Exactly
Excellent presentation. Two points…
1. EPC changes have currently been pushed back to 2028 for ALL tenancies and are likely to be pushed back again.
2. For higher rate taxpayers it’s even worse. They could lose their child benefit too.
Yup, we fell into the possibility to be landlords when myself and partner moved in together. We considered it a retirement investment, with about 50% paid off. We have sold last year as it was just getting too difficult, as landlords with empathy we always did repairs no matter how small - this often meant we made no profit that year. Then a tenant who didn’t report a leak cost us massively. Followed by all the changes you point out. we just bailed out just in time and I’d never invest in property again, all profit now tucked away with investments.
If you can get 5% or more in something passive you’d be absolutely daft to be a small scale land lord. You definitely made the right move IMO. It just isn’t worth the hassle apart from a very few rare circumstances.
You were not ‘landlords with empathy’. You were doing your job. How bad have things got when you think you’re hard done by for just doing what is expected of you. Also, whether you made a profit or not, you were still winning because the tenants were paying your mortgage
@@crayontom9687I don’t think they were making the point to make themselves sound like good people, but rather if you do what is expected of you then there isn’t anything to be made in being a landlord - which is the reason they are pulling out. I agree, landlords should be caring for their properties and managing them - but they should also charge a few hundred extra to cover the costs that rogue landlords don’t have to pay. But then no doubt you’ll also complain that landlords are fleecing you.
@@CosmicBrain21 that all sounds reasonable and sensible but even if they are only breaking even each month… they are still getting what is essentially a free asset at the end of the mortgage term. So the notion that they’re hard done by and put upon is risible
@@crayontom9687 It’s not a question of being hard done by, it’s a question of whether it’s worth doing. Hoping that your asset might beat inflation is not enough incentive to pour money into something that doesn’t generate you an income.
What a great video James, the only place I've ever found a detailed non-biased honest description for this part of the UK housing market so very well done mate. Hope u get to 100k subs v soon.
I came into an inheritance about 10 years ago and thought about getting a property to rent out .
Even then it didn’t make much sense as the only ones making money were the letting agents as
far as I could see. It seemed like a lot of work for about 2% more than I could get by just putting the money into savings. Glad I did that as it’s got a lot harder since
It’s not just the 2% more though what about the near doubling of values every 10 years. Still an excellent store of value and inflation proof asset.
Manage your own lettings. Agents are generally useless
Shame on you Dave. Putting your financial welfare above someone else's security to own a house for themselves.
How much of the inheritance have you left? Or how much has the inheritance grown two?
@@NoNonsenseJohnson hmmm. Yet after 5 years i have a house that has increased in value by 5%...and is -7% IRR all cashflows considerd. The asset CLASS has on average returned about 5% p.a period straight, compounding, non leveraged return not accountign for costs. When you buy a house, to a certain extent, you buy a lottery ticket; you don't get the average returns.
The main issue is interest only mortgages. I have a portfolio of houses I currently let, and not one of them was bought on an interest only basis. I ensured that the available rent covered both interest and capital repayment, and took out longer mortgages with this in mind. Unfortunately many investors have been taking properties on interest only mortgages for 2-5 years, taking advantage of historically low interest rates and then dumping (selling) the house at the end of the mortgage period. Essentially B2L became a "get rich quick" scheme, rather than a long term investment. This has led to too many shitty landlords in the market, alot of dissatisfaction from renters, and most recently, alot of people finding they suddenly cant afford their repayments because of the interest rate changes, not to mention dropping house prices meaning they will be lucky to cover their capital repayment when they sell. If the gov wanted to actually change anything, they should ban interest only mortgages for residential B2L. Simple as that.
Nah CR mortgages would be pointless.
No business uses them jf they have any sense.
The power of leverage should always be used.
Obviously one retains the capital part of the mortgage payment in a savings account.
Do when the mortgage comes to term in about 35 years time the funds are there to redeem the mortgage rather than selling to redeem.
IO is always the way to go as payments are cheaper.
16:41
I believe that BTL leverage should be no more than 50% LTV.
Had that been the case for me then I would have bought two BTL properties rather than the 4 I did.
It would certainly have made the properties more resilient.
In hindsight I wish the 50% LTV stricture was in place when I invested.
Residential mortgages should be IO at 95% LTV with no repayment vehicle required.
@@paulgbar666 it seems to me that the main reason house prices go up is for the very reason you guys see it as an investment , a self fulfilling prophecy, the only way property prices will drop is is buyers buy because they need somewhere to live rather than use property as an investment, it could be crypto , gold , water , coal etc but houses was your choice and renters have been the captive driving force for your sheep like behaviour. UK PLC has suffered immensely from the cost of housing and much of it now owned offshore too
@dolphine675 Nah Renters could have purchased had they bothered like LL did.
LL didn't magic up money.
They had to work hard for their investment capital.
Any aspirant homeowner could have done the same thing.
There is no sacrosanct right for any particular person to be able to buy any form of asset.
If tenants DONT buy and LL do then the tenants will have to rent off the LL.
It is a market economy.
Those with the financial resources are ENTITLED to outcompete those who DONT!
@@paulgbar666 it's never been a market forces position , primarily landlords either inherit and or aim for the cheapest property available , so they are in a better position than the tenant when they inherit , they may not inherit the house that they rent out , they may inherit a good education or a mortgage/ rent free existence leaving them with a vast advantage over those forced into renting in terms of disposable income . Things maybe changing more recently but a landlord also has a tax advantage over a private buyer who is looking for property that either needs work or is at the bottom of the price ladder , the reason for this is because so called ladder is because of the " house prices always go up " being the main cause of house prices going up so owning one is free money . If it was a free market then the theory of being a landlord would only work for those with money to store in assets and rents would be equal to mortgage payments making no room for landlords , banks and the tax man to make a profit at the expense of a tenant looking for somewhere to live in a choked supply of homes . We have become a nation of selfish careless individuals who's lives are spent competing with each other resulting in the rich and powerful getting richer and the growing number of poor being supported through tax payer handouts and created charities
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Maybe I am wrong in thinking this but...
The sting of selling a house you bought for £150k and selling for £250k is a £28k capital gains tax bill. (28% of 100k).
I can't see an investment that could gain that £28k back in any time frame, so might aswell keep the house rented for the long term.
This sums up the state of the rental/letting market better than anything else I have seen.
Great job James! 🏘️ , 👏 👍😎 (ex-landlord since 2020)
After many big banks announced they’re going to be moving into the letting market, the government has simply started assisting them to acquire property as cheaply and easily as possible.
Great video, I had one property on a BTL and sold up for these very reasons last year. I could sense the tide was turning on landlords and in my pocket. I managed to get out without taking too much of a hit but I was one of the lucky ones!
Great video James, I’m in the north east we have two properties neither have a mortgage. One is leasehold and the management company are a nightmare to get any work done. They don’t answer the phone after 1 pm. Second property is freehold, we jump on any maintenance as it’s protecting the property. We are both 63 and I can see us renting for another 3-4 years and then possibly selling them both.
I see regular postings on other media channels trying to attract investors in BTL through various management companies, the costing illustration they always use is 25% deposit, interest only mortgage then re mortgage after 3-5 using increased value of the properties for deposits on other houses. I just see that as being highly leveraged AND massively at risk when the rates have jumped.
Definitely feel the Government is looking to have bigger housing groups control the rental market. Will be interesting if labour do anything different not holding my breath
When my tenant moves out then I will be selling up. Government makes no allowance for the risks landlords take. Too much control and legislation. Good landlords are being punished.
Absolutely Right Sir, just doesn't make sense anymore, just taxed from start to finally selling, the Govt still takes its cut without all the additional costs the Landlord absorbs or passes on !! Sticking to maxing out ISA allowances until the bstards change the rules on them as well !!
Excellent. Another house on the market for people to buy, flood the market and crash prices BTL landlords!!
listen from 15:14 it is not the government’s (I.e. me the taxpayers) job to underwrite the risk of your business venture
Yep.
The risk is manageable until the government interferes, to destabilise the market.
Great video! I will be showing this to my staff - we are planning consultants so our clients are directly affected by this. Oh & a permanent change to Air B&B needs planning permission 😊
Nice, and thanks for the tip!
Great video James, really interesting to see a real worked example! Your point at the end around the composition of households changing is an interesting one - rentals tend to house more people per square foot (although would be interesting to see some numbers on this).
Ultimately, property prices will have to come down in real terms dramatically (and probably nominally as well!). I would argue this is just a reversal of easy money which has led to property values-to-median income ratios that were at record highs in mid-2022.
Hold on for the ride - it could get bumpy...
The reality in the situation you describe is that the flat in Oxford is probably worth a lot less now than the £250k quoted and it will be a pain to sell
if they have to sell for less maybe someone without a home, could buy!
What's the obsession with buying a home (usually with leverage) ? We have had multiple properties in the past, and could afford to buy the flat we rent, but choose to remain tenants. The flexibility, predictability of costs, and lack of responsibility result in a much happier existence. Plus I'm free to use my capital to invest in tax efficient ways, rather than get hammered with stamp duty, fees, maintenance costs and interest rates...
Why i love Oxford
@@clifthammer Your happier existence might not be the same as others. Putting financial arguments aside (I agree renting can be cheaper) I would always own my property so nobody can kick me out or increase the rent. I know I'd be free to live the rest of my life there and renovate it to my taste. Plus the kind of houses I like (character properties with lots of land) aren't often rented out.
@@clifthammer Having to move three times in three years, the last time because the landlord decided "he could make more money from two flats" made me give up on renting. I even submitted evidence to a Government enquiry about that although my story wasn't anything like as bad as some.
p.s. That sort of thing never happens in Germany where the Landlords are entities like pension funds and tenants are happy to buy a brand new kitchen for their rental property knowing they will still be there in ten years time.
Most properties I looked at in the rent price 1500-1600 pounds a month in nice areas 2-4 zones 6 months ago - did not have any repairs done, everything was more or less 10 years old and when asked if tiles will be fixed (some were missing in the bathroom!) Or if they plan to fix taps - the answer was no.
They should tax heavily those who have 2 or more rental properties not those who have 1.
I’m midway through selling my rental property.
No mortgage, and £10,800 rent on a £250k house just isn’t worth the hassle. Minus costs as well and it’s about 3.7% yield. House prices are pretty stagnant (if not going down…) so it’s not like I’m gaining any capital either at the mo.
Like James said I can put it in a bank and do better. Most of it is going into my pension where £30k instantly becomes £37.5k thanks to tax relief, plus as a higher rate tax payer I get a cheque for another £7.5k. That’s quite the return!
Why on earth would I want to go through the hassle of more calls on a Friday night about the boiler breaking down when I can just relax, do nothing, and simply make much, much more money?!!
We’re all selling up, and it’s really no wonder. Of course we are. Anyone would.
Where that leaves the state of the property and rental market, we’ll have to see…
This.
Part of the idea of pressuring private landlords to get out is that they are likely to invest in productive ventures, like the stock market. Great comments like the above show that this is actually happening; a win for society, productive business and former landlords!
What are your thoughts on the capital gains tax bill of selling the property. Assuming you are in quite a lot of profit.
@@loc4725yep! I saw a comment the other day from someone who closed down their business and made some ~10 people unemployed so they could invest in a BTL portfolio instead. A proper “WTF?!” Moment at how ridiculous this situation has been allowed to become
Well funnily enough I’m not a big fan of CGT. 28% in my case is a bitter pill to swallow. Tens of thousands of £££s just… gone
Oh yeah? What banks this? 🙄
Excellent video as always. I rent out a single house that was inherited, so no mortgage, but it’s still a huge hassle. Luckily I’ve always had good clients who pay on time, but there are always things to be done- fences blown down, central heating leaks, new boiler, etc. Last year a new bathroom installation took all of the income from the whole year’s rent! It’s an old 1920’s property, so who knows how much it will cost to get it up to the new EPC standards. And then, of course, in 2030 I’ll have to be thinking of a heat pump. Property investment is a good portfolio diversifier, but not at all like most other forms of investment in stocks and bonds. Imagine Glaxo SmithKline ringing you up on Christmas Eve to say that the central heating isn’t working and then trying to organise someone to go and fix it!
Consider letting to a social housing lease provider who will take on the property and anything to do with it for a decade. No more tenant issues or maintenance problems
sell the property and put the money in tax free govt bonds. give someone the chance of owning their own home.
Completely agree. Renting houses is essentially a service business. It's nothing like owning a bond. You have to approach it with the mentality of running a small business, and trying to keep your customers (tenants) happy.
The move is to force out smaller investors/landlords and let the larger ones registered as companies, often with government members holding shares in those companies, mop up imo.
That and the big companies lobbying the government. Retail investors are easy targets for high taxation.
Amongst their many final cash grabs before leaving government. Unbelievable. Where are the newspapers on this ffs.
@StumpyVandal they all piss in the same pot.
This government really s*its on its own people.
What a great film James, thank you. I think Gov wants small landlords out and corporate landlords in (less entities to chase for tax, etc). Look at BlackRock and John Lewis, etc. Tenants will have to deal with faceless call centres, centralised tenant database in corporate landlord world. Think of the big 4 supermarkets verses local shop owners. Local has been structured to be unviable and so will disappear.
Also, social landlords and private sector landlords are different. Just as all tenants are not the same. Some tenants want to buy and can't for whatever reasons. Some tenants want to rent for mobility, freedom and/or lack of responsibilities that renting enables. Esp when younger. I think what we are seeing is supply falling and the corporate landlords stalling in entering the market (who would invest when house prices growth slowing and gov legislation too restrictive to satisfy shareholders).
Very good points, thank you for the comment.
Agree entirely.
So if you want to rent a car, do you prefer a professional company like Avis or James down the pub, who started out as an accidental car owner when he inherited his Grandmother's old banger then used the profits on that and a bank loan to buy a few more ?
Actually there is a fundamental difference which has been the Governments complete failure to hit House building targets. A shortage of cars would mean more being imported, but while we seem to be good at importing people they aren't doing very well at importing homes so every BTL means someone priced out of buying.
If anyone is wondering I bought my first house in 1986 for three times my junior engineer's salary. That wasn't a coincidence as the idea of borrowing more than 3X or having more than one mortgage was unheard of.
@@MrDuncl You'd prefer to hand your money over to a multibillion pound corporation than a middle class man who's worked his arse off for an ounce of financial freedom? That's the problem right there.
@@PerfectSnowballI would much prefer to just simply own the home I live in. As for that hard working middle class guy it would be far better if he invested that money into a business that will in turn invest in training a young person, so that that young person might be able to afford to own the home they live in as well.
Thank you James, as potential 1st Rental landlord I am well and truly waiting on the sidelines for markets to adjust. I could be in for a long wait - good job I'm patient!
Great video! Many people don’t realise that the more unfavourable the government makes things for landlords, the worse it gets for tenants. All comes down to supply and demand like you said.
If BTL sell - housing supply increases, reducing prices. I think many tenants would welcome the opportunity to buy - rather than provide income for rent seekers.
It's not that simple, I cover this in the video.
@@JamesShack I got triggered before the end! Great content as always.
With respect it’s hard not to laugh at all these “the worse it gets for landlords the worse it gets for tenants stuff”. It’s hardly been great for tenants even during the good times for landlords because it’s the landlord’s job not to give the tenant even the steam off their **** if they can at all help it. Whilst landlords have been getting all sorts of perks to enter the market rents have only ever gone in one direction, faster than wages thus hobbling the average tenant’s attempts to escape the private rented sector. Throw in the lack of security through no fault eviction (which those in europe are insulated from) and it’s never really been a good time to be a tenant in this country. Well maybe in the 1950s when rent controls were in place and the average rent was 10% of income, but Thatcher soon saw to that in the same way as when she privatised utilities by wittering on about how things would be cheaper with more choice and in fact the exact opposite has happened to everything she touched. The rental market being no different.
No matter who is in charge the renter will suffer either way
Landlords hike rents as much as they possibly can. Lets not pretend this is an altruistic business, you gouge tenants with little regard as to whether they can save money for the future themselves. It's a parasitic practice that hides behind providing a service. Most amateur landlords are hopeless at business and have been riding a wave of beneficial circumstances. The more of them leave the property market the better, they'll accelerate price drops and increase choice for buyers.
An excellent video James rather explains the shift away from long term lets to Airb&b.
Spot on James that's exactly the situation. I'm in the final throws of selling my 1 rental property that I've had for 15 years for whatever I could get for it, completion next week. I had a long term tenant, max year rental increase was 7% on the contract. I started making a loss all the time he was there 6 months ago increasing loss every month since, mortgage is over £1k a month now, it's a killer, and if I paid off the mortgage the yield is much lower that I can get with a risk free government bond. Lots of landlords are selling up, once that works it's way through the system expect headlines about a rental crisis, nowhere to rent
If there is going to be a rental crisis / shortage, isn’t it worth hanging on? Surely the scarcity will allow landlords who stuck in there to reap the benefits?
@@marcsolloway3941 Once rents get too high, people will sign the contract, move in and then stop paying. Going to happen more and more now.
@@marcsolloway3941 well yes if the tenants can afford big rent increases that's taking longer than I'm prepared to wait, I'm losing so much money I decided to get out and take the 18/28% taxed capital gain hit. If the situation improves a lot in the future I may go back in. Most likely I will stick to investing in the stock market only with a bigger pot, it's much less hassle. I'm investing in REITs as it's market I know very well so I think I have an edge, they are very out of favour currently so yields are high
@@marcsolloway3941😯
@@marcsolloway3941No because the pricing of rents has to be affordable and so cannot always rise in line with costs.
A more succinct explanation is that landlords used to borrow at 2% tax free and rent it out at 4%, pocketing the margin. Now they have to borrow at 5% at higher rate tax and rent it out at 4%. The whole model collapses as it was only tax free leverage that made it worthwhile. It was a borderline investment at best without that.
Thank you for this. The issue now is that you can’t actually just turn flats into Air BnB anymore because of strict licensing laws. The Government is anti middle class and anti business. All the people on here blasting landlords take note, this affects renters badly too! If you actually paid attention you’d see that this exacerbates the housing crisis, leaving a lot of people homeless or unable to get reasonably priced accommodation. I reckon this is a sinister decision on the government’s part. There must be an ulterior motive for this and it’s only going to get worse.
Nothing sinister. They were getting slated for lack of new housing stock and prices becoming less affordable so they targeting the easiest group least likely to fight back.
The middles classes rarely organise to defend their rights, and they own a large illiquid asset tied to the personal bank account.
Short sighted and unfair. Hedged index ETFs and bonds need care and attention. Owning a rental or two as a retirement income is easy to understand. An alternative vehicle should have been put in place first for the small retirement investor.
Phillip.
You put a huge amount of knowledge and data in all your videos.
Despite being different in style from the others, this one says it all about the current BTL crisis.
Well done, James!
Thank you for the recognition!
Great video! Would be good to compare income from a property to that of a stock portfolio. I think people get lured to BTL because it’s easier to conceptualise - I.e. you buy property and live off the rental income eventually when the mortgage is cleared.
I would agree, property is an overcrowded trade because most people don’t realise there are alternatives.
I must admit, I'd always assumed property was the best thing to invest in but having watched a few of James' videos I'm getting quite the education! 😂 Still not convinced I understand investing yet though!
@@burnmw1987 a lot of people with money to invest can get £20,000 in their pension for the cost of £12,000. With instant returns like that, and tax free growth, the value is all in the planning. The investments are important, of course, but the concept of using £120,000 to create £200,000 and having no CGT, potentially reducing IHT etc is a lot more powerful than paying tax and using that £120,000 to buy property where you pay tax on entry, on the income, on selling it or on dying with it. Property is accessible through a pension anyway (directly through commercial property, or indirectly through well diversified funds). It's incredible how working people in the HR tax band want more income to be taxed on.
Most BTLer's seem to buy another property rather than paying down the mortgage. I do have investments in property as funds in my ISA. Of course it is more difficult to leverage an ISA than it is to gamble with a BTL mortgage and high leverage.
You are right about maintenance and repairs, my splendid 3bed HMO had 10yr old Bosch boiler die, cost £3300 for a quality Valiant. Next- same age Mira electric shower failed, then large fridge freezer needed replacing. Plus new carpets after
I allowed tenant to have a [destructive cat during lockdown] for her mental wellbeing.
To refit and redecprior to re-let cost £8k, and that is with me doing all the redecoration. No agents. Have owned house 28yrs, and put such a lot of work into it, it is a responsibility providing an A1 grade home for people.
I just love all these guru guys 'buy 22 properties with other peoples money' etc for their entertainment value.
UK is highly over taxed and extremely low salary. Government every day keep adding new taxes and finding excuses for taxes, taxes and taxes
They want to create a two class system (elites and plebs) and destroy the middle class which they keep targeting
You clearly have no experience of salary vs tax (& cost of living) in other countries. Eg the exodus of doctors and nurses to Australia a couple of years ago was based on false dreams, and many are now returning to the UK NHS.
@@kevinsyd2012 there is no need to compare with other countries because we work and live here to face higher taxes, inflation, bills etc
I've been a BTL investor for the past 7 years but have now just agreed the sale of my house. As the property was mortgaged and due to the interest rates going up, I was looking at a mortgage payment of £1100 per month and as the property was in a rural town in East Yorkshire that most I could get was about £850 per month in rental income. By the time you subtract letting agent fees and maintenance, it just doesn't make financial sense to keep it! I have decided to sell up and place the money that I gain from the built up equity into my S&P 500 index fund where I can hope to make a conservative 6-7% return passively.
It depends on where you live and your tax status as to whether BTL works for you. I'm self employed via a limited company so I always keep myself under the higher rate threshold - it's low cost living here in Leicestershire. I have 2 nice flats that were both bought in the £85k region in 2017/18 and rent for a generous £550pm (could get more but I have fantastic tenants). For me, it works as I intend to have them for decades and into retirement to go alongside my pension for diversification, but also to help me retire early before I can access my pension. Once the mortgages are paid off I should get £9k-10k a year in today's money on average which alongside my other investments suits me perfectly. If I had a salaried job or many other different circumstances like living in the south east it wouldn't work for me at all. Also, if this drives out the dodgy landlords that cut corners and treat tenants badly this will be good for society.
I am similar, have 8 properties in my own name and 9 in my limited company name. I personally keep my income below the HRT threshold and the limited company fully funds my pension, so there is no Corporation tax to pay. Just about works…. For now.
It all works well until the basic rate for dividends moves to 15%.
It all sounds like a tax dodge to me, buy to let landlords appear to pay next to nothing. Meanwhile salaried employees keep the economy afloat.
@@owensmith7530 nope, I just choose to take less income from my business and put the excess in a pension. I still pay full tax on B2L profits.
@@bartz4439 No, I spend time making sure I get the right tenants each time there is a change. I didn't start that way but you soon learn
Great case study, thank you for informing my judgment with an exact numerical example.
Another great video. I have so many friends who have had bad tenants. And the hassle of maintenance and declaring rent. I've never been a fan of property. This makes me realise my pension is the best option for me. But each to his own 👍👍
I would agree. Many friends of mine are into property but it’s not for me!
It's going to be a golden decade for landlords
‘The hassle of maintenance’. As Roy Keane would say, ‘that’s your job’
@crayontom9687 good for Roy Keane
Excellent break down of buy to let investing. This is a situation that affects a lot of people so love to see you do a 2024 version. Only a few details have changed but your analysis is so clear. Excellent charts with easy to compare and read set and such an important topic for tenants and investors to understand.
A depressingly accurate summary. It’s even worse when you factor in the cladding crisis and the impossibility to get an EWS1 certificate. Some have no choice but to be a BTL landlord as their properties are unsaleable.
Yep literally the case for me this week, I am now officially an accidental landlord. I am looking at it more as loss prevention then profit making right now.
Thanks!
Thank you very much for the contribution Jonathan!
Excellent video! Thanks! Rents will keep rising when more and more landlords sell off their BTLs as it certainly reduces the overall housing supply. And if the government puts a cap on rental increases, landlords will offload their BTLs in droves and the situation will become dire. BoE is still not done with interest rate hikes, seeing that the inflation rate is still in the multiples of the desired 2%. This is indeed a very challenging problem for landlords on high LTV as they will encounter deeper negative cash flow. Unless they don't mind doing charity of a few hundred quid a month, most will just sell off and lick their wounds.
Increasing Interest rates is the wrong approach. Commodity prices will continue to go up for the West considering the BRICS formation, the stranglehold that hedgefunds have over global commodity supply and downfall of the US dollar. We are approaching a tipping point. The only thing that continues to go uphill are energy stocks, Oil and Coal far outstripping the well known names on stock exchanges.
@@opentrail It’s Brexit. Brexit introduced a lot of barriers and additional trading costs to cross border trades with EU. This plus the dropping pound. There was a time when the pound was twice its present value. Now everything that the UK imports is way more expensive. The pound needs to strengthen to lower inflation but UK economic growth is anaemic for the present so will be the rate of increase for the value of the pound.
Excellent video. Sums up the PRS perfectly. I’m a small HMO landlord. I purchased my properties in 2007 in order to have a pension later on when I retire! Currently my 2 hmo’s are cashflowing quite well BUT only because I was able to reduce my mortgages/pay one off. I’m actually looking to buy more and transfer into a company. I still love property. I’m also a letting agent too and purchase property to renovate and flip, but it’s not for everyone! It’s very hard work and sometimes stressful. I’m slso looking at other ways to invest along with property
This is a brilliant video! Thanks man!
I've been against buy-to-let residential property investments for a long time but you went into the detail for the UK market and explained just how risky it is.
I love how you ended things off by explaining that there are other tax-efficient way to build wealth (but you left out that they tend to be more cost-effective and effort-efficient).
Leverage in the market is behind increasing house prices. This is one way to take leverage out of the market and depress prices. Prices need to come down 50% in real terms and stay there. Ltd company rental income should be subject to a similar levy. The Airbnb scam also won't last forever.
Buy to let and furnished holiday lets in UK has become out of control. Housing should be for homes in a small island with limited supply and not for the wealthy to make money. End of.
Slightly agree but then that ruins the housing market of that area. It's such a hard balance to get right.
I agree, but if I had an opportunity to have another income stream and retire early I would grasp it.
@@cantbendknee There are lots of other markets to invest in that generate wealth and cause far less damage to the less fortunate. The UK housing "market" is only lucrative because of lax and biased Government legislation that is now, finally, being tightened up. So many complainers who got greedy and don't like change. Adapt or die.
To say that buy to let’s have become out of controll is a bit of a ridiculous statement, have you seen all of the new legislation that is well in favour of tennants? If you remove private rental properties, you’d be making a hell of a lot of people homeless. People that are against landlords can’t seem to grasp this pretty basic point.
@@tomday_td Domestic property in the UK should NEVER have been available to amateur investors. Small island, increasing population, limited supply. Not sustainable. We are finally seeing the consequences of bad policy decisions made decades ago with increasing imbalances in home ownership. The Government is doing it's job and changing policy. That's what Governments do! Investors need to stop complaining and understand the shift as part of their investing strategy. It will not make lots of people homeless - there will be a rebalance of the UK housing market and yes, some investors will lose out. So be it. We have cultivated a cohort of lazy "landlords" that don't do anything productive or add value but think they can sit and "mange" their portfolios while other people work for a living and generate the wealth. It's time for those so-called "landlords" to get off their arses and do a proper job of work! And no I am not a renter I own my own home and I do support the Government policy on this one as do millions of others.
Well said. I will be selling when the market improves. One less rental on the market, one more rent increase due to lack of supply. Good news is rent caps will then be introduced leading all landlords to exit and we will all wonder why so many people are living on the streets, in caravans or temporary council accommodation. Well done government for thinking through this….or…maybe they did and this was the outcome they want?
No landlords = Affordable mortgage rates
Landlords create homelessness by restricting people from buying due to artificially inflating housing pricing
You've freeloaded for long enough
I am a BTL investor and my strategy hasn’t changed. I will continue to enjoy buying the stock off BTL investors that are willing to exit the market.
The rental yield and cashflow of the property should not be the driving factor in decision making.
The real money in property is made through capital appreciation and this has historically averaged 3-4% per year. This coupled with a 75% LTV mortgage equates to an extremely profitable “average” ROI of 12-16% per year in capital appreciation over the actual cost basis in “average” areas.
A few years of higher interest rates, where zero or even slight negative cashflows does not affect the long term return of the investment.
The cashflow from rent should be viewed as a “bonus” like a dividend from stocks. I believe people have become too enamoured with the low-interest environment since the great financial crisis.
Buying through a LTD company has never been more prudent. And the shortage of BTL properties and increased rental demand over the past few years is only going to keep driving these cashflows up over the long term, leading to a further compounded ROI.
Thanks for the video James, always tune in to see a well-balanced discussion.
You are aware that, once taking inflation into account, properties are worth no more than in 2005? In other words, you've seen no capital appreciation over that period.
@@alanbuckingham8788 I would say most properties are tracking slightly above inflation. However, let’s say both the capital appreciation and rental income washes it face (exactly offset) with costs plus inflation then you will still have gained though leverage eg you only had enough for £20k deposit but then you have £100k at the end as your loan is paid off by someone else
@@alanbuckingham8788 This exactly why it makes sense to use leverage when investing in property.
This all sounds good, until you compare it to investing in the stock market through a SIPP.. .
The instant 20%/40% tax relief, higher average historical returns, lower purchase fees, lower ongoing fees, better tax treatment on capital gains, lower effort.
My rough numbers put SIPP investors significantly better off.
Even investing through an ISA could have done better historically than leveraged BTL (when considering tax).
@@clifthammer depends what you invest in. For example the FTSE 100 has massively underperformed buy to let property even with the tax relief. Don’t forget you still have to pay tax on the way out when taking money back out of a SIPP.
Of course if one had been smart enough to invest in the US market only you have outperformed, but most UK pension funds are a load of crap, and charge huge fees.
It’s obvious who they are targeting and I totally agree with it. The housing crisis has existed as long as buy to let has been in fashion
Insightful as always. I have been a landlord for over 15 years now and strive hard to provide good quality homes to good tenants. I feel the government has labelled me as a rouge landlord who must just be legislated against and brought to book. To give you an example, one of our properties is in a rural location in a village without a main gas supply so the heating and cooking is via a bulk LPG tank. The EPC for the property is severely penalised for this and despite enacting upgrades to the property we only just meet (after applying the penalty) current legislation. We have no option for the energy supply, there is no mains gas! With impending new EPC legislation this property will be unlawful to rent and fall out of the rental market. In this manner the government is creating problems for landlords and therefore tenants as well. This will lead to yet more pain for people in Britains troubled housing market.
why are you talking about mains gas? sounds like your property needs an induction hob and heat pump water heating. if you are forced to rectify, sounds like EPC working exactly as intended.
@@tim_1_but an air source heat pump is about £20k to install. Is that viable as a business?
@philrosenberg8805 not sure. I guess it depends how much of your rental income you have been setting aside for capital improvement
@@tim_1_ £20k is around 2-3 full year's rent for a 2 bed house in a nice area where I am (Yorkshire). It would have been around 5-15 year's total profit on a property before mortgage rates went up, depending on what other maintenance was needed over that period. With rates as they are, it could be 20-40 year's profit on a property or it could be impossible to save as the property may be costing more tax than its profit. Note also that capital improvements do not count as an expense for income tax purposes, so the landlord will still be paying tax on the money used to fit the heat pump. The landlord will only get a tax deduction for capital improvements when they sell the house and a capital gains tax bill is generated.
Thanks
Think you so much Sunil!
The UK housing stock is grossly overpriced at this time. What you have outlined here just confirms my thoughts that with the pressures on BTL market alone, and I say alone, because there is a lot more pressures other than on BTL, the UK housing sector is in for a ‘correction’ and a lot of very hurt people. Hope I’m wrong.
We sold pur house exactly as per what u explained. All ur points are valid n true. A sad story for everyone.
I became an accidental landlord in 2020 when I moved abroad. It has been a lot of headache and financially not profitable at all (that was never my goal anyway but would have been nice to make some money since I provided a home for someone). In return I have seen an unmaintened garden, late rents, endless estate agents fees, severe water damage which took 7 months to resolve with an insurance during which I had to still pay council tax (at reduce price because the property was uninhabatable) and ever increasing mortgage... I cannot secure a fixed mortgage because I reside overseas. I know there is a rental properties crises but honestly it is not worth it. And with the new renters rules coming in I am not surprised many small landlords are trying to sell their properties.
I see people do not take fixed mortgages intentionally becuase fixed means insurance but insurance is additional cost usually
James assumes property is equivalent to other investment classes - it's not. Property has social, cultural, economic and political dimensions which together easily outweigh investment value. Owner occupation is optimal since it households who would otherwise be renters gain a real stake in our societies success.. The Government rightly wishes to ensure that first time buyers are not outbid by amateur BTL investors.
It's worth mentioning the cladding scandal. Many people are now utterly unable to sell their homes, which means if they need to move for work or school catchment areas. They may simply want to let out their property so that they can write off the mortgage costs, and rent elsewhere. All these interventions and the extra three I mentioned in my other comment, make this whole thing suck a lot.
I agree with this video that these interventions could really mess up the entire rental economy. And it's hurting medium income people, not the rich.
Spot on. The Government have created a perfect storm in the rental market.
Another great video James thanks. I've always liked the idea of investing in property but for various reasons I'm not keen on being a residential landlord. It would be great if you could do a video on commercial letting and whether that is a viable investment option. There's a lot of people on TH-cam trying to sell seminars and tutorials on commercial investments. But I would like to hear from you on this, any real life scenarios and client stories would be really helpful. Thanks. Keep up the good work 👍
Outstanding video - thank you. Very clearly explains the BTL situation for private landlords. My view is that, for whatever reason - likely nepotistic - the government is aggressively corporatising the BTL market; vilifying private landlords whilst companies quietly buy up discounted properties. I refuse to be shaken out because I think the UK is moving back to a rental era with large companies controlling the housing market - I want to be on the right side of this change!
Completely agree! Government policies are designed to financialise the housing sector so that massive players have an enormous advantage. If we want to solve housing crisis we should prioritise kicking the big players out by for example introducing 80k VAT threshold for properties let via an Ltd and giving opportunities for small landlords.
I feel thst even through ISAs government incentivises big players such as Vanguard and the like because you have to go through them to take advantage of a tax-free wrapper. It also artificially inflates the stock market as people have little choice if the want to invest in a tax-efficient way.
Don't you think that a new block of 12 flats being split up between a dozen BTL "investors" is highly inefficient? The biggest profits are probably being made by the 12 mortgage brokers advising them.
p.s. A few years ago I would have loved to have invested £60K in the property market if I knew that the investment would be split over 6000 professionally managed properties.
Amazing video. Love the break downs of finance.
New Zealand did an “interesting thing” in 2021, we effectively locked property investors out of buying existing homes by making the interest on the mortgage no longer tax deductible. Making the majority of interest only rentals cashflow negative.
We have some of the highest house prices compared to income in the world. We also have a demographic where more people own multiple homes, than people own a home.
In 2021 we also, raised the deposit required to purchase an existing home to 40% of the value.
The govt incentived investors to buy New Builds, by keeping the deposit required at 20% and keeping them tax deductible. We then had a massive house building boom…. But covids supply chain issues crashed that (NZ is very hard to get to with materials etc)
Again in 2021, The govt then brought in for all buyers, Loan to Value caps on mortgages. This is due to the extreme cost of housing compared to incomes.
This all happened in a matter on months. Once the LVR was introduced it was a hand brake on lending, the supply chain issues crashed the building boom, investors couldn’t buy existing homes and were also selling their stock of existing homes to get rid of them before they became cashflow negative. First home buyers were hamstrung by the LVR’s and no one could really buy or sell.
The housing market started to crash in August 2021. The average house dropped by 20% since then. We are only just now seeing an end to it.
Own 3 properties, tenants happiness is top priority. But the changes are getting outrageous , if we get one bad tenant we’ll sell up - the constant assumption we’re villains is wearing thin.
It's not, you're just a liar. Your top priority is that the venture is profitable and viable.. otherwise you wouldn't just 'sell up' at the slightest bit of hassle.
I understand why you're mad, the government is actually making an effort to address the complete disaster of a housing market we have.
Must hurt losing them easy gains and that ever growing pile of equity at the expense of others.
@@Tedmason897 you don’t know me. Absolute clown. if it was I’d be jacking the rent up at every opportunity, which I don’t. No annual rise ever for my tenants.
@@dsmithuk no annual rise ever? When did you buy them 8 months ago, or are you just burning cash for fun?
Your rebuttal is fantasy level ridiculous, of course you got into property investment primarily concerned with growing your financial portfolio not 'tenants'.
@@Tedmason897 one is 7yr. But I’m not playing anymore. Bore off.
@@dsmithuk laughable my friend, of course you have hiked your rents in the last 7 years.
Stop spreading the mythology that landlords 'care', they don't care.. the clue is in the name 'buy to let' it's an investment instrument. That's exactly why you're a landlord, investment, not tenants.
Your investment opportunities come at the expense of others on the bottom end of the market. Collectively buy to let investors have out bidded first time buyers keeping them out the market, raising prices on more affordable houses and thereby forcing them to rent that same stock they could of brought for more than a mortgage would cost them and with no ability to get anything back for it.
Open your eyes, you're part of the problem. Not on a personal level but collectively you are very much are.
James, Yes there are other wealth building tools other than BTL... but none others that allow you to use leverage to multiply gains in such a safe way. Investing in a diverse portfolio of funds will always produce returns proportional to your original capital investment. Example: £250k in stock market could average 6-10% returns per year on the £250k (Cap growth + some reinvested dividends). But with £250k in BTL you can buy £1m of property and earn 3-8% of yield on that £1m (Cap growth + yield). There is no easy direct replacement.
And nor should there be. You're betting with borrowed money, and if you lose, that won't end well.
These policies are not there to help renters, they are mostly in place to help huge corporate property holding firms. Blackrock and similar companies have very very deep pockets.
Massively under estimated those costs James! As a Landlord I can assure you these are much higher!
It is definitely more palatable to put your money into a Paragon or Marcus account 5% plus interest rates! I will NOT be buying any more rentals but will be selling off along with THOUSANDS of landlords.
WEF - endorsed. They have different ways according to the country in which to achieve "You will own nothing but will be happy" In the USA Hedge funds are scooping up great swathes of housing . Wake up people before there is no route back to personal independence and freedom.
Build back better WEF
Yep, it's all deliberate.
Great video James, with good delivery, but suggest a tidy-up on your spelling on the graphics, viz;
mins-in ... 1:50 , 6:30 , 7:17 , 13:30
Relif = Relief
Rateing = Rating
3:02 , 4:34 , 11:59 , 12:35
incurance = insurance
4:14
Procceeding = Proceeding
5:52
Capita = Capital
hope that's a help!
Great video that clearly explains the challenges of the BTL investor. One point missed in the analysis is that houses are not liquid assets like shares that you can sell tomorrow. So this will take a numbers of years to play out. The housing market currently is very quiet and unless you are willing to take a significant hair cut on your asking price you won’t have a buyer. So I personally think that the full impact of the government decision will only be felt in 3-5 years time.
Agreed.
That's why I don't think it's going to put to much pressure on house prices.
Loved the charts and breakdowns! This has been super insightful! Thank you
Fancy that ! The gravy tap has just turned a little tighter . Looks like some folks will have to work for their money . Amazing . I’m sure it’s good for the individual landlords wellbeing in the long run .
BTL has distorted the housing market for the past 30 years. When a government reinstates the Rent Act 1968 as abolishes shorthold tenancies so that landlords cannot sell their properties with vacant possession first time buyers can reenter the market as prices fall.
Very interesting video James......looks like a lot of people are going to get caught out......taxes in this country are totally over the top.....I live in Scotland its even worse here for higher tax payers
I’m glad you enjoyed it. We’re in the highest tax environment since the 1970s, that’s why pensions and ISAs are so valuable.
My opinion on this issue is that what landlords are doing is using their credit rate to buy a property they cannot afford and then expecting the renter to pay for it.
I sold my house last year. Worked out that I'd have had better returns if when I moved in 2016 if I'd sold then and stuck into a tracker. Of course moving into EFTs when Putain decided to start a war has been painful albeit I am sure it will bounce back. My wife is pretty much certain she'll sell up too when when the current tenancy ends.
First time viewer to the channel , and may i say very impressed! Clear, Concise, educational and fantastic charts to detail points covered. you have a new subscriber.
Welcome, there's a whole trove of content exactly like this, so dig in.
The problem with moving your property to a limited company is that any increase in equity that you may have built up over the years will be heavily taxed ,as you are essentially selling it , although you may be the owner of the limited company
Yep, and paying stamp duty at 3% makes it a non-starter for me
This is the dilemma 🤔 Is it even worth it?
@@HectorHughMunro Thanks for the intel 💻. I will look into this.
Don’t ever sell it problem solved
@@garyalcorn3831 your right, I don't intend to sell, luckily I've only got a small mortgage
Well done James. Very well prepared. 10 Points.
I do think that far too many people saw the BTL market as risk free because property “Always goes up”. Very few small investors actually understood the risks.
Agreed. For many, it's seen as the only way to build wealth in the UK.
I’m an ex-pay in the US and these tax laws are insane
That said - I would never buy property outside of an LLP/LLC
That said - here’s how I view my rental investments - are they cash flow neutral, meaning I invest for cap gain, not income.
Being taxed on a loss due to mortgage interest is former Chancellor George Osborne's brainfart and unique contribution to economics.
In many Councils, you now have a raft of other costs like registration, legionalla tests, electrical item tests etc etc
The issue with leveraged investment (i.e. using borrowed money) is that it works both ways. In a rising market leverage amplifies gains, but as described here it also compounds losses. Unlike shares or bonds that can quickly be sold, It's a highly risky strategy to use leverage with an illiquid asset like residential property, because it's impossible to quickly close out to stop losses. What's clear from this analysis is that property returns rely entirely on 'investors' bidding up prices using underpriced debt, rather than any fundamental value. Now the prop is removed, the market turned and it's unlikely to return anytime soon, because housing affordability has become a popular political issue so any inflationary policy (e.g. H2B) will be controversial.
Like you say, 5% on short term gilts is risk free (assuming the Government doesn't default) compared to all this hassle.
I think lots of landlords are currently grinning and bearing it, but they need to consider the opportunity cost.
5% on short term gilts is risk free, if you bear the fact that you are locking in a return lower than inflation.
6:25 ROI increases from 3.9% to 6.9% not decrease to 3.5% for the current owner (before tax changes). The 3.5% number you get for a new buyer borrowing same amount of 125k as they would invest 125k deposit instead of 65k due to the increased house price.
Nope. The price increasing in value means the owner's equity increases from 60k to 125k, so the 'investment' part of return on investment, the bottom half of the fraction is bigger.
Investments are always appraised against current fair value. What you paid for it is not relevant.
This is the error that many landlords make, they calculate their return based on what they put it rather than based on what the value of their capital is now.
It’s like me investing £1000 in the stock market in the 1990s and then saying I’m getting a 50% return every year now. But that only because it’s now worth £5,000 and getting a 10% return.
So that you can compare different investment you need to calculate return based on the value of your capital at the start of each year.
Thanks both for explaining this. I now see how it makes sense to use the increased equity to compare returns and if you could liquidise cheaply then you could invest that increased amount in a government bond and get a higher rate.
The bit that caught me at this part of the video was how the value of the property increases, the cashflow increased but somehow it is a worse deal. I get that now and moved to looking at the unrealised gain (or loss) which is realised if you sell - it does not get counted in the yield - which I imagine is convention with property but I wonder why. The equivalent investing in equity would be to ignore the growth and only look at dividend yield. James does mention 3-4% growth on the property but this is like a side note. The example client averages 4.68% pa, 3.37% considering 28% CGT, there would be other costs for transactions.
It seems sensible to not predict the same growth in the current short term (given market data, sentiment and the great explanation in this video) so fair enough. Though if it was equity we'd say you can't predict the market, you invest for the long term where you can expect returns of X%. There are similarities but also differences, like you show property can give you negative cashflow which must be a factor to why the accounting is setup this way for BTL. Still interesting if growth is ignored or considered flat. Maybe it is when inflation adjusted or maybe doesn't have as predictable long term trends as equity.
Just want to say thanks for the video which helped my understanding in this area, my comments are just the details I don't know yet, thanks for explaining.
You forget the risks of future Green policies, like heat pumps, EPC ratings, etc. I’m in the Rhondda in wales and the thought of trying to make a typical stone built terrace energy efficient is frightening😳
Heaven forbid the person paying your inflated rents has a warm, insulated home for the money they pay you
@@essa6315 firstly, I'm not a landlord. But some of the houses in the Rhondda are not capable of higher EPC ratings, at least not without major structural work at a significant cost, which would then mean that you couldn't make anything near a reasonable yield on your investment - which is the point of the video - why landlords are giving up on buy to let.
Only people who don’t know any better are selling because of poor epc, we all know the government will delay and delay on that
Any Welsh Llwill need to sell up.
Very few of Welsh letting properties can be improved to C status financially viable.
You can't compare house renting to car renting, house renting means people not been able to afford places to live. Landlords and greedy investoes had/have to be stopped, this has already gone too far
Interesting video but flawed analysis. Comparing the current yield on a property to a savings account is not a sensible comparison for investment purposes. You must consider that the yield on your savings account is most likely at records highs, and will not stick around at these levels forever, and will almost certainly fall at some point in the future. In the meantime however, the rental income from the property should at least keep up with inflation, in addition to the long-term capital appreciation. The effect of this over the long term is enormous. Same principle with investing in the stock market.
Between Feb 2009 and May 2022 B of E interest rates were 1% or less. I wonder how many buy-to-let landlords lived off their net cash profit instead of using some of it to pay down their mortgage debt during this period?
Sounds like a lot of properties are going to turn up on the market at reasonable prices. Landlords will just have to find some other way to invest their money (although, if they only are only paying interest on these mortgages, I guess they aren't really investors since they have no capital).
that's right its removing speculators from the market. it should make homes more affordable
I don’t see why is isn’t welcomed. Invest in business - great for the economy. BTL - is just rent seeking.
They do have capital in the investment as they typically need at least 25% of the value of the property in equity. The other 75% is leveraged as debt to accelerate the ROI.
Providing rental accommodation to the population that cannot/choose not to buy is arguably just as important as investing in business in our economy.
@@TheTommowgAre James’ BTL clients landlords because they want to supply homes, or are they landlords as an investment? Disincentive BTL as an invest and you will get a fall in prices (helping those that want to buy) and opportunities for landlords where there is demand for rental (higher yielding rentals).
@@gregm9447 I would say it’s almost always for investment, but it’s a side bonus that it is providing something for people. Not everyone wants to buy, quite a lot of people like the freedom of renting.
The government needs to focus on hitting its house building targets, which they have missed by an insane amount. This is what is causing the supply squeeze on the property market
Nice one James. Some great commentary as usual and plenty to ponder on for myself as well.
Thanks Chris!
If amateur/middleclass/mom'n'pap landlords will now realise that if you connect rental 'yields' (ugh) to perceived property 'values' all you do is create an unstable environment for everyone which will always, always, collapse, then so much the better. Sad that finance was twisted in this way in the first place. Rents should always be linked to the value of the area not the mortgage, and they should always be stable.
In terms of total income, you need to include capital appreciation of the property. The numbers you put down isnt technically net of tax return of capital. Surprising landlords just completely exclude the growth rate of houses in their return calculations, assuming that it is just a bonus.
I wonder if groups of private landlords could become 1 company, or work under an "umbrella" company much like some contractors do ? Maybe Letting Agencies (who must be losing business as well) could set this up ?
So, a monopoly?
Good luck with that 😂
Wow,.. great episode … perfect description of what goes on in the rental market
Whoever that does not invest with little, does not invest with much either. It’s not above the amount of money, it’s about habit and discipline.
Exactly! The important thing is to have consistency. This will make all the difference in the long-term
Regardless of the type of investment you decide to make, I think the Main message here, or rather for me, is to start your investment no matter how small. Don’t jump into anything you’re not completely sure about. So of course you can always build from there.
@@MarcelRainer Buying stocks is easy, but choosing the right stocks and preparing to invest without a time-tested strategy it is incredibly difficult. I’ve been trying to grow my
Investment portfolio for quite some time, it seems
I am either buying at the high point of the market or selling at the
Bottom of the market, and that’s pretty pathetic.
@@MarcelRainer Great comment! I see many young and old doing mistakes I don’t think they should be making. Seriously
They believe everyone should have an investment
Plan that will increase your financial performance
From triple figures to six figures investment can
Be it your retirement plan or your future plan, whatever you want but the most important thing is
That you have a worthwhile investment plan.
@@ThiagoDavidson-pl7rp The most important thing that prevent me from starting my investment
It’s not fully understanding what I’m invested in and how the whole investing thing works.
Its a bigger problem when you work full time and can't afford to buy your own property or the majority of your wages goes on rent, this System we live in is flawed and struggling to move forward, it wouldn't surprise me if a lot of the next generation emigrate for a better fairer life and with such a low birth rate because people put their careers first you may understand why the government have taken these moves on advise from the experts.