Tim Bennett Explains: Why buy to let is only for the brave
Published on Feb 22, 2016
This week I explain why Buy-to-Let’s best years may be over for retail investors.
0:11welcomes this kill explains finance video this week why buy two legs now
0:17only the brave now that time my word for it no less than the former chairman of
0:23Rex Jeremy Lee was originally said these are challenging times for buy to let y
0:29on a look at what’s been a good idea is about the late nineteen nineties for a
0:32lot of people and why now does not look like a fabulous time we going into the
0:37white LED market ok so has been a good run no doubt about it if you take the
0:43nationwide or houses inflation adjusted data the graph looks something like this
0:49there’s a notable section where prices were rising pretty steeply tweet about
0:53their the mid nineteen nineties and about their the mid 2009 you’ll notice
0:59that after that nice steep climbing prices if you’re in the market to buy
1:03select things have gone a little flat since on inflation adjusted basis
1:08another point I’m gonna come back to the no doubt about it there have been some
1:12good past years since buy to let connoisseurs take off in the
1:15mid-nineteen ninety it and on top of that we not only if prices reason but by
1:21then that stirs can do something next investors can easily do that’s gear up
1:25so I can say well actually i buy the property was a fifty percent mortgage so
1:30I’ll buy a property that cost 200,000 pounds si mortgages half of that all put
1:35the Romanian with you down if that for sure enough to have it that means if the
1:39price rises 50% to 300,000 pounds 223 given that the mortgage is fixed at a
1:47hundred let’s say your rack with a has basically gone up by a hundred percent
1:52nice work if you can get it now compare that to debt-free property or the
1:57position of someone’s putting the same money to equities let’s say and same
2:01cost node act so it’s all funded by you
2:05price rises 50% the new value of that property is 300,000 pounds as it was on
2:10the left all of these equity you have not done badly we’ve gone from 200 to
2:17300 which is a return on equity of 50% only half
2:22in a bull market gary is helpful but land that would say that based on what
2:27happened about 1998 2000 and was borrowing has rarely been cheaper so
2:35recently I what’s happened to the bank rate over that period just their
2:41fantastic happy days mortgage rates are linked UK bank rate and where historic
2:48low level 20 looking at one way traffic but the tide is turning up probably
2:54explains why my first draft nationwide graph you look more recent years it’s
2:59definitely not that would line it’s a definite going on a flat why
3:04well first of all politicians again both George Osborne is targeting by to let
3:09his theories he stops people owning second homes in the kind of a mature
3:13market as he sees it alfre out more property first-time buyers leaving the
3:17marriage there are good ones I drew moment this is what he’s doing and it’s
3:21pretty painful for buy-to-let investors of a certain time retail bite letters
3:26first of all stamp duties going to go up by a flat 40% MI 48060 alright I’m not
3:32dead money you pay when you buy a second property goes the government you never
3:35get back the blanket and the scent wear and tear allows us the ability to not
3:40expenditure of around him since like Xena roughly 10% of my range is where
3:45entire villages just not that often then calculate tax on the balanced reduce
3:50your tax bill is disappearing you need now demonstrate how much you’ve spent
3:55not just take that blanket allowance mortgage interest relief is being
4:00reduced on by let properties i bilities not mortgage-interest off against income
4:05tax bill and the CGT on gains is going to be doing much quicker used to be in
4:11the past and that’s where he’s got two so far these are things we know about
4:14who knows what else is coming down the line so problem why is the government
4:18has got by select firmly in its sights
4:23come back to that moment number two is lots of people are now worried about the
4:30buy-to-let market way they were
4:31Bailey until quite recently so I N reprieve BBC agent the safety of the
4:36first time in three years
4:38people are going to struggle to break even because of the additional cost of
4:41doing business in the property market debacle at industry as a cottage
4:46injuries dead pretty blunt said Dan and Asha the CEO Property Partners and now
4:51on the other side the taxation changes just the government’s done according to
4:56Rob Thomas a former bank of England economist will be enough
5:00plunge by let properties in two losses in a lot of cases and that is
5:06potentially not taking full account of some of the other that I’m about to look
5:10at what are they
5:11well first of all recent price rises are unlikely to continue they mind but you
5:17gotta say the past has to be some sort of guide future here and we look at
5:22backstage at this time
5:23another big provider of mortgages other than nationwide and look at the players
5:27in 1993 to 2009 that’s post the credit crisis you’ll see prices rose from just
5:35over 30,000 on average according to the Halifax more like a hundred and sixty
5:39doubt that he think that post credit crisis trend is going to continue let
5:43alone the 13 credit crunch all rights on the generous here if you like you would
5:48have to assume that by 2035 the UK market for property could stomach prices
5:54an average of eight hundred twenty-five thousand pounds or around 10 times
5:58average earnings is that likely what’s more bad fabulous inflation numbers get
6:06interest rates down maybe about change so yes we’ve had inflation low below
6:12zero in the UK recently alright and that may hold good for a little bit longer
6:18because there are lots of factors globally pushing prices down
6:23technological disruption oil prices tumbling Chinese in emerging markets
6:27commodities demanded a weakening global spare capacity not too much wage
6:33pressure in developed economies all of that adds up to a picture where
6:37inflation could stay subdued for a while but he’s worried enough to start raising
6:43interest rates
6:44and is forecast to raise them again and again only a matter of time before other
6:49developed economies like the UK think about following you might think so it’s
6:54incremental the point is people have been prepared Piland cheap debt at
6:59historically incredibly low rate only takes a few cranks of the interest rate
7:03handle put quite a few people into trouble and that caring argument works
7:08in reverse when prices are rising hearing helped you when they’re falling
7:12it does the opposite so let’s go back to a property of 50% debt same facts but
7:17this time the price drops by 10% in a nutshell by being geared fifty percent
7:2450% equity your loss of equity is double 20% and if you’re in a position where
7:31you couldn’t put down a deposit that kind of size so you’re working off 75%
7:36that then it gets worse
7:38same facts a price drop of 10% causes a loss of around 40 now you might be
7:45saying well you can afford to buy without a mortgage lucky you know maybe
7:49the commercial landlords out there would whether an interest-rate storm better
7:54than some of the individual ones you can see the concern when people have gone
7:57stretch themselves to get into the bindles second property market that the
8:04cost just keep rising I mean you’ve got certainly searches this disease mortgage
8:10arrangement fees and deposits and these are not getting any smaller over time
8:15stamp duty we just looked at how the chances gonna 1060 renovations to get
8:20into a fit state to wrangle health and safety costs on boilers water
8:25electricity and so on all of those tend to be greater than you find on a typical
8:30first property and what’s more once you set the thing up you got ongoing
8:34maintenance
8:35Renteria is void to worry about mortgage-interest gotta watch out for
8:40that one
8:41any hint that I’m getting much about to raise rates will send those mortgage
8:45rates up with it
8:46insurance is higher on second and bite let and your
8:50text on any incoming generate and any profits you make on sale
8:54unlike somebody and sheds you can shelter a considerable amount within a
8:58nicer and protect what’s in that shelter from both income tax and capital gains
9:03to so conclusion yes I think professional investors and Faby amateur
9:12investors savvy investors there is still something to be said for taking
9:16advantage of a structural shortage in the UK yeah we’re not building up
9:20property but I don’t think the heady days the boom use again repeat anytime
9:25soon if ever and I don’t think this is the place to be as a matter cottage
9:32industry by the letter because if prices or carrying works against you
9:38interest rates pushing mortgage costs up that government is targeting by to let
9:44there’s not much we can do about that at the moment could all turn a bit nasty
9:48about quickly for people on the margins would like to know more please email me
9:53at the usual place
