Buying to let

[THR1]

Hey, just putting it out there, but if people can afford to acquire a second property and are using the rent from it to pay a mortgage on their own home or increase profits/create a nest-egg, it seems unreasonable to pass on mortgage inflation to tenants, who only have one temporary home. It's not their fault mortgages are going up - at least split the difference with them!

A second property, whichever way you look at it, is a middle-class "luxury" and should demand fair rent prices and promote less greed. Buy-to-let is a risky business, but the landlord takes the risk and should not expect to put up rental prices on a whim or to charge extortionate prices for no service improvement (as per most business models).

I speak as a second property owner, who charges their tenant only 2/3 the geographic expectation because the tenant is on benefits. She looks after the house beautifully for a 1/3 reduction and her (local government-generated) rent is reliable. Any income at all is a lot more than most people have right now, and if you can't sustain a second mortgage comfortably without burgeoning your tenants with your costs, surrender it and put your money into something else.

Generation Rent, is that you?

No, I won't be looking to lose money on my investment when the interest rates on my BTL mortgage go up because I am not a charity.

Interest rates go up, fact of life. That does not mean that landlords are yet again cash cows and should be expected to make a loss to house their tenants.

The current extortionate rents we are seeing across the sector is entirely down to almost half of landlords selling up driving up demand because of a lack of supply after years of this government treating landlords like cash cows with tax after tax, legislation that wont benefit tenants in any way and also continually threatening to remove section 21 so landlords cannot remove bad tenants.. Its simple economics.

There's a difference between professional landlords and BTL side-hustles. Unfortunately the latter tend to think they're the former. Rising interest rates are going to make identifying which is which a lot easier.

@hannahcolobus I'm afraid the days when landlords made vast profits are well and truly over. Sadly media still love to push the notion of evil landlords etc but the reality is almost 40% of landlords have sold up in the last 5 years because they weren't making any profit.

So whilst I do agree with you, neither party should be taking advantage of the other, the reality is there is very little profit in BTL and landlords are likely only raising costs to cover rising expenses.

(A lot of the increased costs have actually come from recent legislation such as licensing, fees act, removal of the ability to claim your interest as a legitimate business expense and a few more I CBA to mention. But these were touted as being in the tenants best interests but we're in fact anything but.

We bought a house and couldn't end up living in it because of my Husband's job so rented it out and have kept the rent under market value for 6 years (same tenants). We were going to sell the house to buy our own and the tenants couldn't get a council house or find anywhere else so we've had to keep renting it out so they have a home but can't put the rent up in line with costs or they may not be able to afford the rent but now we are only just breaking even and may not be for much longer. We would be much better selling the house and putting the equity into savings or paying off our own mortgage but then the family would be homeless so it's not always straightforward.

@hannahcolobus except it isn't so black and white.

Approximately half of all BTL landlords were so accidentally, through divorce, change of job and so on and we're in a position where they needed to move but couldn't sell for whatever reason.

I am one of those. I had a house in negative equity and needed to move following a divorce. If I were to now sell the house I would be uprooting a family with 3 young children into knowingly a very hostile rental market. I have offered them a purchase of the house on several occasions, they have enough for a deposit but aren't interested for whatever reason.

As with any issue, there's more grey areas, than black and white. I haven't upped the rent since they moved in, 5 years ago, but when I come to remortgage I won't be doing so at a loss, I'll be selling up or raising the rent to cover. Given the critical shortage of rental properties in the UK right now I know which would be more ethical, but I will do what's right for my family at the time.

I think you've got a very one sided interpretation of the sector and if you think its all bad landlords taking advantage of poor tenants it's probably best you didn't join the sector because you're woefully misinformed as to the reality. Without BTL landlords there would be a lot more homeless. That's the reality.

As with any issue, there's more grey areas, than black and white. I haven't upped the rent since they moved in, 5 years ago, but when I come to remortgage I won't be doing so at a loss, I'll be selling up or raising the rent to cover. Given the critical shortage of rental properties in the UK right now I know which would be more ethical, but I will do what's right for my family at the time.

Are you running an interest-only BTL mortgage?

With the same logic should food, clothes erc not cost more because their production costs are increasing because of the poor customers?

But you generally own the food, clothes, etc. you buy. You don't just rent them. There isn't someone else earning on the appreciating value of your Primark jacket whilst expecting you to also be paying the laundry bill.

It's just another business transaction. You're using and wearing out their property. You don't have to worry ahout repairs etc. Ownership has nothing to do with this. You don't own the cab/train you get on but they also raise prices to try and keep their profits.

This pathetic argument that if btl LL did not own houses then all the tenants could magically buy them is rubbish and you know it. Where I live there are 17 pages of houses for sale so no shortage of people want to buy. What stops people buying is lack of deposit saved and not earning enough to get earnings multiples to cover stress test. Some people will never earn enough to buy their own home, others don't want to buy but prefer to rent as move around a lot with their job. I have 8 houses let out. All kept in excellent condition. I noticed today in Autumn Statement that social housing is to be rent increase capped to 7 percent next year. Social housing puts up rent every year. I will be putting up rent by about 4.5 per cent this year. Some of my mortgages on trackers have gone up 5 times this year, but now moved them onto fixed mortgages. I am not moaning because I still make a profit but sick of people who are jealous and can't stand see others being successful. I lease a car. I will never own it. I don't have to pay for servicing, tyres, repairs etc just as my tenants don't pay if a fridge freezer stops working or a boiler breaks.

The way I see it is that the owner is paying off a mortgage to acquire an asset, an asset they can liquidate when the tenants are long gone. The rental income is payment for using the property and the functions carried out by the landlord. It should not be directly linked to how much the landlord needs … the landlord took that risk when they bought. The tenant doesn’t exist to pay someone else’s mortgage… though we all know that’s how it feels.

No, without BTL landlords, there would be more homes available for those renting to buy.

Great - that’s happened now, loads of landlords have sold up.

Are all those renters now buying those houses? No. Because they can’t afford to because of interest rates, can’t get a mortgage etc.

So now they are in a rental market where prices are going up and up. Is that helpful?!

Of course the government could have solved this years ago by keeping an appropriate amount of social housing, but since they’re capitalists they give no shits.

That doesn’t mean that there are not people for any number of reasons who have to rent. We need private landlords to exist in the current set up.

I do think there’s a perception that landlords are making huge profits.

I’m happy to be transparent(ish) about what we made.

25% equity for BTL mortgage (interest only) on house valued at 360k meant I had to put 90k ‘down’
£1200 a month rent. Mortgage £500 a month
Let for 4 years = £33,600 ‘profit’ (before equity), but…

Management fees £120 a month = £5,760 over 4 years
Insurance £500 a year =£2,000
Maintenance (including things like gas safety certs) - around £500 a year
Tax over 4 year period = £9,000
Costs to get ready for rent - £1000
Costs to get house ready for sale when tenants moved out- £3600

So, about £10,000 profit over 4 years. Let’s be generous and assume I’d have had to spend £3,600 to get the house ready for sale anyway (I wouldn’t) and call it £13,600 or £3,400 a year.

Yes, that’s more profit than if I’d kept the money in a bank (with low interest rates, anyway). But here’s the thing. We were fortunate during the 4 years and didn’t have any large expenses eg new boiler/our tenants didn’t trash the house (much). It would only have taken a couple of those to really erode that profit.

I certainly wouldn’t be paying off my mortgage anytime soon on that return.

Actually, I might be misrepresenting a little in my post above.

I didn’t have to find 90k… we did a Let to Buy - I had to leave £90k equity in my first house to enable purchasing the second.

Oh, and paid a cubic fucktonne of stamp duty in the process.

@Halstead - what was the capital appreciation over the 4 years? That's also part of your profit calculation.

£10k return on £90k over 4years is just under 3%. That's not huge profits.

But you are literally taking advantage of your tenants. They're paying for your appreciating asset for years, then the second it doesn't suit you you're fine to kick them out.
BTL landlords dont create housing. You're doing nobody a favour. Incredibly selfish.
Shouldn't be allowed.

Most people I know of with another house are not making any money out of it. It's not like landlords are making a lot of money out of it.

Completely disagree but I guess I'm a landlord that makes no profit out of my rental and in fact made a huge loss this year because of my previous tenant.

They left owing £2,000 in rent (been able to get back £900 from their deposit) but they also left a lot of damage where I've had to replace flooring throughout, new kitchen, new bathroom, remove a lot of items in the property, replace the garden slabs and many other things. They rented the house from 2015 until this year and I didn't increase the rent once. Unfortunately they've tainted my rental now and I will look at it as a business from now on as I will not be put out of money again.

You’re entitled to your view.

I never said BTL landlords create housing… we let our house as we couldn’t sell it in time to purchase our new one. Ultimately it was selfish, yes. It enabled us to move. I never said otherwise.

What I said was landlords don’t always make large profits.

We are now marketing our house at 15% more than it was valued 4 years ago.

After capital gains tax? Not too much equity increase there either. In the meantime, our tenants were housed safely, with no rent increases for 4 years.

Yes, you’re quite right - there are other benefits too. Being chain free when buying/selling definitely being one, from a stress reduction perspective at least.

However, there are disadvantages too (not saying they cancel each other out, just to balance it). Our tenants didn’t look after our house to anywhere near the extent that we would which meant we had a huge job getting the property ready for sale. I’m not just talking fair wear and tear, but a list as long as your arm of issues, all small relatively speaking but it meant, for example, I had to take 2 weeks off work and leave my kids/DH to go and sort out.