The Full English Accompaniment – The London and BTL Bubble?

What’s piqued my interest this week?

Being an absolute N00B at investment, Monevator’s blog post this week on global prime property investment was fascinating (1). Property investment through trusts or funds have offered solid returns over the past few years, but is something not generally considered by Joe Bloggs on the high street. Nor is dropping a casual million on a prime property in Chelsea (or more likely Brixton these days). A much more common statement in the provinces is the goal to own a couple of properties to let for a bit of income in old age/ on the side. Surrounded by professionals in work I hear this at least once a week, but the landscape is changing (2).

For the past couple of years tax laws commenced in April 2016 have gradually put the squeeze on the buy-to-let portfolios. This has included removing the ‘wear and tear’ allowance, and from this month mortgage interest can no longer be deducted from capital gains for BTL, reducing potential profits (3, 4).

Tougher lending rules from the Bank of England also mean that those buying a BTL with a mortgage will need to provide more stringent evidence that they can afford it (5). Energy efficiency rules have also changed, requiring landlords to ensure their properties meet E rate EPC standards (a challenge for many a draughty converted Victorian pile) (6, 7).

Why does this matter to the wider market? Many of the analyses I’ve read suggest that most landlords with just one or two houses, those with an extra property as a bit of side income or ‘accidental’ landlords, are moving out of the market. Gone are the days of easy cash for a BTL using flipped equity from your main home (8). This hasn’t deterred the professional landlords, indeed most are planning to increase rather than decrease their portfolios.

MrsFIREShrink and I have recently been looking to sell our previous home, and purchase in the new area we have moved to for work. The market here is buoyant, with more buyers than properties, but it seems to buck the trend. Elsewhere property prices are stagnating or at the very least holding their own (9, 10). A good friend who works in property in NW London informs me things there are very bad… very bad indeed.

A trend we have noticed locally whilst viewing properties has been a rise in a dichotomous split. Very few good homeowner residential houses appear to be coming on the market, but there has been a dearth of run-down empty residential houses. These aren’t the untouched since the ’70s care-home-funders (rare), or the probate bargain basement bombsites (also rare). They’re clean, cheaply furnished and fitted, reasonably located and appropriately maintained, often with little in the way of updating to boiler/ insulation/ central heating, and missing original features or flashy new additions. Are these the single-property landlords getting out, we wondered? Are these sales providing a lifeline drip feed of property to an otherwise slow market? Has the Bank of England/ Gov played an absolute blinder by crowing about interest rate rises long enough (with minimal change) to scare out those whose BTL portfolio would creak under pressure, and therefore save a future property crash? Are government economists that good at calculating socioeconomic dynamics?

No individual can predict property price change. Discussing the above with the same friend he told me he was happy about the changes. For too long, says he, property has gone up and up, and people could buy with little fear of loss for those making daft decisions. Now in his words – “it’s a market again”.

Happy weekend!

The FIRE Shrink

Side orders:

http://thefirestarter.co.uk/matched-betting-no-lay-acca-tips-tricks/#more-4243 – Matched Betting side-hustles

https://www.theguardian.com/your-financial-future/2018/mar/22/eight-financial-apps-to-transform-how-you-deal-with-money – useful apps to consider, I’m investigating Mint

https://www.theguardian.com/money/2018/apr/21/renting-property-how-does-it-compare-around-the-world – what it says in the URL

http://quietlysaving.co.uk/2018/04/20/4-years/ – Happy 4th Birthday Quietly Saving!

References:

1. http://monevator.com/could-global-prime-property-be-the-canary-in-the-goldmine/
2. http://www.thisismoney.co.uk/money/buytolet/article-5633935/Government-plan-professionalise-buy-let-working.html
3. https://www.simplybusiness.co.uk/knowledge/articles/2017/09/octobers-new-buy-to-let-regulations-what-you-need-to-know/
4. https://www.which.co.uk/news/2017/06/12-things-buy-to-let-landlords-need-to-know-in-2017/
5. https://www.telegraph.co.uk/property/landlord-guide/new-requirements-for-portfolio-landlords/
6. https://www.rla.org.uk/landlord/guides/minimum-energy-efficiency-standards.shtml
7. https://www.gov.uk/government/publications/the-private-rented-property-minimum-standard-landlord-guidance-documents
8. https://www.telegraph.co.uk/tax/news/second-home-buyers-landlords-paid-almost-half-britains-stamp/
9. https://www.telegraph.co.uk/property/uk/sellers-forced-cut-asking-prices-25k-housing-market-cools/
10. https://www.telegraph.co.uk/business/2018/04/09/uk-house-prices-gain-ground-market-still-soft/