Buy to Let Mortgage Rates, Institutions and the PRS and a Word On CGT
A few months ago there was a ray of hope that the historically high margins that mortgage companies want to charge buy to let mortgage borrowers could be coming down.
Readers of this column will know that back in November last year, for a 75% loan to value buy to let mortgage, you could get a reversionary (or “go to” rate) of 2% over Bank of England Base rate.
But the best you could have got any time in 2010 (on 75% LTV deals) was about 4% over base, which made me question whether these resolutely high buy to let mortgage rates were perhaps a product of less than competitive conditions in this sub market (i.e. too few competitors running a cosy oligopoly).
So we were encouraged to see that in early May, talk of renewed competition from money market dependent lenders like Paragon was perhaps a signal that the high margins and high fees lenders were demanding were about to come down.
Alas, in recent weeks, inter bank lending rates have hardened again, (blame the Eurozone crisis and North Korea) and so more competitive buy to let mortgage rates are as far off as ever.
This all means that lots of potential property investments that landlords will be eyeing still do not stack up in the short or medium term.
Build to Let
I love the National Landlords Association (and I think they love me too) but I recently reminded an exec at the NLA that when I joined, many moons ago, it was known as the Small Landlords Association – the accent being on the word SMALL.
This is relevant in the context of institutional investment in the private rented sector (a thing that all governments seem to want to encourage).
The point was that landlord’s representatives at the NLA and the Residential Landlords Association (RLA) will have to tread carefully on this topic because I guess most of their members will be small landlords.
Perhaps it is time they checked their constitutions and decided if they want big landlords to me members at all, if indeed they are not already precluded?
Institutions Have Clout
Sure the big boys have clout – and I know this because I work as a consultant with some funds who want to invest in the PRS – but the landlords associations could easily be compromised by the big investors because they don’t share the objectives of the small landlords and indeed, will compete against them in the hunt for tenants.
The problem that the landlords associations have, of course, is that they cannot be seen by government to be against the expansion of the private rented sector. After all, they must join in with the message that we need more housing – whether rented or social.
But they must ensure that the tax system is not so stacked in favour of the institutional investors that the small landlord is crowded out.
That would not be right.
I’m pleased to see a statement to that effect in the latest journal of the NLA.
Speaking about tax, I think one likely casualty of the changes to capital gain tax (CGT) relief could be the existing system whereby second home owners and buy to let investors can nominate a property as their main residence for a short time and claim the last 3 years of ownership as their principle private residence.
This 3 year rule was one attribute of MPs expenses fiddles. If this was to be stopped, landlords will have the activities of our “Flipping MPs” to thank for the change.
Bit of Politics – Time to Cut Off Old Friends?
Sometimes the actions of friends go too far and you have to cut off your support for the good of everyone else around.
So, I suggest it is time China cuts off North Korea, the US reviews its support for Israel and maybe the EU takes a good look at Greece. (It may be for Greece’s own good that they go outside the Euro.)
All these changes would make the world a better, more prosperous and more peaceful place.
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I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years.
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