Buying a house (and renting)

Drumstick wrote:The last few pages

strawberry floating hell. Only on GRcade.

An analysis on the housing market crisis, by Oblomob Boblomov

There are two causes and two causes only:

1. Private landlords
2. Drummy keeps smashing everyone's strawberry floating front doors in

In short*, the UK has a deficit in housing stock and an inflated property market. This results in people being unable to afford to buy and forced to rent. For a substantial and growing number of people these rents are high enough to effectively prevent the tenant from saving enough to be able to afford to buy in the future. This is the rental trap. This trap leads to widening wealth disparity and haltering social mobility as the landlords profit from tenants with no prospect for a changing situation.

If someone buys (or owns) a property with the intention of renting it as a landlord, they are contributing towards the housing stock deficit. The more houses they own, the larger their contribution (quite obviously).

The rental market can be divided into two, "voluntary renters" (those who choose to rent for whatever reason) and "forced renters" (those who rent out of economic necessity). Those forced renters can be further divided into "savers" (those who are currently forced to rent, but are able to save to at some point buy) and "perpetual renters" (those who are caught in the rental trap, unable to save to ever buy).

"Forced renters" represent the majority of renters in the UK, although "voluntary renters" for whatever reason is still significant. "Perpetual renters" is a growing percentage of the "forced renters" due to house price growth outpacing wage growth.

I posit that the moral value of being a profit-making landlord is affected by the category your tenant falls into. If a voluntary renter, both parties are in a satisfactory arrangement - the landlord turns a profit, and the tenant pays for the benefits of renting. If a forced renter, only the landlord is satisfied. I would judge this an immoral situation, especially if the forced renter is caught in a rental trap.

Regardless of the category of renter, because the housing stock is shared across the rental market there will always be the consideration that owning a house as a landlord is reducing the potential housing stock for buyers.

Living an ethical life is impossible under capitalism, but we all face choices on what moral transgressions we must make while (hopefully) pursuing a better post-capitalist world wherever we can. For reasons stated above I would never seek to become a landlord. I judge landlords with large property portfolios more harshly than those with a single property. Similarly I judge more harshly those profiting from people trapped within the renting system than those providing a satisfactory service to tenants choosing to rent voluntarily.

One argument I see in favour of someone like Skarjo considering buying while living abroad is their own personal consideration for the worsening housing market. Looking at the upwards trend of ever escalating house prices, one might conclude that there is a limited window of affordability - the period in which you are able to buy. This window opens when you have saved enough money for a deposit, and closes if house prices outpace your rate of saving to put you back under the deposit threshold. If living abroad with future plans of returning to the UK, one might worry that the window of affordability will only be open at the present time, and waiting to buy on return to the country might be leaving things too late.

We can all agree that the current state of affairs is unsustainable. The natural outcome if left unaddressed will be the entrenchment of property ownership amongst the landed elite with the majority of people stuck renting - a sort of neo-feudilism. The alternative is large scale reform to curtail the growth in housing prices and to strengthen the rights of tenants. Policies like Help to Buy, while undoubtedly helpful to many, are classically short-termist. All Help to Buy and similar schemes achieve is a widening of the window of affordability, and at worst they contribute to the unsustainable growth of house prices.

* lol because of the length of this post

EDIT: Actually this joke at ORKN's expense was in poor taste. I love you really ORKN.

Given the situation Skarjo is in, buying a BTL which he'll likely move into and turn into an owner occupier home in a few years time seems perfectly reasonable. It actually meets the FCA definition of "Consumer BTL" rather than "Business BTL" which reflects the fact that there are often other reasons for becoming a landlord purely than the profit motive.

Although for business investment, BTL has under the Tories become a pretty terrible investment:

High tax on entry (additional rate stamp duty)

High tax on ownership (taxed on revenue, not net profit)

High tax on disposal (capital gains tax is higher for property sales)

Not to mention the other factors such as:

All your eggs in 1 basket (good chance the 25% deposit means you've very little savings left over and you could have a nightmare tenant who pays no rent, trashes the place and takes 6 months going through the courts to get evicted)

Using leverage to assist with an investment (interest rates are low now but can't assume that will always be the case)

Potential for future governments to make it more costly (such as the owner paying council tax rather than the occupier or a nationwide Landlord Licence scheme)

Grumpy David wrote:Given the situation Skarjo is in, buying a BTL which he'll likely move into and turn into an owner occupier home in a few years time seems perfectly reasonable. It actually meets the FCA definition of "Consumer BTL" rather than "Business BTL" which reflects the fact that there are often other reasons for becoming a landlord purely than the profit motive.

Although for business investment, BTL has under the Tories become a pretty terrible investment:

High tax on entry (additional rate stamp duty)

High tax on ownership (taxed on revenue, not net profit)

High tax on disposal (capital gains tax is higher for property sales)

Not to mention the other factors such as:

All your eggs in 1 basket (good chance the 25% deposit means you've very little savings left over and you could have a nightmare tenant who pays no rent, trashes the place and takes 6 months going through the courts to get evicted)

Using leverage to assist with an investment (interest rates are low now but can't assume that will always be the case)

Potential for future governments to make it more costly (such as the owner paying council tax rather than the occupier or a nationwide Landlord Licence scheme)

There you go Skarjo, Grumpy "libertarian" David approves.

That should make you feel better.

Moggy wrote:There you go Skarjo, Grumpy "libertarian" David approves.

That should make you feel better.

According to Comrade Karl's scientific poll back in the summer, I'm a Centrist.

Grumpy David wrote:

Moggy wrote:There you go Skarjo, Grumpy "libertarian" David approves.

That should make you feel better.

According to Comrade Karl's scientific poll back in the summer, I'm a Centrist.

Moggy wrote:

Grumpy David wrote:

Moggy wrote:There you go Skarjo, Grumpy "libertarian" David approves.

That should make you feel better.

According to Comrade Karl's scientific poll back in the summer, I'm a Centrist.

Grumpy David wrote:Given the situation Skarjo is in, buying a BTL which he'll likely move into and turn into an owner occupier home in a few years time seems perfectly reasonable. It actually meets the FCA definition of "Consumer BTL" rather than "Business BTL" which reflects the fact that there are often other reasons for becoming a landlord purely than the profit motive.

Although for business investment, BTL has under the Tories become a pretty terrible investment:

High tax on entry (additional rate stamp duty)

High tax on ownership (taxed on revenue, not net profit)

High tax on disposal (capital gains tax is higher for property sales)

Not to mention the other factors such as:

All your eggs in 1 basket (good chance the 25% deposit means you've very little savings left over and you could have a nightmare tenant who pays no rent, trashes the place and takes 6 months going through the courts to get evicted)

Using leverage to assist with an investment (interest rates are low now but can't assume that will always be the case)

Potential for future governments to make it more costly (such as the owner paying council tax rather than the occupier or a nationwide Landlord Licence scheme)

Took 6 pages but we've finally got a useful reply to Skarjo initial post.

Panorama episode on BBC1 atm is about Shared Ownership.

This woman's service charge in 2010 was already very high at 1.8k a year but 10 years later she's paying 3.2k a year.

And it gets worse! The guy after her bought his place in 2016 paying 2.3k a year in service charge and it's now 4.4k.

I thought mine was bad at £1550 per year.

Mine is about £1500 but that's including building insurance.

After two days we've finally got everything in. Cannot believe we took 5 trips in a transit van to empty a one bedroom shoebox, which is now sprawled out into a house 4 times the size.

Cannot wait to get the place packed away so we can get the tree up.

I don't have a service charge at the place I just bought, there are only 4 flats and any issues with the communal areas are sorted out among the flats themselves. We pay ground rent and they have a separate charge for property insurance, but that's it. Around £400 p/a. One of the occupants likes pottering around in the garden - great, solves that problem, someone is interested enough to maintain the grounds. One of them trained as an electrician - fantastic, now the parking area has better lighting. It's early days but seems like a great arrangement.

Wrathy wrote:I don't have a service charge at the place I just bought, there are only 4 flats and any issues with the communal areas are sorted out among the flats themselves. We pay ground rent and they have a separate charge for property insurance, but that's it. Around £400 p/a. One of the occupants likes pottering around in the garden - great, solves that problem, someone is interested enough to maintain the grounds. One of them trained as an electrician - fantastic, now the parking area has better lighting. It's early days but seems like a great arrangement.

What are you bringing to the party noobie?

A big part of the problem is the buy to let mortgage market. It's an absolute rip off. You need a very large deposit 20-25%. And you pay much much more for your mortgage than a standard mortgage. This necessitates the rents being so high, because once you've paid the mortgage, annual repair/maintenance costs, estate agents fees, insurance, an accountant etc, it doesnt leave that much really. Equity growth in the property is probably the only thing making the property market worth investing in.

pjbetman wrote:A big part of the problem is the buy to let mortgage market. It's an absolute rip off. You need a very large deposit 20-25%. And you pay much much more for your mortgage than a standard mortgage. This necessitates the rents being so high, because once you've paid the mortgage, annual repair/maintenance costs, estate agents fees, insurance, an accountant etc, it doesnt leave that much really. Equity growth in the property is probably the only thing making the property market worth investing in.

It makes perfect sense that a lender wants a BTL investor to have more skin in the game by requiring a 25% deposit.

They're already leveraged 4x in that scenario.

They get 100% of the rental income and 100% of the eventual selling price with only 25% of the upfront cost of buying the home.

Which is great when everything goes well but terrible when you're on the hook for a mortgage payment whilst the property is vacant (or worse: has tenants not paying rent) or when you want to sell but your home doesn't sell for what you paid for it. That 50k deposit on a 200k property that sells for 180k has turned a 10% drop in house prices to a 40% reduction in equity.

The higher interest rates reflect that these are higher risk products.

And the monthly cost is lower than a residential mortgage because BTL is almost always done on interest only, not repayment due to historical tax advantages that BTL investors had (mortgage interest was a tax deduction).

Gross yields have been terrible for years now but at least before the tax changes were introduced, thanks to the power of leverage, you could have crazy high net yields.

Dual wrote:

Wrathy wrote:I don't have a service charge at the place I just bought, there are only 4 flats and any issues with the communal areas are sorted out among the flats themselves. We pay ground rent and they have a separate charge for property insurance, but that's it. Around £400 p/a. One of the occupants likes pottering around in the garden - great, solves that problem, someone is interested enough to maintain the grounds. One of them trained as an electrician - fantastic, now the parking area has better lighting. It's early days but seems like a great arrangement.

What are you bringing to the party noobie?

A wicked sense of humour and a lot of pokemon cards

Hand in my keys for my old rented place on Saturday. Estate agent has asked if I could mow the lawn (in November ) and do some weeding.

Politely told them to strawberry float off as they never did anything about the raw sewage that spilled across the garden in October. Feels good.

Sorting out the deposit for my rental flat being returned. Since we had to pick keys up late, van for moving was a strawberry floating nightmare and such I didn't have a great deal of time to deep clean the flat. Ill accept it's no spotless but it's not trashed either. We agreed that I would pay cleaning charges for the oven and such, but the quote for professional cleaning came back frankly ridiculous at more than our deposit was.

£160 for a deep clean, of a one bedroom flat would be reasonable, if the carpets, windows, oven and other stuff wasn't itemised and charged separately on top of that. £160 to wipe skirting boards and clean the bath? That is already done?

Unfortunately for me, I'm back to work tomorrow, have an essay due for uni and still unpacking and organising my new house. I don't have time for a fight, so just gunna suck up my loss and move on. Still sucks though.

Yeah that's a joke, they just get away with it because they can.

We are - apparently - back moving with our house move, and the new chain is only 2 links so that's much easier! Who knows what date we'll get with how slow things are moving though. It was mid-september when we had our offer accepted and if I look at the checklist from the solicitors we're basically still at stage 1

OrangeRKN wrote:Yeah that's a joke, they just get away with it because they can.

We are - apparently - back moving with our house move, and the new chain is only 2 links so that's much easier! Who knows what date we'll get with how slow things are moving though. It was mid-september when we had our offer accepted and if I look at the checklist from the solicitors we're basically still at stage 1

You might be OK at this point, there's a lot less movement in December so surveyors etc. actually have space to fit things in. Hopefully it moves a bit faster for you!

We've had an offer accepted now so we're balls deep in indecipherable paperwork, living the dream.