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Banks are involved. In the UK most buy to let landlords use mortgages to buy properties. - The banks earn interest on these mortgages. - The landlords foot th
by conjectures 10y ago
Banks are involved. In the UK most buy to let landlords use mortgages to buy properties.
- The banks earn interest on these mortgages.
- The landlords foot the first $deposit of losses on a bad choice.
- The banks don't have to pay legal fees or stamp duty during the transaction.
- The banks don't have to hire scouts to find suitable properties, or management fees to run them.
I'd say they're probably doing quite well out of it.
- TheOtherHobbes 10y agoIndeed. If you require a mortgage for BTL, you're effectively just an agent for the bank. You take all the risk and pay the up-front costs, and the bank gets a good return for signing off a few forms. BTL has been a good deal for the last few years, but it's getting squeezed now by tax changes. It looks like a sure thing but it really isn't, because profitability is very dependent on: 1. Tenant quality. One bad tenant can wipe out a few months of income. 2. Tax changes. The trend in the UK is clearly not in favour of landlords. 3. Interest rate changes. A good chunk of BTL property is overleveraged, and a change of a couple of percent will make it unprofitable. This seems unlikely now, but I think it's quite possible after Brexit a few years from now. 4. Legal changes, including rent controls and tenancy terms. We haven't had much of this in the UK, but it could happen with a different government. 5. Expenses. Insurance and replacement can take a gross rate of 5% down to a net rate of much less. Some of these are UK-specific. But it seems likely that AirBnB is a better bet for property in a good location.