Are You The Landlord Of A House In Negative Equity?
In the days of Northern Ireland’s house price boom 2004 to 2008 buying with a view to then renting the property out to others seemed a sure-fire way to make money.
You owned or, more accurately, were on you way to owning – a property which was appreciating in value. Meanwhile your rental income was more than covering mortgage repayments. It seemed you couldn’t lose.
But then things changed. Instead of rising, property prices first stopped and then crashed. Horribly so. As a result, the house which a short time earlier had promised to be the guaranteed route to a handsome end-point profit turned out to be a loss-making liability, with its value having plummeted.
Numerous buy-to-let landlords felt and continue to feel the full impact of this dramatic change of circumstances. Rather than in-pocket property owners, their status became that of landlords in negative equity saddled with all the resultant debts and shortfalls.
It is an an-going situation, with many of those buy-to-let landlords still caught up in the dreaded negative equity net, uncertain of what options are open to them, if indeed there are any options.
During those boom times, buy-to-let was a much-favoured investment method, as can be seen from the fact that there are some two million such owners’ UK-wide.
And do not confuse them with those ultra-rich specualtors who bought up swathes of apartments in London and then rented them out.
Many of those who have suffered do not belong in that category; instead they are ordinary, middle-class people who chose to buy a property for their sons or daughters who were, or still are, studying at university – in Central or Greater Belfast, in the Coleraine/Portrush/Portstewart triangle, in Derry/Londonderry and towns or villages close to each of those centres.
At the time it appeared to be a win-win package mum and dad owned the house, flat or apartment which then served as a home for their student offspring who, in turn, paid rent to live in said home.
It looked to be an excellent investment all-round, a sound money-making savings plan which, in addition to being set up to provide a nest-egg to be enjoyed at a future date, offered the bonus of providing here-and-now accommodation for their child or children and, in many cases, several of his or her fellow-students, too.
Other buy-to-let landlords throughout the province invested in property which they let out to tenants who needed rented accommodation. Today, many of those landlords, too, own’ homes with negative equity.
Nor is negative equity those investors’ only problem right now, for a new move by Chancellor George Osborne is destined to add to their misery. He has proposed a new tax which will be applied at a rate of more than 100 per cent on the investors’ returns.
As Richard Dyson of the normally solidly pro-Conservative Party Daily Telegraph put it (August 21, 2015): Buy-to-let was a part of their savings plan. But it will soon be untenable. It won’t be among their investment choices. Mr Osborne has killed it.
We now have people paying tax on zero income. We now have a tax regime that appears not to be able to distinguish between revenue and profit.
It is a tax from Alice In Wonderland, a truly bonkers tax, a tax you would laught at if it were beimng applied in a Third World country by a lunatic dictator.
Nevertheless, the buy-to-let remains popular, even though the interest charges on repayments on buy-to-let mortgages usually are higher, as is the deposit required. Mortgages tend to be of the interest-only variety, too, which in turn gives rise to the must-be-answered question of how the capital is to be paid off in full at the end of the loan period?
Despite these difficulties, there remains a buy-to-let culture. As a result of reforms to pension regulations, which took effect in April 2015, people from the age of 55 now have access to their retirement funds and some are choosing to invest in buy-to-let property. Hopefully they will have sought reliable and independent advice before doing so.
One can only hope that they avoid joining the ranks of landlords in negative equity and that, as buy-to-let landlords, they do not become victims of George Osborne’s unpopular Alice In Wonderland tax a la Dyson.
That’s further down the line, of course. But those who have had the misfortune to end up with some or all of the problems which ensnare landlords smitten by negative equity need reliable and independent advice NOW.
Fact: if they bought between 2005 and 2008, there is a strong possibility that they are in negative equity, not least because hand-in-hand with the unrealistically high prices of that period went examples of some reckless lending.
Rent-to-let landlords have paid, are paying and will continue to pay a heavy price for some of what has gone on.
If you are a property landlord in negative equity,get in touchwith a member of the team today for advice.
How is home equity calculated?
Home equity is calculated by subtracting the amount you still owe on your mortgage from the current market value of your home.
Can you have negative equity?
Yes. With standard loans, your home equity will increase over time. With negative-amortizing loans — a loan with monthly payments less than the interest rates — your equity decreases over time as your owed balance increases.