Death of buy-to-let: landlords wake up to Osborne's 150pc tax

[DimPrawn]

Definitely. Borrowing to invest is neither prudent nor really moral - it's just part of "the rich get richer"

Indeed. The greate thing about it, especially when we reach the 100%, no deposit scenario again, is it is risk free.

Only the banks can fail at that point, since as a landlord with nothing to lose, you either become seriously wealthy on other people's money, or end up where you started. The banks on the other hand go tits up and get a bail out, so they are sorted. The taxpayer foots the bill.

[AtW]

Indeed. The greate thing about it, especially when we reach the 100%, no deposit scenario again, is it is risk free.

Why is it risk free - in the event of collapse if the value of house does not cover the debt, then the person still owes the bank - unlike in USA where it is possible to walk away from house and give bank the keys - something that should have been made possible here too.

[centurian]

Why is it risk free - in the event of collapse if the value of house does not cover the debt, then the person still owes the bank - unlike in USA where it is possible to walk away from house and give bank the keys - something that should have been made possible here too.

That was the underlying trigger for the entire sub-prime crash in the first place, that it was so easy to walk away from their debts - and it's the crucial mistake the CRAs made when they rated them AAA. They believed it was almost impossible for everyone to stop paying their mortgages and therefore the first tranche of mortgage payments would always be received, hence it was "zero risk".

But what they didn't factor - was that people who could comfortably afford to pay the mortgages also stopped paying them - because why pay a mortgage on a $500K property with 5% equity, when it was cheaper to walk away and buy a similar property for $300K - interest saved over x years paid for their equity loss - combined with the eventually recovery in prices meant they made money, possibly shed loads of money - from walking away.

[Zero Liability]

Definitely. Borrowing to invest is neither prudent nor really moral - it's just part of "the rich get richer"

How is borrowing to consume any more "moral"? If anything, borrowing on the (realistic) expectation of being able to make more out of the money than what was lent is probably the soundest form of borrowing; it is the lender's or their intermediary's responsibility to ensure risk and the time structure of the debt is priced appropriately. This is what banks should be doing but have little incentive to do given the structure of the current system, i.e. implicit/explicit bailout promises, central bank reserve backstops etc.

[eek]

That was the underlying trigger for the entire sub-prime crash in the first place, that it was so easy to walk away from their debts - and it's the crucial mistake the CRAs made when they rated them AAA. They believed it was almost impossible for everyone to stop paying their mortgages and therefore the first tranche of mortgage payments would always be received, hence it was "zero risk".

But what they didn't factor - was that people who could comfortably afford to pay the mortgages also stopped paying them - because why pay a mortgage on a $500K property with 5% equity, when it was cheaper to walk away and buy a similar property for $300K - interest saved over x years paid for their equity loss - combined with the eventually recovery in prices meant they made money, possibly shed loads of money - from walking away.

The USA allows jingle mail where you can walk away from the mortgage and the banks can't pursue you for the difference, that isn't true in the UK...

[SueEllen]

The USA allows jingle mail where you can walk away from the mortgage and the banks can't pursue you for the difference, that isn't true in the UK...

You could in the UK until about the mid-90s due to the housing market crashed UK lenders ended up with property in places they couldn't sell, so the regs got changed.

I actually knew someone who was 19 and had brought a house in a tulip part of a northern city with her older boyfriend.

They split up and couldn't sell the house. Half the road was up for sale. So after a year her parents told her to hand the keys back to the building society.....

And the place is still tulip....

[centurian]

The USA allows jingle mail where you can walk away from the mortgage and the banks can't pursue you for the difference, that isn't true in the UK...

Correct - in that it was only a "problem" in the US for banks/investors.

But a big reason for the contagion was that if the CRAs missed such a massive trick in branding US-mortgages as AAA, then what use was the AAA brand on any asset, anywhere in the world - a point which lingers to this day.