Time to buy to let?

Apparently the yield on terraced houses is now running around 6-7 percent - the highest of any type of property apart from detached houses. (Flats yield significantly less; so do semis.)

Now that's not at all dusty compared to the Bank of England interest rate at 3%. Could it be time to buy?

Well, possibly not. There are some quite good counter arguments.

• Prices of houses are still dropping and expected to fall further as the economy declines, with low consumer confidence and increasing unemployment. (Compared with cash - inflation is at 5.2% and expected to decline; that's the diminution in the value of your cash, so to compete, property prices would have to fall less than 5% over the next year. Most forecasts are for significantly more.)
• Though the Bank of England rate has been cut to 3%, it hasn't really affected the interest rates being charged in the retail market. You can still get 6% on notice accounts and fixed rate bonds. Equally, you won't get a mortgage anywhere near 3%.

But it does seem that price falls so far in the residential property market have driven yields up to the point that property is once again competitive with better rate bank accounts, rather than - as happened in 2006 - yielding considerably less. Smart purchasing could drive initial yields up to 10%.

But I think before I jump into residential property again, I'm going to wait for yields generally to approach the 10% level. That's the point at which the market represents a real bargain - and though we're on the way, we haven't got there yet.

Blithering idiots

Can you count to 13?

One.
Two.
Three.
Four.
Five.
Six.
Seven.
Eight.
Nine.
Ten.
Eleven.
Eleven.

Er?

Well, the Inland Revenue thinks that what comes after eleven is eleven. I am just doing the workings for my self assessment tax form and there is box W11 at the bottom of page STRG 21. Then there is box W11 at the top of the next page, with the rubric: "complete boxes W12 to W14".

I can't . There is no box W12. Just another box W11.

Fortunately, on a closer reading of the form, it appears I don't need to bother with this since if higher rate tax is payable, I need to fill in boxes W15 to W22 . That isn't terribly obvious either as the rubrics are very poorly drafted.

But what amazes me is that this form could go out with such an egregious error. The tax authorities have very extensive powers over citizens, sorry, SUBJECTS (and that is another sore point, but it certainly feels like it this year), of the United Kingdom. You would expect them to be rigorous in ensuring that their computations and the documentation issued to make these computations is correct.

I have completely lost faith in this government department. I do not believe they are capable of levying fair taxes. I have no faith in their computations.

I have an accountancy training. I keep good records for my business. I used to be pretty hot on business taxation and still cover it for a number of magazines and journals. And the process of filling in my fairly simple tax form (employment, self employment, dividends and bank interest) this year has reduced me to tears and taken nearly two weeks.

And this is 'simplification;'.

Ha ha bloody ha.

More Revenue madness

Now someone from the Inland Revenue has finally got back to me, and explained the difference between a dividend and a capital gain.

Yes, I am aware of the difference. I trained as an accountant. I have filled my own tax form in for ten years or more. I have worked as an investment analyst. I sort of figured out that there's a difference between a dividend and a capital gain.

"So which one do you need to know?"

Both!

Said person seems unable to grasp that if you sell part of the way through a year, you may have dividends paid on an investment and make a capital gain on it....

Somewhere deep in the innards of the 17 pages of notes to the CGT form there is apparently a mention of OEICs... but nothing on the notes to the short tax return.

Oh yes, the notes to the short tax return by the way aren't visible on the Inland Revenue site. It links to a page telling me what a PDF file is.

Frankly, Guy Fawkes was right. I feel like taking my remaining money out of the stock market and investing in as much gelignite as I can buy. Anyone want to join me on November 5th?

Interest rates and the price of risk

An interest rate is the price of risk. That's an economic truism.

Obviously, with stock market volatility at high levels, and the economy tanking, there are significant risks involved in lending or investing.

Therefore, the interest rate needs to be high.

Oh no it doesn't, say voices including the CBI, estate agents, politicians and rent-an-economists in the national papers. Reducing interest rates is the only way to get us out of recession.

Reduce interest rates, and force the banks to lend, so people can once again borrow stupid multiples of income, pay very little for borrowing it, and send house prices rocketing again so everyone will be happy.

Ummm... little bit of a problem. First of all, now consumer confidence is low and unemployment is rising, it's not going to work. People are cutting back. And the bet they're making is that if they hold back now, the house they're looking at today will cost them 30 percent less next year. Reflating the housing market in this environment? Impossible.

Secondly, though, the banks aren't buying it. The banks take their own view on risk - and have made their own views very clear. They are not reducing mortgage rates. Their view is that the Bank of England can do what it likes to its own interest rate - but they will take their own view on risk, thank you very much, and that view is that it's a bigger risk and they need a bigger price to take it on.

Look at the way equities like BT, Cable & Wireless or Enterprise Inns are trading on yields as high as 13%. Guess what - that reflects the perceived risk. The dividend might get cut. Enterprise might not be able to reschedule its loans. BT might not be able to fund its pension scheme without slashing the dividend. The yield (equivalent to the interest rate) is the price of risk - and it's the perception of risk which determines the yield.

So whatever happens, I suspect the credit crunch is going to continue. Because frankly, why would you lend money right now? Especially if someone's going to use it to buy an asset whose price is going down.

Specialists? Don't make me laugh

The Short tax form has been lauded as vastly simplifying taxpayers' lives.

Really? I wonder why there is no reference anywhere to what to do with unit trust dividends.

There is a box for "company dividends".

On the old tax form, of course, corporate and unit trust dividends were separate. You'd expect the notes would tell you whether unit trust dividends should be entered into this box. Nope. No reference to one of the commonest forms of investment in the UK.

Ring Inland Revenue. After giving extensive identity information I'm told the person picking up the phone can't actually answer any questions. He will put me through to someone.

I am put through to someone, after listening to Pachelbel's Canon (a piece of music I now loathe. I used to like it.)

This person says she can't answer any questions but I can talk to a 'technical specialist'.

I hold on for five minutes.

The specialists are all busy. Someone will phone me back WITHIN THREE DAYS. What?!!!!!

"You shouldn't leave it to the last minute then."

Er, this is not the last minute exactly. This is two weeks before the deadline for paper filings. And it is a simple question.

"Yes, but we aren't qualified to answer anything. You can ring back if you like."

Will I actually get hold of anyone who will answer the question?

Maybe. Maybe not.

What exactly is going on? No one I have spoken to at HMRC can actually answer any questions at all about the tax form and how to fill it in.

They just pick the phone up, take a load of information off you, and then tell you they can't help.

It's a con. My taxes go to pay for this 'help' line.

Some help.

This seems to be common across the whole civil service now. But I honestly despair of the tax office. I'm not asking for anything difficult here; I am simply asking WHICH FUCKING BOX DO UNIT TRUST DIVIDENDS GO IN?

You'd think I was trying to find out something very, very abstruse relating to trusts or inter-company transactions, or the foreign exchange rate I should use for imports from Botswana.

Call centre hell. And at the end of it, if they can't be arsed to answer the phone, guess who pays the fine for late filing of a tax return?

You guessed it. Me.

I do wish the bunch of overpaid and well stuffed idiots who inhabit Westminster - a place about which I am increasing coming round to Guy Fawkes's somewhat pyrotechnical views - would actually get their heads round the idea that we would like some service out of the civil service.

Egg - not just credit card malfeasance?

Egg has been hauled over the coals for terminating a huge number of its credit card customers - and apparently lying about the reason why.

It does look as if the bank is regretting the quality of its loan book. If you believe Egg, it's fed up with poor credit quality customers who never pay up. If you believe some of the irate ex-cardholders, it's fed up with those evil, thoughtless, irresponsible customers who pay their whole bill in full every month and don't allow it to earn any money.

But it's treating its savers equally badly if you ask me. The Bank of England recently put its rates down by a quarter of one percent. I then got a message from Egg telling me it has reduced its rates by half a percent - twice the bank rate cut. I'm being shortchanged.

Well, a lot of my money is going to head towards Kaupthing's Edge account - Icelanders are currently offering the best rates in the UK. But I wonder if Egg really wants its customers to piss off? There could be slightly more subtle ways to say it.

An interesting comment in the Independent today, in a story that kicks off with Marks & Spencers'
dreadful Christmas sales;

David Kern, economic adviser to the British Chambers of Commerce, said: "Given the threats to the banking system and to the smooth flow of credit, we believe waiting would be a mistake."

Now let's think this through from another perspective.

The interest rest rewards risk. You would naturally charge a sub-prime lender a higher rate than a prime lender; the difference is your reward for taking the risk.

There is vastly increased risk in the market. The threats to the banking system, sub prime fallout, and projected reductions in collateral (if property prices fall) are all increased risks. Never mind the possibility of recession.

So as a lender, why on earth would I be reducing rates? Wouldn't I rather be putting them up?

And indeed we have seen banks tending to cut the rates they pay savers while keeping their interest rates for mortgage lenders stable. On one level that's just another of the banks' ploys for grabbing money off the consumer - taking back what they've lost on unfair charging for overdrafts - but on another level, that's the banks recognising the risk and taking their own decisions about what risk/reward ratio they're willing to accept.

So - interest rates to go down? I'm not so sure.

Estate agents start to crack

LSL isn't waiting for the housing market to crash before closing branches and laying off staff. It's doing it now - after just a couple of months of small decreases in the house price index.

Of course it's volume rather than prices that makes estate agents money. And the volume of transactions does seem to have been drying up.

The last couple of years have seen estate agents investing in new branches and equally in setting up new divisions. I've just been researching the sector for one of the trade publications and it's interesting to see how many estate agents have set up a new homes business in the last couple of years, or moved into lettings agency - obviously driven by demand from buy to let landlords. New branches in property 'hot spots' will be the first to go - particularly those, I'd guess, with a lot of one bedroom city centre flats on the books.

But I wonder whether any of these branches will ever re-open? The other trend I noticed was for agents to move off the High Street. New breeds of agency are phone based or internet based,and even 'traditional' agencies like Keith Pattinson are advertising for home-based agents to telework besides the existing branch structure. I wouldn't mind betting that the more innovative agents are going to establish themselves very nicely with their low cost structures by the time we see a pick-up - and if they've done well out of fleeing the High Street, will they ever want to come back?