Mortgages - thinking of buying a flat

[bmwmike]

hi

So I realise I'm late to the game with this one, but here's the situation. Have a low LTV on the family home, and good bit of equity. Early 40's both he and she in age. She not working, but will be soon.

Currently considering either a flat (~110-130k) or a small business (~60k) as a way to spend some spare capacity in my monthly pay cheque, plus it provides (IMO) a level of security as presently we are too dependent on the single source of income. £130k would see us upto around 55% LTV.

Initially I was going to take out a second mortgage and pay the deposit in cash. Now I'm wondering if we might be better increasing the mortgage on the main place and paying for the flat or business outright? In my head, it seems to keep it simpler plus I keep my cash/investments in the bank for a rainy day. Also on said rainy day regardless of what happens, we have a flat paid outright.

My question, in the midst of all my waffle - is this crazy, and do banks generally allow equity withdrawal in this way?

Thanks
Mike

[Sarnie]

Lenders will have no problem with raising capital for a BTL, they will be less keen on it being to buy/start a business.....

[bmwmike]

Thanks - less keen to start a business in the sense that we'd have to put 50% or whatever in, or just in principle they don't tend to go for that?

If going for a flat, would you say its best to mortgage the flat (have two mortgages) or pay it outright and have one larger mortgage?

Guess i need to speak to HSBC really..!

Cheers

[Sarnie]

bmwmike said:

Thanks - less keen to start a business in the sense that we'd have to put 50% or whatever in, or just in principle they don't tend to go for that?

If going for a flat, would you say its best to mortgage the flat (have two mortgages) or pay it outright and have one larger mortgage?

Guess i need to speak to HSBC really..!

Cheers

It's just the reason.."starting up a business".......lenders aren't keen on lending residential funds (at residential rates) but some will do it.

Lending the whole amount against Residential property would certainly be the cheapest and simplest from a transactional point of view but you would want to speak to an Accountant about tax relief and the implications of the loan used to purchase the property not being held against the BTL itself....

[bmwmike]

Thanks sarnie


Wasn't too worried about tax relief but will check


Btw wasn't starting a business but buying an existing one.. apologies for confusion. Does that change anything ?

[Sarnie]

bmwmike said:

Thanks sarnie


Wasn't too worried about tax relief but will check


Btw wasn't starting a business but buying an existing one.. apologies for confusion. Does that change anything ?

Not really, it's still for business purposes.........some will do it, but most won't.

[Ozzie Osmond]

What's your plan for when interest rates rise and your net income from the flat after tax doesn't even cover your increased borrowings?

Why not,

• Pay off some more of your existing mortgage, and/or
• Invest in a stocks & shares ISA?

Less hassle, less debt, greater flexibility.

And how's your pension planning? Are you in a position to hoover up some nice 40% tax relief while it lasts?

[bmwmike]

Ozzie Osmond said:

What's your plan for when interest rates rise and your net income from the flat after tax doesn't even cover your increased borrowings?

Why not,

• Pay off some more of your existing mortgage, and/or
• Invest in a stocks & shares ISA?

Less hassle, less debt, greater flexibility.

And how's your pension planning? Are you in a position to hoover up some nice 40% tax relief while it lasts?

Thanks for your message.

Interest rates arent going anywhere for a long while, and even if they do, I can cover them back up to normal levels. Any more than normal levels there'll be a lot of other folks suffering before I feel the squeeze, and I don't think they'll let that happen anyway. The entire UK is built on debt.

I plan on overpaying the capital anyway.

Already have stocks.

Pensions meh, already paying in around 10%, doubt i'll get to see the value and frankly, a flat or second (or third!) physical tangible asset is far better IMO as I can pay it off by retirement and leave it to the kids etc. I don't care for a new car or any of that crap, so the money i would have paid on a new car per month i shove into a mortgage to buy a flat. Except then I realised the tenant could pay off a chunk of that. I have found a flat for £110k with a sitting tenant (long term) and they are paying £550 per month. I've had a flat before so have a little understanding of what i'd be getting myself into. I could cover the mortgage payments myself out of spare cash anyway, so times when its not rented, I am confident would be OK. Interest rates going up i'll probably fix for 5 years anyway, as the spread between fix and tracker is minimal at the moment and fixes with HSBC allow 10% overpayments.

TBH can see where you're coming from as I've always been of the mindset that less debt is better but actually, the way the system works, debt is not a bad thing if managed properly.

[Ozzie Osmond]

Hmmm, you're confident rates won't rise but you're going to fix. In the scenario you've described, I wouldn't - not least because you will lose the flexibility of making larger capital repayments.

Dismissing further pension: don't forget you make 40% "profit" the moment you invest and then cumulate tax free returns. TBH I think that will pulverise BTL returns going forward for the next decade but we each have to back our beliefs with our own hard cash!

What were those "businesses" you were thinking of buying?

Also, check out your family tax position. No point you paying higher rate tax on rent if it could be put in the wife's name (as could other investments). Also, if she's already got an income (investments, rent or whatever) there may be very little point going back to work if you're flash for cash and she would face the full onslaught of National Insurance and higher rate taxes.

[bmwmike]

Good spot on the contradiction regarding fix vs tracker

Would depend on the spread and total loan amount at the end of the day.

Businesses.. a local card shop for 30k, for example. Local retail basically, excluding convenience stores etc. Again,not set on it. Just feel I should be taking more risks while I can and whilst I have time. Midlife crisis perhaps... maybe I should get something with 2 wheels instead

Sensible option would be just overpay mortgage and get it paid off but to what end. Prefer try and get at least one other property under my belt by retirement age.