What should I do, House 1,

[Register1]

Hi all,

I am coming to the conclusion of this mortgage.
I took it out over 5 years, with a massive deposit.

The monthly repayments are 650 per month.
I have a no penalty over-payment allowance.
I make the 650 up to 1000 by adding in a supplement payment of 350.
Then towards the end of the month I have a spare 500 which also go's to the mortgage.
At this rate, it will be paid off by December 2017 / January 2018.

I am also managing to put 500 away every month into a savings account, for a deposit on next house.

Now here is the problem.
This house will be worth circa 140k at end of mortgage.
The next one I plan will be valued at circa 170k, so would need minimum of say 20k deposit, which would hopefully come from the 500 savings every month, and then also throw in the 650 + the 350 + 500 (1500) what I wouldn't be paying when this current mortgage finishes.
So could save around 1500 per month.

I don't know if I should revert back to just paying the standard 650 every month, and put all my extra into the savings.
or
forget the savings for now, and put all the extra into the mortgage.

I plan to rent out this current house for 550 per month upon completion of mortgage.

Any one care to suggest what they would do in my boots?
I have 2000 in the savings at the moment, increasing by 500 per month.

R1

[Jockman]

Your current one will then be a BTL? Would it not make more sense to keep debt on that one?

Edit: As this will be your second property, Stamp Duty will rise from £900 to £6,000 (unless you sell within 3 years).

Edited by Jockman on Wednesday 19th October 12:10

[Ozzie Osmond]

Register1 said:

Any one care to suggest what they would do in my boots?

Have you considered,

• Buying one decent house and living in it free from Capital Gains Tax, free from tenants and free from Income Tax on the rent?
• Alternative investments which get great tax relief such as ISA and pension?

As you're looking to make geared investments (i.e. borrowing money to invest) you could easily take a bigger mortgage on the one house than you really need and use the money to invest in other things. Potentially you might have,

• Less debt
• Less hassle
• More flexibility
• More tax relief
• Better returns

[lukefreeman]

If you're planning to keep your first as a BTL, I'd re mortgage first so that you leave 40% in that house, and use the rest plus savings on your next house.

[Register1]

Wow,

Thanks.

So many good and alternative replies.

So it looks like I should not put house number 2 in my name, as far as the stamp duty is. ie 900 GBP to 6000GBP

The ultimate end goal is to have number 2 house paid off as soon as possible.
Take an income from both rented properties.

Then we would go back abroad (China) and rent, and drink beer, and teach English
Wife will work a good job in China (Chinese girl)

This current house is just in my name, the possible plan is to just buy the second house in my wife's name, she as a "first time buyer"

I am so "not knowing" our best way forward.

R1

[996c2]

If you are married then you'll be treated as a joint buyer and have to paid the 2nd property stamp duty penalty regardless of who's name is on the paper works.

http://www.express.co.uk/news/uk/630195/stamp-duty...

Register1 said:

Wow,

Thanks.

So many good and alternative replies.

So it looks like I should not put house number 2 in my name, as far as the stamp duty is. ie 900 GBP to 6000GBP

The ultimate end goal is to have number 2 house paid off as soon as possible.
Take an income from both rented properties.

Then we would go back abroad (China) and rent, and drink beer, and teach English
Wife will work a good job in China (Chinese girl)

This current house is just in my name, the possible plan is to just buy the second house in my wife's name, she as a "first time buyer"

I am so "not knowing" our best way forward.

R1

[Rangeroverover]

Register1 said:

Wow,

Thanks.

So many good and alternative replies.

So it looks like I should not put house number 2 in my name, as far as the stamp duty is. ie 900 GBP to 6000GBP

The ultimate end goal is to have number 2 house paid off as soon as possible.
Take an income from both rented properties.

Then we would go back abroad (China) and rent, and drink beer, and teach English
Wife will work a good job in China (Chinese girl)

This current house is just in my name, the possible plan is to just buy the second house in my wife's name, she as a "first time buyer"

I am so "not knowing" our best way forward.

R1

Wait for the autumn statement, jungle drums seem to suggest that SDLT changes are likely to happen, if they don't you won't have lost out.

I would be building up large as poss deposit rather than overpaying on the current one

[Register1]

Rangeroverover said:

Register1 said:

Wow,

Thanks.

So many good and alternative replies.

So it looks like I should not put house number 2 in my name, as far as the stamp duty is. ie 900 GBP to 6000GBP

The ultimate end goal is to have number 2 house paid off as soon as possible.
Take an income from both rented properties.

Then we would go back abroad (China) and rent, and drink beer, and teach English
Wife will work a good job in China (Chinese girl)

This current house is just in my name, the possible plan is to just buy the second house in my wife's name, she as a "first time buyer"

I am so "not knowing" our best way forward.

R1

Wait for the autumn statement, jungle drums seem to suggest that SDLT changes are likely to happen, if they don't you won't have lost out.

I would be building up large as poss deposit rather than overpaying on the current one

Thanks,

Earlier in the thread, a poster commented that as a married couple we would be treated as a single entity where stamp duty is concerned.
The plan was, and still is to a degree, that this house be in my sole name, and the second on in my wife's sole name.

Yes we do live in the first house as husband and wife, but will plan to rent out this first one to a work colleague, and we will move into house number 2, in a nicer area.

So with a larger savings, I guess I could swing it either way.

1. Pay off the first house
2. Deposit for second

Any idea how would Nationwide view this if I approached them for a second mort., when the first one still running?

R1

Edited by Register1 on Thursday 20th October 16:02

[Jon39]

Register1 said:

Wow,

Thanks.

So many good and alternative replies.

So it looks like I should not put house number 2 in my name, as far as the stamp duty is. ie 900 GBP to 6000GBP

The ultimate end goal is to have number 2 house paid off as soon as possible.
Take an income from both rented properties.

Then we would go back abroad (China) and rent, and drink beer, and teach English
Wife will work a good job in China (Chinese girl)

This current house is just in my name, the possible plan is to just buy the second house in my wife's name, she as a "first time buyer"

I am so "not knowing" our best way forward.

R1

Ozzie Osmond has given you the best advice.
Why are people so keen to have two house?
In the end you will be in my position - cannot sell one house, because the Capital Gains Tax bill would now be six figures. Tax on profit is fair, but tax on inflation is taking the Mickey. No wonder the Treasury collect less CGT revenue now, than they did before the rules changed.

As said, aim for the best house and make it your home.
If you think values will rise during your ownership, then keep a mortgage going, because your equity increase will be geared (magnified).
As things are now, any gains for you will be tax free (main residence).

[klmhcp]

Jon39 said:

Tax on profit is fair, but tax on inflation is taking the Mickey.

You don't mind being taxed on hard work but you resent it on something you've done nothing to achieve? How odd.

[red_slr]

Jon39 said:

Ozzie Osmond has given you the best advice.
Why are people so keen to have two house?
In the end you will be in my position - cannot sell one house, because the Capital Gains Tax bill would now be six figures. Tax on profit is fair, but tax on inflation is taking the Mickey. No wonder the Treasury collect less CGT revenue now, than they did before the rules changed.

As said, aim for the best house and make it your home.
If you think values will rise during your ownership, then keep a mortgage going, because your equity increase will be geared (magnified).
As things are now, any gains for you will be tax free (main residence).

When you say "cant sell" because of 6 figure tax bill then I presume you have re mortgaged the property using the growth in its value to obtain a larger chunk of the value? I cant see any other reason why you "cant" pay the tax?
If its gone up so much in value surely you just take the hit on that if its mortgage free and lose a % of the gain - which to get a £100k+ tax bill indicates quite the gain?

[sidicks]

klmhcp said:

You don't mind being taxed on hard work but you resent it on something you've done nothing to achieve? How odd.

I think you've missed the point - at worst the tax should be on the gain above inflation. A gain purely up the level of inflation is not a real gain at all!!

[klmhcp]

sidicks said:

klmhcp said:

You don't mind being taxed on hard work but you resent it on something you've done nothing to achieve? How odd.

I think you've missed the point - at worst the tax should be on the gain above inflation. A gain purely up the level of inflation is not a real gain at all!!

To be fair, house price inflation is way more than normal inflation and with CGT relief, it's one tax I don't have much of an issue with. I do have skin in the game too.

[Ozzie Osmond]

klmhcp said:

To be fair, house price inflation is way more than normal inflation and with CGT relief, it's one tax I don't have much of an issue with. I do have skin in the game too.

It does make you wonder why people are still queuing up to pay enhanced Stamp Duty (+3%) on their BTL purchase and enhanced CGT (28%) on their BTL sale when they could just buy a decent house and live in it tax free. They'd even get some IHT relief when they finally pop their clogs....

[klmhcp]

Ozzie Osmond said:

klmhcp said:

To be fair, house price inflation is way more than normal inflation and with CGT relief, it's one tax I don't have much of an issue with. I do have skin in the game too.

It does make you wonder why people are still queuing up to pay enhanced Stamp Duty (+3%) on their BTL purchase and enhanced CGT (28%) on their BTL sale when they could just buy a decent house and live in it tax free. They'd even get some IHT relief when they finally pop their clogs....

Agree. I'm also a bit confused by people who live in a compromised house but have BTLs - the cynic in me wonders if they think it'll raise their status somehow.

[Jon39]

red_slr said:

When you say "cant sell" because of 6 figure tax bill then I presume you have re mortgaged the property using the growth in its value to obtain a larger chunk of the value? I cant see any other reason why you "cant" pay the tax?

Incorrect presumption.
Debt free.

The problem arises when a second property has been owned for a very long time.
A large proportion of the apparent 'value' increase, is simply due to the devaluation of money as the result of inflation.

The annual CGT allowance makes hardly any difference under these circumstances.

I only mentioned this aspect, because many BTL investors seem completely unaware, that they will encounter this problem many years ahead.

[red_slr]

So you can sell.. just you don't want to pay the tax.

[Ozzie Osmond]

Jon39 said:

The annual CGT allowance makes hardly any difference under these circumstances. I only mentioned this aspect, because many BTL investors seem completely unaware that they will encounter this problem many years ahead.

That point is a good one and often missed. A property is inevitably sold "all in one go",

• £100k gain on shares? Sell enough to realise £11,000 of gain each year completely tax free.

• £100k gain on a second property? Tax bill of £17,000

(Assuming higher rate taxpayer at 28% CGT, £28k tax less £11k allowance = £17k payable)

And yes, following the abolition of indexation CGT acts as a Wealth Tax - it's a tax on inflation.

[Jon39]

red_slr said:

So you can sell.. just you don't want to pay the tax.

I already pay a considerable amount of tax, and of course as applies to most people, not only on income. We pay many other taxes, sometimes without even thinking about it

As many of us do, I even pay tax on a tax.
A Brownie Point, for anyone who can name the product, where we have to pay tax on a tax. It is a very widely available product.

When taxes are set by governments, they can act as an incentive, or sometimes when envy sets in, they are too high and act as a disincentive. When set too high, the Treasury often collects less revenue, than when the tax was lower. This situation as arisen again following the CGT rule changes, that we have been discussing. You would think politicians would want to raise the most revenue possible, from any particular tax.

Edited by Jon39 on Thursday 27th October 20:41

[Jon39]

klmhcp said:

To be fair, house price inflation is way more than normal inflation and with CGT relief, it's one tax I don't have much of an issue with. I do have skin in the game too.

I obviously do not know your age, but you appear to be describing quite recent economic history. Look back a little further and you will see property price movements, have not always been steadily upwards.

Say that you owned a second property for twenty years, but had to sell at a time which happened to coincide with a recession. You bought at say £200,000 and sold at £400,000. Inflation over those twenty years was say 125%.

Would you still be happy to pay CGT on £200,000, because you do not have a gain at all. Your 'real value' loss amounts to £50,000.

Under these circumstances, which could occur again, I think you might change your mind and not be too pleased, at making a loss but still having to pay tax on an illusionary monetary gain.