80% LTV buy-to-let 35 year mortgage

[Prohibiting]

As title, 80% mortgage, 20% deposit, 35 years. Would you?

Assuming that rental income, agents fee's and insurance covers the mortgage with approx. £150 to spare each month.

I'm only considering properties in a desirable/sought after location hence why I'd need to borrow so much!

Opinions please

Edited by Prohibiting on Tuesday 7th February 13:14

[mondayo]

Prohibiting said:

As title, 80% mortgage, 20% deposit, 35 years. Would you?

Assuming that rental income, agents fee's and insurance covers the mortgage with approx. £150 to spare each month.

I'm only considering properties in a desirable/sought after location hence why I'd need to borrow so much!

Opinions please

Edited by Prohibiting on Tuesday 7th February 13:14

I probably wouldn't but I don't like having much risk.
I rent a house out but as it's a house that I used to live in, the mortgage is quite small now, so I have a decent amount left over, after rent, each month.
I work on the basis, that if the property is empty, can I cover the costs myself, or if something major needs fixing, I can pay for such repairs quickly.
It also means that if the tenants decide to stop paying or are late on paying their rent, I'm not going to go broke overnight.

If you don't already rent a propert out, ask yourself if doing it now is the right thing? I rent my house out because when I moved out, the market was depressed and it wasn't worth selling. It rents out fairly easily and I'm in it for the long haul....someone else pays the mortgage on it for me and it also provides a bit of income. Then when the mortgage is paid off, it'll be my pension at some point.

[kiethton]

You may struggle when the interest deductability rules come into play in a few years time...

[MrChips]

kiethton said:

You may struggle when the interest deductability rules come into play in a few years time...

This. Depends on your exact figures but with only £150 to spare it's quite possible you'll end up paying more tax than your income.

[Prohibiting]

Yeah I figured that could possibly be the case.

What about a typical BTL interest only mortgage.... only real risk then is house dropping below the mortgage which is pretty unlikely.

[MrChips]

Even if your income exceeds the mortgage and all other costs, the changes to income tax on btl may mean you pay more tax than your surplus income so you'll be losing money.

I have a spreadsheet which shows the impact of the tax changes so feel free to pm me and I'lol send it over. Or put up some indicative figures here and I can show you.

[DeanR32]

I've PM'd you Mr Chips. That's something I'd like to look at too

[Prohibiting]

MrChips said:

Even if your income exceeds the mortgage and all other costs, the changes to income tax on btl may mean you pay more tax than your surplus income so you'll be losing money.

I have a spreadsheet which shows the impact of the tax changes so feel free to pm me and I'lol send it over. Or put up some indicative figures here and I can show you.

Thanks, happy to give some figures to get more of an opinion.

There's two properties I'm eyeing up but both totally different.

I have £60k deposit and a few £ for fee's and stamp duty.

Property 1 (2 bed town flat with 1 allocated parking):
Guide price £220k, estimated rental income £1250/month.
Letting management fee's + insurance = £145... £1250-£145 = £1105/month = £13260 annual.
£160,000 BTL mortgage @ 5.5% interest = £667/month = £8000 annual.
£13280 annual income - £8000 annual interest repayments = £5280
If you can't offset the tax when the new rules come in, I'd be taxed on the £13260 annual @ 20% = £2652.
£5280 - £2652 = £2628 annual net.

Am I on the right tracks give or take?


The other property is worth £310,000 and I estimate only £1400 rent so not as good performance. I've realised that that will be too difficult to finance without worry, plus much higher stamp duty. Although on the other side, it's more likely to rise in value due to higher desirability.

Edited by Prohibiting on Wednesday 8th February 13:42

[Sarnie]

Prohibiting said:

MrChips said:

Even if your income exceeds the mortgage and all other costs, the changes to income tax on btl may mean you pay more tax than your surplus income so you'll be losing money.

I have a spreadsheet which shows the impact of the tax changes so feel free to pm me and I'lol send it over. Or put up some indicative figures here and I can show you.

Thanks, happy to give some figures to get more of an opinion.

There's two properties I'm eyeing up but both totally different.

I have £60k deposit and a few £ for fee's and stamp duty.

Property 1 (2 bed town flat with 1 allocated parking):
Guide price £220k, estimated rental income £1250/month.
Letting management fee's + insurance = £145... £1250-£145 = £1105/month = £13260 annual.
£160,000 BTL mortgage @ 5.5% interest = £667/month = £8000 annual.
£13280 annual income - £8000 annual interest repayments = £5280
If you can't offset the tax when the new rules come in, I'd be taxed on the £13260 annual @ 20% = £2652.
£5280 - £2652 = £2628 annual net.

Am I on the right tracks give or take?

Woooah there cowboy.........

£160k on £220k is 72% LTV not 80%?

And;

£160,000 BTL mortgage @ 5.5% interest = £667/month = £8000 annual


5.5%...........thats the stress rate not the pay rate.....and if that is the pay rate you need to run a mile!!

[Prohibiting]

Sarnie said:

Woooah there cowboy.........

£160k on £220k is 72% LTV not 80%?

And;

£160,000 BTL mortgage @ 5.5% interest = £667/month = £8000 annual


5.5%...........thats the stress rate not the pay rate.....and if that is the pay rate you need to run a mile!!

Yes, the approx. 80% was on another property I was eyeing up which I've edited into my post. 5.5% was me being "safe". In reality it would only be 4.4% on a BTL mortgage but I like to work it out a little higher, just in case, ya know.

[Granfondo]

BrainDrain you are needed!

[Sarnie]

Prohibiting said:

Yes, the approx. 80% was on another property I was eyeing up which I've edited into my post. 5.5% was me being "safe". In reality it would only be 4.4% on a BTL mortgage but I like to work it out a little higher, just in case, ya know.

In my experience, the more expensive the property, the less viable it becomes.........you need big number these games for rents to cover BTL mortgage currently........we transacted 87 BTL mortgages in 2016 and the average balance was sub £100k......

And 4.4% is still high..............

[Prohibiting]

Sarnie said:

In my experience, the more expensive the property, the less viable it becomes.........you need big number these games for rents to cover BTL mortgage currently........we transacted 87 BTL mortgages in 2016 and the average balance was sub £100k......

And 4.4% is still high..............

4.4 on a 3 year fixed is high?

[Sarnie]

Prohibiting said:

4.4 on a 3 year fixed is high?

Yes......the last one we did was 2.89% with no arrangement fee................obviously it's dependent on circumstances............

[rufusgti]

A 30 year btl mortgage, unless you're in your early twenties wouldn't be for me. But it depends what you're in it for. there's a very good chance you won't want to be a landlord into your retirement. I can promise you there's no thanks or glamour to any of it.

[Gregmitchell]

1250 p/m on a £220k property.... that's a 6.8% return!!! Where is this place?? Best I get is 5.6% down south in Oxfordshire.

I wouldn't expect your mortgage to cost more than £550 per month interest only, cracking return in the current property market.

[Prohibiting]

Gregmitchell said:

1250 p/m on a £220k property.... that's a 6.8% return!!! Where is this place?? Best I get is 5.6% down south in Oxfordshire.

I wouldn't expect your mortgage to cost more than £550 per month interest only, cracking return in the current property market.

Apologies, I made a big mistake with my estimate. I spoke to a letting agency today and they said more like £850 so that's my error which makes it not worth it. Annoyingly. It's strange because when looking at properties for rent online to try to gauge a price, they vary so much it's near impossible to make a good guess. You'll see a flat asking £1250 then down the road there will be another slightly smaller and ground floor flat, albeit the same style for £800. The prices are all over the place now that I've had a proper look into it and the guide purchase price to rental price ratio doesn't make any sense.

[MrChips]

Prohibiting said:

Apologies, I made a big mistake with my estimate. I spoke to a letting agency today and they said more like £850 so that's my error which makes it not worth it. Annoyingly. It's strange because when looking at properties for rent online to try to gauge a price, they vary so much it's near impossible to make a good guess. You'll see a flat asking £1250 then down the road there will be another slightly smaller and ground floor flat, albeit the same style for £800. The prices are all over the place now that I've had a proper look into it and the guide purchase price to rental price ratio doesn't make any sense.

No worries either way..I did think something wasn't quite adding up, and that's ignoring the fact that £160,000 BTL mortgage @ 5.5% interest does not = £667/month!!

If it helps, I was going to go on to mention that you haven't taken into account mortgage fees, or any actual repair/running costs, refurb between tenants, void periods etc.

For interests sake, i plumbed your figures(with the rent adjusted to £850) through and if you are a 40% taxpayer you'd currently make £276 take home profit per year, but this reduces to -£1324 a year once the tax changes are fully implements in a few years time.. so you'd be paying to run it!