Pay Mortgage down or BTL

Pay Mortgage down or BTL

Author
Discussion

DarylB90

Original Poster:

150 posts

110 months

Monday 29th June 2015
quotequote all
Hi all,

I was just wondering what you guys thought I should do with some savings me and my girlfriend have.
We have 20K to play with and we could either pay our mortgage down or buy a house to rent out.
Our mortgage is currently £778 a month over 28 years (1.59% 2 year fixed)
House is currently worth around £350K and we have £213,500 to pay off.
The house we are looking at buying to rent out is on for £95,000 and there are currently tenants in until at least October paying £550 a month.
So would I be better paying my mortgage down before I start looking at buy to let or shall I go with the later?
I'm thinking the BTL is the better option or am I missing something key here?
Mortgage would be around £400 a month so plenty to play with if interest rates rise.
We save about £20K a year between us so the idea is if the first one went well to do the same again next year.

Cheers in advance all

Sarnie

8,025 posts

208 months

Monday 29th June 2015
quotequote all
Your deposit needs to be closer to £24k (25%)............. smile

hamish88

161 posts

175 months

Monday 29th June 2015
quotequote all
Have you ever done a btl before ? I think you're jumping the gun a bit of you think it's only the mortgage to pay.
There is a lot of associated cost with a btl.

I don't know where you are but here in Scotland the first thing you have to do is register with the local council to be a landlord. Then you have to open an account to keep the deposit but that's usually free. You will need landlord insurance and probably an insurance of some kind on the central heating on the house if you don't want to pay loads if it breaks down.
You will also need a gas certificate every year and an accountant to do the returns if you're not up to it.
Also factor in the solicitors fees and buying costs.
That little lot will probably run you roughly around 1500 quid even before you start taking in rent.

is the house rented out ? Will you need to pay an agents fee? You will need contingency for the upkeep of any wear and tear. What if the tenants move out and you can't find new ones straight away say for six months can you afford an empty property with all the costs?


I'm not saying don't do it as there are rewards to be had but you will need to sit down and find out all your liabilities as a landlord not just for paying a mortgage. Also many btl mortgages will require at least 25 % down for easier lending.
All the advertised Stuff that say they only need 15% are really hard to get in my experience.

On the flip side if you do buy well it will be a good investment for the future.
Good luck


bogie

16,342 posts

271 months

Monday 29th June 2015
quotequote all
pay your mortgage down, 28 years is a long time and that would make a reduction in years. More years mortgage free = more choice later

rog007

5,748 posts

223 months

Tuesday 30th June 2015
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Without knowing all the other things one needs to know about your circumstances; if you're flush and cash lump sums will keep coming, then BTL has some attractions (if done well!). If cash is not flush, then pay off existing debts (keeping some cash (3 months wages is usually a fair measure)). Good luck!

BoRED S2upid

19,643 posts

239 months

Tuesday 30th June 2015
quotequote all
Can you afford to cover £1100 plus in mortgage repayments a month? Plus 2 sets of bills and council tax if you had a few months without a tenant? If not then pay down your current liabilities.

DarylB90

Original Poster:

150 posts

110 months

Tuesday 30th June 2015
quotequote all
Thanks for all the responses guys.
To answer a few questions this would be my first BTL so am a little wet behind the ears with certain parts of it.
My girlfriend is an accountant so she would be able to do the returns.
Apart from the 20K we also have another 6 month bill money put aside in case of emergency.
We've looked into it and done some research and this would be the details:

House we reckon we would get for £90K
Mortgage advisor has said 20% is doable so we would put a 19K deposit down meaning we have 79% LTV
£500ish solicitors fee and £400 one off charge to letting agent to sign up with them as a landlord.
We have been told the house would rent for £600 and the mortgage would be just under £400.
This is the bit that sounds a little too good to be true.
Management fees are £48 a month, rent guarantee £18 a month and landlord insurance is £20 a month so roughly £115 left over every month.
This all seems very cheap especially the rent guarantee, 3% of the rental value.
Can anyone confirm if this is roughly correct? and have I missed any other monthly costs?


BoRED S2upid

19,643 posts

239 months

Tuesday 30th June 2015
quotequote all
DarylB90 said:
Thanks for all the responses guys.
To answer a few questions this would be my first BTL so am a little wet behind the ears with certain parts of it.
My girlfriend is an accountant so she would be able to do the returns.
Apart from the 20K we also have another 6 month bill money put aside in case of emergency.
We've looked into it and done some research and this would be the details:

House we reckon we would get for £90K
Mortgage advisor has said 20% is doable so we would put a 19K deposit down meaning we have 79% LTV
£500ish solicitors fee and £400 one off charge to letting agent to sign up with them as a landlord.
We have been told the house would rent for £600 and the mortgage would be just under £400.
This is the bit that sounds a little too good to be true.
Management fees are £48 a month, rent guarantee £18 a month and landlord insurance is £20 a month so roughly £115 left over every month.
This all seems very cheap especially the rent guarantee, 3% of the rental value.
Can anyone confirm if this is roughly correct? and have I missed any other monthly costs?
Sounds about right to me. You need a yearly gas safety check £50 ish and it's worthwhile getting a one off electrical safety check just to make sure it's all up to scratch modern fuse box etc...

DoubleSix

11,691 posts

175 months

Tuesday 30th June 2015
quotequote all
hamish88 said:
Have you ever done a btl before ? I think you're jumping the gun a bit of you think it's only the mortgage to pay.
There is a lot of associated cost with a btl.

I don't know where you are but here in Scotland the first thing you have to do is register with the local council to be a landlord. Then you have to open an account to keep the deposit but that's usually free. You will need landlord insurance and probably an insurance of some kind on the central heating on the house if you don't want to pay loads if it breaks down.
You will also need a gas certificate every year and an accountant to do the returns if you're not up to it.
Also factor in the solicitors fees and buying costs.
That little lot will probably run you roughly around 1500 quid even before you start taking in rent.

is the house rented out ? Will you need to pay an agents fee? You will need contingency for the upkeep of any wear and tear. What if the tenants move out and you can't find new ones straight away say for six months can you afford an empty property with all the costs?


I'm not saying don't do it as there are rewards to be had but you will need to sit down and find out all your liabilities as a landlord not just for paying a mortgage. Also many btl mortgages will require at least 25 % down for easier lending.
All the advertised Stuff that say they only need 15% are really hard to get in my experience.

On the flip side if you do buy well it will be a good investment for the future.
Good luck
This why modern apartments work rather well and are popular as btl:

- Buildings insurance included in yearly management fees
- Generally all electric, no gas
- Buildings maintenance handled by management company

Margins are a bit tighter but I've found them very hassle free.

DarylB90

Original Poster:

150 posts

110 months

Tuesday 30th June 2015
quotequote all
Sounds good to me, I was worried I'd forgotten something big!
£50 a year is nothing in the grand scheme of things and I don't mind paying a one off electricity check.
Looks like my mortgage is staying as it is for now then smile

kev1974

4,029 posts

128 months

Tuesday 30th June 2015
quotequote all
You don't seem to have allowed for any void periods (between tenants) or tenants that don't pay.

Rent "guarantee" likely to have so many terms and conditions to it (about referencing, about reporting the lack of payment by some particular day of the month, about how long before it kicks in etc) that it won't be worth the paper it's written on.

No mortgage arrangement fees? Or is that what you mean by solicitors' fee. Arrangement/application fees are often £1000 now for BTL. Does the proposed BTL mortgage allow a sitting tenant as many of them don't.

Decorating/maintenance costs at some point.

Buying the tenants a new washing machine or fridge within days when they break it and demand a new one "right now".

CO alarm now if there's gas. Smoke alarms. All cheap in themselves but they do add up.

Cost of your time sorting out utility and council tax bills if tenants don't pay them or paying them inbetween tenants.

Income tax on the full rental income less any finance costs and a few expenses.

daytona365

1,773 posts

163 months

Tuesday 30th June 2015
quotequote all
Buy a small house, preferably a period house. Don't follow the herd into a new build flat, however attractive it might initially seem. Imo.

DoubleSix

11,691 posts

175 months

Tuesday 30th June 2015
quotequote all
daytona365 said:
Buy a small house, preferably a period house. Don't follow the herd into a new build flat, however attractive it might initially seem. Imo.
I agree where the generic stuff you see springing up around harbours and brown fields are concern.

However, small thoughtfully designed developments have proven good for me.

My test is if I would be happy to live there myself or not.


UpTheIron

3,992 posts

267 months

Tuesday 30th June 2015
quotequote all
Sounds like the letting agent is having a laugh... Tell them to forget the £400 for starters.

What do you get for your £48?

Who are the insurances with, £240/year is more than I pay on much more expensive properties, one with a recent claim.

Other costs:
- mortgage arrangement likely £1500+
- annual gas safety
- annual/ad hoc boiler service
- occasional replacement of random appliances
- occasional redecorating
- tax on any profit

olivebrown

137 posts

109 months

Tuesday 30th June 2015
quotequote all
If you get the BTL I wouldn't bother doing repayment, get a interest only. It is what majority of BTL are and gives you a nice monthly cash flow.

Unless the £400 is interest only, then I would be looking elsewhere for rates.

m3jappa

6,391 posts

217 months

Tuesday 30th June 2015
quotequote all
Pistonheads as a whole seems very anti btl. I know of people who have done well out of it and it appears to cause no hassle creating a nice pension for later. (Remember not everyone is employed and has the luxuary of employers contributions).

I was speaking to someone recently who had 25 rental properties, he had obviously started with one, he was saving money for deposits, putting aside any 'profit' and also had at some stage borrowed using the equity from others. Now he has all these properties, some with mortgages paid off and some with mortgages. He was from Grimsby where property was cheap and rent was reasonable, he said he had very few problems with tenants and payments. Of course It could be bullst though I'm well aware a lot of people out there seem to massage the truth a great deal.


I don't have any btl but I do plan to in the near ish future.

Here's how I see it.

Put deposit on a place say 25% of 100k. After 15 or 20 years that property will be all mine. So what if I've had to subsidise it by let's say at a worst case scenario 2k a year every year for 20 years. Even if it has cost that I'd still have made 35k not including the property going up in cost either. Of course they could go down but that's a whole other argument.

Could someone tell me a better way to reasonably safely invest 25k which could give a better return over the long term. Genuinely interested as I have no pension but am saving a lump of money up with a plan to do something.



Edited by m3jappa on Tuesday 30th June 20:44

98elise

26,376 posts

160 months

Tuesday 30th June 2015
quotequote all
DoubleSix said:
daytona365 said:
Buy a small house, preferably a period house. Don't follow the herd into a new build flat, however attractive it might initially seem. Imo.
I agree where the generic stuff you see springing up around harbours and brown fields are concern.

However, small thoughtfully designed developments have proven good for me.

My test is if I would be happy to live there myself or not.
I would never buy anything I wouldn't live in myself. I learnt that the hard way buying two very cheap (aka crap) flats.

hamish88

161 posts

175 months

Wednesday 1st July 2015
quotequote all
DarylB90 said:
.
We have been told the house would rent for £600 and the mortgage would be just under £400.
I've been told by a lot of agents how much my property's will get and to tell you the truth I wouldn't trust them as far as I could throw them and saying that it's not very far. i found out for their near enough ten percent they charge, really not much work goes into it after finding the tenant . So now I find my own tenants after finding out the hard way.

I would not say don't do it as I have done alright out of it so far but just to warn you to do your due diligence as there is initially a lot of work in procuring a property then renting it out

Pistom

4,916 posts

158 months

Wednesday 1st July 2015
quotequote all
BTL can be OK but several years ago, I moved over to holiday lets. The biggest benefit is that the rental income is significantly higher. The hassle factor is a little higher but the returns are worth it.

jdw1234

6,021 posts

214 months

Wednesday 1st July 2015
quotequote all
BTL = sitting duck for future taxation/regulation.