BTL Mortgage Question / Total N00b
Discussion
7 years ago I purchased, with help from my dad, a flat as a BTL investment. The deposit was inheritance for me and my brother but my brother was too young to get a mortgage and I was only 20 myself and a student. So the whole thing was set up in joint names between me and my dad. Plain sailing, good income, prices went up.
Towards the end of last year I decided to remortgage the property to 75% of its new value to raise some cash for two further investment properties. This mortgage completed just before Christmas and raised just over £55,000. In doing so, all the equity was transferred to me to remove my dad from the equation. I've chosen two properties (£110k & £112k) to purchase each with 25% deposits. One of these is progressing fairly well but the second one, being above commercial premises, is causing a headache.
I'm a "special" situation as such. I don't own my main residence (private tenant) and only have 25% deposit. Of the lenders who will consider me without owning my own home there are apparently less than 10 who would consider a property above commercial premises (it's a Poundland). Of these all but one have ruled me/the property out for various reasons such as small deposit, commercial location, purchase price too low etc. The final one offers a slightly higher interest rate, but we're still not 100% sure if I will be accepted for this. My mortgage adviser is working on it, but bit by bit I'm learning he isn't the world's most wonderful adviser. He is, however, a friend of sorts so I'm not going to 'pull out' from using him now, although I will steer clear in future I imagine.
I'm left with 3 potential options and I'm weighing up the benefits/drawbacks of each. While the initial property has been remortgaged on a interest-only basis, the next two I would prefer to have on a repayment product.
Of the options below, which would you recommend? I'm pretty much a total novice and most of the initial movement on this was on the advice of my dad which, I've since learnt isn't always to be trusted... And nor is he. That's why I really don't want to be told that I should never have remortgaged, or should have sold the first flat etc. I'm looking for 'move forward' options so please focus on that. Thank you!
Option A
If the loan is approved, proceed at the higher rate. Will adjust the loan length to keep payments lower at 25yrs instead of 20.
Option B
Find another property. This is slightly time-sensitive due to tax changes in April (I'm advised would need to find one by mid Feb) but not impossible. At this end of the market, the options are relatively limited but we could look further afield.
Option C
Just purchase the one flat, but with a much larger (£55k/50%) deposit. This means there would be less overall profit (only one rental income; Only one property increasing in value) but we could potentially be mortgage-free on this within 12 years quite easily, if not sooner. At the moment I lean towards this to keep things 'simple' but I'm open to ideas.
Towards the end of last year I decided to remortgage the property to 75% of its new value to raise some cash for two further investment properties. This mortgage completed just before Christmas and raised just over £55,000. In doing so, all the equity was transferred to me to remove my dad from the equation. I've chosen two properties (£110k & £112k) to purchase each with 25% deposits. One of these is progressing fairly well but the second one, being above commercial premises, is causing a headache.
I'm a "special" situation as such. I don't own my main residence (private tenant) and only have 25% deposit. Of the lenders who will consider me without owning my own home there are apparently less than 10 who would consider a property above commercial premises (it's a Poundland). Of these all but one have ruled me/the property out for various reasons such as small deposit, commercial location, purchase price too low etc. The final one offers a slightly higher interest rate, but we're still not 100% sure if I will be accepted for this. My mortgage adviser is working on it, but bit by bit I'm learning he isn't the world's most wonderful adviser. He is, however, a friend of sorts so I'm not going to 'pull out' from using him now, although I will steer clear in future I imagine.
I'm left with 3 potential options and I'm weighing up the benefits/drawbacks of each. While the initial property has been remortgaged on a interest-only basis, the next two I would prefer to have on a repayment product.
Of the options below, which would you recommend? I'm pretty much a total novice and most of the initial movement on this was on the advice of my dad which, I've since learnt isn't always to be trusted... And nor is he. That's why I really don't want to be told that I should never have remortgaged, or should have sold the first flat etc. I'm looking for 'move forward' options so please focus on that. Thank you!
Option A
If the loan is approved, proceed at the higher rate. Will adjust the loan length to keep payments lower at 25yrs instead of 20.
Option B
Find another property. This is slightly time-sensitive due to tax changes in April (I'm advised would need to find one by mid Feb) but not impossible. At this end of the market, the options are relatively limited but we could look further afield.
Option C
Just purchase the one flat, but with a much larger (£55k/50%) deposit. This means there would be less overall profit (only one rental income; Only one property increasing in value) but we could potentially be mortgage-free on this within 12 years quite easily, if not sooner. At the moment I lean towards this to keep things 'simple' but I'm open to ideas.
romeogolf said:
The deposit was inheritance for me and my brother ....
Towards the end of last year I decided to remortgage the property to 75% of its new value to raise some cash for two further investment properties. .... In doing so, all the equity was transferred to me to remove my dad from the equation.
most of the initial movement on this was on the advice of my dad which, I've since learnt isn't always to be trusted... And nor is he. That's why I really don't want to be told that I should never have remortgaged, or should have sold the first flat etc.
It's not clear to me who doesn't trust who and why. In particular, what about your brother?Towards the end of last year I decided to remortgage the property to 75% of its new value to raise some cash for two further investment properties. .... In doing so, all the equity was transferred to me to remove my dad from the equation.
most of the initial movement on this was on the advice of my dad which, I've since learnt isn't always to be trusted... And nor is he. That's why I really don't want to be told that I should never have remortgaged, or should have sold the first flat etc.
Ozzie Osmond said:
It's not clear to me who doesn't trust who and why. In particular, what about your brother?
Sorry, I don't trust my dad for various things which have come to light more recently, the majority of which is not related to this matter, but his financial advice is not great. My brother as far as I am aware trusts me, but he doesn't talk to our dad any more. You mention option C would bring less overall profit because it's just one income and one property to rise in value, however that all depends on the outgoings surely? There's so many factors that it's impossible to give any real opinion without the details, such as whether any property is more/less likely to have unrented periods, if the market changes then would one or other be less likely to drop in value etc?
It's less common to have rental properties on a repayment mortgage too so this could be limiting your lender choices.
Have you factored in the income tax changes which will be phased in from 2017-2020? This will have more of an impact if you have 2 properties with large mortgages, rather than one property with a smaller mortgage so it's worth ensuring you know what your yield will be within the next few years.
Oh, and if/when you buy another property for yourself at a later date, you may be liable for the extra 3% stamp duty (not 100% sure on what happens if you're transferring your main residence from a rental to an owned property so check the small print). If you are liable then i'd lean towards option A. Then you have the option to sell one when you buy a house/flat for yourself and save yourself the 3% stamp duty.
It's less common to have rental properties on a repayment mortgage too so this could be limiting your lender choices.
Have you factored in the income tax changes which will be phased in from 2017-2020? This will have more of an impact if you have 2 properties with large mortgages, rather than one property with a smaller mortgage so it's worth ensuring you know what your yield will be within the next few years.
Oh, and if/when you buy another property for yourself at a later date, you may be liable for the extra 3% stamp duty (not 100% sure on what happens if you're transferring your main residence from a rental to an owned property so check the small print). If you are liable then i'd lean towards option A. Then you have the option to sell one when you buy a house/flat for yourself and save yourself the 3% stamp duty.
Edited by MrChips on Thursday 21st January 21:30
I had a bit of bother with flats over a shop too, but there are lenders, and it helped that I was also buying the shop too (but then splitting the leases). Try Birmingham Midshires (only via an agent).
My instinct is Option C - don't over lever or expose yourself that it can all come crashing down. 75% LTV's are high. Consider how you would survive WHEN (not IF) rates go up. And you know the Tories are (bizarrely) gunning for small/mid size entrepreneur BTL's unless you are big enough for them to go on the board one day and get special break on top...
Ohh and get yourself a gaff! HTH
My instinct is Option C - don't over lever or expose yourself that it can all come crashing down. 75% LTV's are high. Consider how you would survive WHEN (not IF) rates go up. And you know the Tories are (bizarrely) gunning for small/mid size entrepreneur BTL's unless you are big enough for them to go on the board one day and get special break on top...
Ohh and get yourself a gaff! HTH
Ken Figenus said:
I had a bit of bother with flats over a shop too, but there are lenders, and it helped that I was also buying the shop too (but then splitting the leases). Try Birmingham Midshires (only via an agent).
My instinct is Option C - don't over lever or expose yourself that it can all come crashing down. 75% LTV's are high. Consider how you would survive WHEN (not IF) rates go up. And you know the Tories are (bizarrely) gunning for small/mid size entrepreneur BTL's unless you are big enough for them to go on the board one day and get special break on top...
Ohh and get yourself a gaff! HTH
Cheers - Actually the one provider which said yes was Birmingham Midshires, and things look like they're moving forward.My instinct is Option C - don't over lever or expose yourself that it can all come crashing down. 75% LTV's are high. Consider how you would survive WHEN (not IF) rates go up. And you know the Tories are (bizarrely) gunning for small/mid size entrepreneur BTL's unless you are big enough for them to go on the board one day and get special break on top...
Ohh and get yourself a gaff! HTH
My reason for getting repayment products for these is purely to cover things when rates increase (the original property, even at 75% LTV is near London and rental income is much stronger in comparison to the payments).
I will eventually... but I don't have the deposit for the home I want to live in myself, so rent it instead. In the next 5 years or so I expect to sell the near-London flat and buy my own place
There is lots to think of mate. Maybe going interest only would let you have funds for other things - the capital gain might clear the mortgage for you in 15 years? Or remortgage in 15 and clear it in 8 using inflation in your favour? Or ditch the near London property - have had fabulous cap gain on mine but the yield is miniscule on paper - could triple with those funds released to outside London. Big field and all the best with it 
!
!romeogolf said:
Plain sailing, good income, prices went up.
I don't think anyone has mentioned the 'killer'.
You mention not having a main residence. Almost certainly that would become a better property investment for you. Capital Gains Tax becomes due, following the sale of most personal assets (not sole main residence).
I think it was pressure from the Liberal Democrats, that led to the removal of the CGT indexation allowance. Over many years, a good portion of house price rises are usually due to inflation. Tax now has to be paid on that part of the gain, as well as the real gain. Ridiculous. One of the most successful BTL operators in Kent, is selling the lot , partly because of that tax change.
It is none of my business, but you might want to check debt affordability at a 10% interest rate.
You probably know, that interest rates are now the lowest since the BoE records began.
I can hear you saying, that inflation has been very low during the last seven years. Compound up he figures and the total will be more than you expect. BTL looks good on paper, because of the magnification through the use of debt, but it is at sale time when the surprise occurs. Remember that HMRC can access data from Land Registry.
Edited by Jon39 on Tuesday 26th January 11:59
Apparently the developer didn't like the delay and sold the property last week to a cash buyer... And the estate agent neglected to tell me or my mortgage adviser of this until today when the valuer was told the sale was 'on hold'. I called the developer to ask why and was told it had been sold to someone else. He said he thought I was a cash buyer because this was what the agent told him (despite an email stating I am not having been sent to the agent) and he didn't want to wait any longer.
So that's a barrel of f
king laughs and now I'm back at square one.
So that's a barrel of f
king laughs and now I'm back at square one.Morning all. Prophet of doom here.
Always worth keeping in mind that apart from the lenders being a bit incompetent, they think your proposition is too risky for them. So think through the risk you're proposing to take very carefully. For starters stress test your financial position. What would happen if the property market remained flat for the next 10 years? What if it fell 20%? What if interest rates went up to say 7% and standard variable ended up at about 10%? What if the boiler exploded and the water tank burst and the flat was unrented for 6 months while you did the repairs and got mucked around by some prospective tennants before finally getting it rented out again?
If the answer is "I'd be forced to sell, crystallise a big loss that I couldn't cover, be forced to declare myself bankrupt, and be left standing at the bus stop in a grubby pair of y-fronts trying to sell the Big Issue" ... then you might want to stretch your finances less. You should also consider the consequences of being unable to sell the Big Issue.
Always worth keeping in mind that apart from the lenders being a bit incompetent, they think your proposition is too risky for them. So think through the risk you're proposing to take very carefully. For starters stress test your financial position. What would happen if the property market remained flat for the next 10 years? What if it fell 20%? What if interest rates went up to say 7% and standard variable ended up at about 10%? What if the boiler exploded and the water tank burst and the flat was unrented for 6 months while you did the repairs and got mucked around by some prospective tennants before finally getting it rented out again?
If the answer is "I'd be forced to sell, crystallise a big loss that I couldn't cover, be forced to declare myself bankrupt, and be left standing at the bus stop in a grubby pair of y-fronts trying to sell the Big Issue" ... then you might want to stretch your finances less. You should also consider the consequences of being unable to sell the Big Issue.
LOL
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