Parents moving out & switching to BTL Mortgage on the house
Discussion
Hi
Parents are early 70s. House £600k, mortgage of 40k outstanding, about £30 a month so not worth paying off.
House is too big and they want to travel so thinking, remortgage but on a BTL and take another 40k out to keep them in holidays etc.
Property should rent for 1500 a month, mortgage will be a small fraction of that, less than £100 pcm. Leaves them with 1400 profit each month to rent somewhere on their travels.
Anything wrong with the abocve scenario?? I think that there are lenders who will lend to that age group, especially with LTV looking good.
Any advice appreciated - thanks
Parents are early 70s. House £600k, mortgage of 40k outstanding, about £30 a month so not worth paying off.
House is too big and they want to travel so thinking, remortgage but on a BTL and take another 40k out to keep them in holidays etc.
Property should rent for 1500 a month, mortgage will be a small fraction of that, less than £100 pcm. Leaves them with 1400 profit each month to rent somewhere on their travels.
Anything wrong with the abocve scenario?? I think that there are lenders who will lend to that age group, especially with LTV looking good.
Any advice appreciated - thanks
1400 less tax, obviously. Unless they have no other income between them, which in their 70's seems unlikely.
Ask current lender for consent to let, loading a rate on to that sum will not be noticeable.
Insurance worthwhile, both buildings and against non payment of rent.
Self managed? Can't imagine being >70 and wanting the hassle tbh. Will eat into the return of course.
Ask current lender for consent to let, loading a rate on to that sum will not be noticeable.
Insurance worthwhile, both buildings and against non payment of rent.
Self managed? Can't imagine being >70 and wanting the hassle tbh. Will eat into the return of course.
most lenders wouldn't offer a Let to Buy (changing residential to a BTL) unless they were purchasing a new property.
i think they would be better off asking their existing lender for Consent to Let. It might cost them a fee or a slight loading on their existing rate, but it will give them the option to return back to the property once they have finished their travels. Plus, after its been let out for 6 months it won;t be classed as a Let to Buy, and they would qualify for a lot more BTL deals.
i think they would be better off asking their existing lender for Consent to Let. It might cost them a fee or a slight loading on their existing rate, but it will give them the option to return back to the property once they have finished their travels. Plus, after its been let out for 6 months it won;t be classed as a Let to Buy, and they would qualify for a lot more BTL deals.
jonamv8 said:
Parents are early 70s. House £600k, mortgage of 40k outstanding, about £30 a month so not worth paying off.
Property should rent for 1500 a month, [BTL] mortgage will be a small fraction of that, less than £100 pcm. Leaves them with 1400 profit each month to rent somewhere on their travels.
Anything wrong with the above scenario??
Sounds a crazy plan. Just rent it out and they have £1,470 profit each month to rent somewhere on their travels. Although as someone mentioned above, watch out for CGT.Property should rent for 1500 a month, [BTL] mortgage will be a small fraction of that, less than £100 pcm. Leaves them with 1400 profit each month to rent somewhere on their travels.
Anything wrong with the above scenario??
By the way, 1,500 a month is 18,000 a year, which is a lousy 3% gross return on 600k of investment. And then there's the risk/expenses of letting...
Thanks for replies.
They have ok pensions, both worked in professional positions all their lives when pensions were a bit better than they are today.
They never want to move back really, they want to convert their house into an asset which pays a dividend each month and that they can leave in their will once they pass away. So the emotional issue is a none issue as they won't return.
Selling up and spending the money isn't an option for them, they want to leave a chunk in their will and would feel unhappy in the knowledge that they were spending everything that they built up to pass to family.
I'm interested to hear the potential tax liabilities during the term of the mortgage/rental, they don't plan on ever selling it so tax at sale is not an issue.
My hope for them was that due to the LTV being so low they could continue to re mortgage the property but I do not think that this will be the case.
They have ok pensions, both worked in professional positions all their lives when pensions were a bit better than they are today.
They never want to move back really, they want to convert their house into an asset which pays a dividend each month and that they can leave in their will once they pass away. So the emotional issue is a none issue as they won't return.
Selling up and spending the money isn't an option for them, they want to leave a chunk in their will and would feel unhappy in the knowledge that they were spending everything that they built up to pass to family.
I'm interested to hear the potential tax liabilities during the term of the mortgage/rental, they don't plan on ever selling it so tax at sale is not an issue.
My hope for them was that due to the LTV being so low they could continue to re mortgage the property but I do not think that this will be the case.
jonamv8 said:
they don't plan on ever selling it so tax at sale is not an issue.
You are making the assumption they'll go directly to Inheritance Tax, sidestepping CGT.IMO that's a big assumption and a considerable risk.
- You can't be sure the house won't have to be sold for care home costs or whatever
- Who's going to manage the BTL when the folks are past it?
- Check this week's press - a big shakeup of CGT and IHT could be on the way.
rockin said:
You are making the assumption they'll go directly to Inheritance Tax, sidestepping CGT.
IMO that's a big assumption and a considerable risk.
Yep I/We are making a big assumption....IMO that's a big assumption and a considerable risk.
- You can't be sure the house won't have to be sold for care home costs or whatever
- Who's going to manage the BTL when the folks are past it?
- Check this week's press - a big shakeup of CGT and IHT could be on the way.
In terms of admin, I would manage it on their behalf but we'd also pay for the agent to manage the rental and have adequate landlords insurance in place.
I've heard snippets in the press about IHT being removed and a gift tax put in place. Until it becomes law it's all speculation so trying to find a solution that works right now.
CAREHOME costs - a concern of course....
Would we be better off transferring ownership of the house into my name on a BTL mortgage ? I'm 34 if it helps.
jonamv8 said:
Would we be better off transferring ownership of the house into my name on a BTL mortgage ? I'm 34 if it helps.
Assuming you already have your own property, you would be looking at a £38k stamp duty bill if they gave/sold you the house.Nobody has a crystal ball, but any CGT when the property is finally disposed of might not be huge if they have lived in the property themselves for a long time. Based on current rules it will depend on purchase price & date and ultimate sale price & date and the proportion of time it was rented.
Going back to your OP, there are three separate problems I think:
1. Your parents need to raise £30k to fund some holidays.
2. They seek an income from a £600k asset that will no longer be viewed as a home.
3. They want to leave a legacy to you/others.
So...
- do they need the £30k, or would a better return on the £600k remove the need for a lump some up front?
- is there a (non-sentimental) reason why the relatively poor return offered by the property is preferred to selling and investing in other asset classes? By this I mean unusually high expected capital growth for example due to gentrification/whatever.
- do you/whoever may inherit the property actually want it, or would you just sell?
Why not:
- sell now and invest proceeds elsewhere that will generate a (probably) better income
- get consent to let and borrow the £30k elsewhere (from you?)
You did also ask, and I don't think it was answered, they will pay income tax at the prevailing rate on the profit made from the rental. Based on the fact they are going to be travelling 52 weeks a year and don't have a lot of savings (hence the need for the £30k) I'm assuming they have a good income from pensions... so 20%/40% of the rental profit will be going to the taxman.
Edited by UpTheIron on Friday 7th September 12:53
Firstly, I commend your parents desire to see some of the world while they are still fit enough to do so.
I'm not that far behind them in terms of age and I intend to do something similar within the next few years.
I think it's important to have a permanent base to call home. Having to continually find somewhere to rent every few weeks or months would wear me down, especially as I became older and less mobile.
If I was in their shoes I would sell the house, buy a smaller home, probably in northern France, where property is a lot cheaper than here and also within striking distance of England. I would then pay off the existing mortgage and keep about £75k aside for future holidays, etc. That would leave about £300k to invest, or gift to family members over the next few years.
I'm not that far behind them in terms of age and I intend to do something similar within the next few years.
I think it's important to have a permanent base to call home. Having to continually find somewhere to rent every few weeks or months would wear me down, especially as I became older and less mobile.
If I was in their shoes I would sell the house, buy a smaller home, probably in northern France, where property is a lot cheaper than here and also within striking distance of England. I would then pay off the existing mortgage and keep about £75k aside for future holidays, etc. That would leave about £300k to invest, or gift to family members over the next few years.
UpTheIron said:
Assuming you already have your own property, you would be looking at a £38k stamp duty bill if they gave/sold you the house.
Nobody has a crystal ball, but any CGT when the property is finally disposed of might not be huge if they have lived in the property themselves for a long time. Based on current rules it will depend on purchase price & date and ultimate sale price & date and the proportion of time it was rented.
Going back to your OP, there are three separate problems I think:
1. Your parents need to raise £30k to fund some holidays.
2. They seek an income from a £600k asset that will no longer be viewed as a home.
3. They want to leave a legacy to you/others.
So...
- do they need the £30k, or would a better return on the £600k remove the need for a lump some up front?
- is there a (non-sentimental) reason why the relatively poor return offered by the property is preferred to selling and investing in other asset classes? By this I mean unusually high expected capital growth for example due to gentrification/whatever.
- do you/whoever may inherit the property actually want it, or would you just sell?
Why not:
- sell now and invest proceeds elsewhere that will generate a (probably) better income
- get consent to let and borrow the £30k elsewhere (from you?)
You did also ask, and I don't think it was answered, they will pay income tax at the prevailing rate on the profit made from the rental. Based on the fact they are going to be travelling 52 weeks a year and don't have a lot of savings (hence the need for the £30k) I'm assuming they have a good income from pensions... so 20%/40% of the rental profit will be going to the taxman.
Thank you for the detailed response. I shall try and respond to each point below:Nobody has a crystal ball, but any CGT when the property is finally disposed of might not be huge if they have lived in the property themselves for a long time. Based on current rules it will depend on purchase price & date and ultimate sale price & date and the proportion of time it was rented.
Going back to your OP, there are three separate problems I think:
1. Your parents need to raise £30k to fund some holidays.
2. They seek an income from a £600k asset that will no longer be viewed as a home.
3. They want to leave a legacy to you/others.
So...
- do they need the £30k, or would a better return on the £600k remove the need for a lump some up front?
- is there a (non-sentimental) reason why the relatively poor return offered by the property is preferred to selling and investing in other asset classes? By this I mean unusually high expected capital growth for example due to gentrification/whatever.
- do you/whoever may inherit the property actually want it, or would you just sell?
Why not:
- sell now and invest proceeds elsewhere that will generate a (probably) better income
- get consent to let and borrow the £30k elsewhere (from you?)
You did also ask, and I don't think it was answered, they will pay income tax at the prevailing rate on the profit made from the rental. Based on the fact they are going to be travelling 52 weeks a year and don't have a lot of savings (hence the need for the £30k) I'm assuming they have a good income from pensions... so 20%/40% of the rental profit will be going to the taxman.
Edited by UpTheIron on Friday 7th September 12:53
My father would like a 10k a year holiday fund, he has hard worked for it for over 50 years. Although initially he thinks he may rent in Spain for a year or 2/3 which would actually negate the requirement for 10k but I want him to have the 10k a year regardless. Property has been owned for over 30 years and developed by them while living there, extra bedrooms and living space etc
-Assuming you already have your own property, you would be looking at a £38k stamp duty bill if they gave/sold you the house.
Yes I do and ouch, would rather not have to find £38k right now.
- sell now and invest proceeds elsewhere that will generate a (probably) better income
What would you suggest and I shall look into them?
- is there a (non-sentimental) reason why the relatively poor return offered by the property is preferred to selling and investing in other asset classes? By this I mean unusually high expected capital growth for example due to gentrification/whatever.
No reasons no, we as a family just like the idea of the house generating £1200 a month profit and we could borrow against in in the future or sell it if needs be once it's been passed down from my parents.
- get consent to let and borrow the £30k elsewhere (from you?)
A possibility but at 34 I'm on the ascendancy growing my savings buying additional property wherever possible and £30k isn't pocket change even thought I'm working as hard as I can in my current business which pays OK.
-You did also ask, and I don't think it was answered, they will pay income tax at the prevailing rate on the profit made from the rental. Based on the fact they are going to be travelling 52 weeks a year and don't have a lot of savings (hence the need for the £30k) I'm assuming they have a good income from pensions... so 20%/40% of the rental profit will be going to the taxman.
Correct assumption, decent pensions so would be taxed at 20% I think. If they are none domiciled living in Spain would the tax still stand?
Grandad Gaz said:
Firstly, I commend your parents desire to see some of the world while they are still fit enough to do so.
I'm not that far behind them in terms of age and I intend to do something similar within the next few years.
I think it's important to have a permanent base to call home. Having to continually find somewhere to rent every few weeks or months would wear me down, especially as I became older and less mobile.
If I was in their shoes I would sell the house, buy a smaller home, probably in northern France, where property is a lot cheaper than here and also within striking distance of England. I would then pay off the existing mortgage and keep about £75k aside for future holidays, etc. That would leave about £300k to invest, or gift to family members over the next few years.
As do I, they were born into poor families and never had chance to travel much or live in a hot country which they both enjoy. I'm encouraging them to do this now while they can in early 70s before slowing down in a few years and coming back to UK, where they could easily rent using the rent from the current home.I'm not that far behind them in terms of age and I intend to do something similar within the next few years.
I think it's important to have a permanent base to call home. Having to continually find somewhere to rent every few weeks or months would wear me down, especially as I became older and less mobile.
If I was in their shoes I would sell the house, buy a smaller home, probably in northern France, where property is a lot cheaper than here and also within striking distance of England. I would then pay off the existing mortgage and keep about £75k aside for future holidays, etc. That would leave about £300k to invest, or gift to family members over the next few years.
When I say travel they would probably only end up in La Cala in Spain where they know like the back of their hand,minimum rental term would be 6-12 months so not exactly moving about much.
We've had a good look in the UK as to where they could buy for 300k and they have visited nigh on 15 places, didn't like any. In the area where we reside 300k doesn't buy you much even though it sounds like a fair whack of dough.
Keeping their current house in their name would keep their registration at local doctors dentists etc etc too
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