BTL disaster and possible repo

[tescorank]

So taking to a friend last night over a couple and he was explaining his BTL losses and wonder what to do-I’m more of a wtf

So tell me if I missing anything

He purchased flat 3 years ago and just about to come of a fixed mortgage and he said now he’s struggling to get a fix on 6%.

So fag packet sums on a calculator

He’s got £300k mortgage on a property (flat) worth £425k

Rent pm =£2,200 per year. £26,400
Minus Agency fee 10% -£2,640
Minuscule Block management. - £6,000
Net profit. £17,760

Tax at 40% on £17,760 -£7,,100
Mortgage on £300k at 6%=. -£21,000

So total loss on his £125k is -£10,340

This is presumably it’s rented 12 months of the year, and doesn’t allow for non-payment, redecorating, carpets, boilers, and other miscellaneous.

Please feel free to add anything I’ve missed but this example is staggering!

[Fusion777]

HSBC 75% BTL 5-year fix is 4.78%, no fees. That was the first place I checked, I’m sure you could get lower. 6% sounds very high.

[scsracing]

Can only assume he is running it as a sole trader and not a LTD co? If he is an accidentally landlord then slightly understandable but if he set out on this journey as a business then I’d suggest he get some professional advice.

[barryrs]

If he’s not making any profit why would he be paying 40% on the rent?

[Austin_Metro]

tescorank said:

So taking to a friend last night over a couple and he was explaining his BTL losses and wonder what to do-I’m more of a wtf

So tell me if I missing anything

He purchased flat 3 years ago and just about to come of a fixed mortgage and he said now he’s struggling to get a fix on 6%.

So fag packet sums on a calculator

He’s got £300k mortgage on a property (flat) worth £425k

Rent pm =£2,200 per year. £26,400
Minus Agency fee 10% -£2,640
Minuscule Block management. - £6,000
Net profit. £17,760

Tax at 40% on £17,760 -£7,,100
Mortgage on £300k at 6%=. -£21,000

So total loss on his £125k is -£10,340

This is presumably it’s rented 12 months of the year, and doesn’t allow for non-payment, redecorating, carpets, boilers, and other miscellaneous.

Please feel free to add anything I’ve missed but this example is staggering!

Surely he gets tax relief on part of the interest payment?

[barryrs]

Also, how has he ever made anything?

Isn’t a 3% mortgage around break even, and as such this has to be an act of complete stupidity!

[Adam.]

barryrs said:

If he’s not making any profit why would he be paying 40% on the rent?

Because mortgage interest is not tax deductible anymore ?

[Hugo Stiglitz]

barryrs said:

Also, how has he ever made anything?

Isn’t a 3% mortgage around break even, and as such this has to be an act of complete stupidity!

No doubt his cheap % deal has ended hence 6% doesn't work.

He would be best off selling but as he doesn't live there that means he'll pay CGT on any gain?

[Simpo Two]

Hugo Stiglitz said:

barryrs said:

Also, how has he ever made anything?

Isn’t a 3% mortgage around break even, and as such this has to be an act of complete stupidity!

No doubt his cheap % deal has ended hence 6% doesn't work.

He would be best off selling but as he doesn't live there that means he'll pay CGT on any gain?

Can he offset the losses? It's the tax and 'block management' - fixed overheads if you like - that are knackering him - and those were/could have been known at the outset. He must have been on a very small profit before the mortgage rate change.

Interest rates aren't going to come down in the foreseeable future so he can keep taking a loss, put the rent up (if possible) or bail out with the tenants in situ because I doubt they will move to help him.

I expect many more landlords will also be finding the wind has suddenly changed and they're going backwards

tescorank said:

So total loss on his £125k is -£10,340

This is why I prefer investing to being a landlord. I might lose £10K on a £125 investment - indeed I have, more than once - but it comes back again.

Edited by Simpo Two on Saturday 10th June 09:48

[OutInTheShed]

tescorank said:

So taking to a friend last night over a couple and he was explaining his BTL losses and wonder what to do-I’m more of a wtf

So tell me if I missing anything

He purchased flat 3 years ago and just about to come of a fixed mortgage and he said now he’s struggling to get a fix on 6%.

So fag packet sums on a calculator

He’s got £300k mortgage on a property (flat) worth £425k

Rent pm =£2,200 per year. £26,400
Minus Agency fee 10% -£2,640
Minuscule Block management. - £6,000
Net profit. £17,760

Tax at 40% on £17,760 -£7,,100
Mortgage on £300k at 6%=. -£21,000

So total loss on his £125k is -£10,340

This is presumably it’s rented 12 months of the year, and doesn’t allow for non-payment, redecorating, carpets, boilers, and other miscellaneous.

Please feel free to add anything I’ve missed but this example is staggering!

If it 'only' yields £2200 a month in rent, and has £6k a year fixed costs, it's probably not worth £425k. Or won't be for much longer.
Unless you're convinced prices will rise substantially in a year or two, or interest rates will drop a lot, it's time to sell.

I've noticed one of my email accounts is getting lots and lots of 'offers' on rented places now, unbeatable deals on tenanted properties.

[Dg504]

Assuming his mortgage is a repayment one he is benefiting from the capital element which he’s settling each year?

Still pretty rubbish but makes the (£10k) less negative?

[Wacky Racer]

Simpo Two said:

I might lose £10K on a £125 investment.....

How does that work then?

[dudleybloke]

Maybe it's time he thought about flashing his hoop on onlyfans.

[leef44]

dudleybloke said:

Maybe it's time he thought about flashing his hoop on onlyfans.

This is the way.

[croyde]

And this is the other side to the stories of renters being hit by 30% to 50% rises in payments.

Sure, some landlords who bought years ago might be being greedy but I reckon many will be like your mate and seeing that the numbers no longer work their way.

I'm a tenant and I fully expect to get a raping come renewal next year and I'll be forced to move, a long way away, as I can barely afford the current rent.

Meanwhile I have an offset interest only mortgage on the home where the ex and kids live and have seen that go from around £200/month to now over £1000/month in just over a year as it's a 1% above base rate tracker.

Those idiots at the Bank of England keep smashing us with interest rate rises because the likes of food prices are rocketing.

Well I can eat less, shop somewhere cheaper but that pales into insignificance compared to rent and mortgage rises, and I can't choose to not pay those.

So yes, I can try to sell but as the mortgage deals become harder to get, the market is really slowing down, well in SW London anyway.

This is a street where not long ago a house would sell within a week of being on the market, usually with bids over the asking price.

Next door neighbours have had there's up for sale for 6 months now, despite it being absolutely stunning and having had the price slashed a number of times.

Edited by croyde on Saturday 10th June 12:56

[Jiebo]

Where is this BTL thats making £2200pm on an asset value of only £420k. I know London yields pretty well and there isn't anything that good around.

[tescorank]

Jiebo said:

Where is this BTL thats making £2200pm on an asset value of only £420k. I know London yields pretty well and there isn't anything that good around.

Brighton

[tescorank]

Fusion777 said:

HSBC 75% BTL 5-year fix is 4.78%, no fees. That was the first place I checked, I’m sure you could get lower. 6% sounds very high.

Thanks I tell him that but hardly going to make a dent.

[croyde]

Jiebo said:

Where is this BTL thats making £2200pm on an asset value of only £420k. I know London yields pretty well and there isn't anything that good around.

I'm in a £500k 2 bed flat in SW London and currently pay £1500.

One of the smaller 2 beds in the block just went on the market for £1950/month and it's in worse condition.

So I suspect it's possible.

[leef44]

tescorank said:

Fusion777 said:

HSBC 75% BTL 5-year fix is 4.78%, no fees. That was the first place I checked, I’m sure you could get lower. 6% sounds very high.

Thanks I tell him that but hardly going to make a dent.

In fairness to your friend, we've seen banks go bust because they didn't consider that interest rates might go up at some point in time. So he's not the only one.