Discussion
Afternoon all.
I'm due to remortgage my home soon, and given that it's appreciated in value by £125K in 6 years I feel I'd be wise to use that to my advantage.
I've done a few sums, and what I think I'm going to do (subject to speaking to my mortgage advisor and a financial advisor) is release £70K equity from my home through the remortgage and up the term a couple of years which means my current mortgage costs me £200/month more than it does now - I was going to start overpaying this much from here on out before the BTL came to mind.
I'll then be looking to put the £70K down on a flat and borrow a further £100K on a BTL mortgage for a period of 25 years, making the payment around £390/month. Rental income on flats in the area seems around £750 pcm. So after tax etc. I don't imagine there'll be much profit in it, but I am considering this more a retirement investment and take advantage of the rising property prices in/around London.
I would probably get a 30yr term which would make for lower monthly payments, and more monthly profit as well - monthly mortgage payment here would be circa £330.
Do you do something similar, any tips / other considerations or advice. Is it better to use a letting agent or manage it yourself, your views are appreciated.
I'm due to remortgage my home soon, and given that it's appreciated in value by £125K in 6 years I feel I'd be wise to use that to my advantage.
I've done a few sums, and what I think I'm going to do (subject to speaking to my mortgage advisor and a financial advisor) is release £70K equity from my home through the remortgage and up the term a couple of years which means my current mortgage costs me £200/month more than it does now - I was going to start overpaying this much from here on out before the BTL came to mind.
I'll then be looking to put the £70K down on a flat and borrow a further £100K on a BTL mortgage for a period of 25 years, making the payment around £390/month. Rental income on flats in the area seems around £750 pcm. So after tax etc. I don't imagine there'll be much profit in it, but I am considering this more a retirement investment and take advantage of the rising property prices in/around London.
I would probably get a 30yr term which would make for lower monthly payments, and more monthly profit as well - monthly mortgage payment here would be circa £330.
Do you do something similar, any tips / other considerations or advice. Is it better to use a letting agent or manage it yourself, your views are appreciated.
Thanks for the reply.
Is your letting agent a large national agent or someone small and local?
As the BTL will be in mine and the mrs. names, how is tax paid on the profit? I understand that interest may be deducted from the overall taxable amount, and so then how is the remaining portion taxed, I am a higher rate tax-payer and my wife isn't, so is the profit divided between the 2 of us and taxed accordingly ?
Which is my next question, do you pay an accountant to manage this for you, or do you do a self-assessment?
Is your letting agent a large national agent or someone small and local?
As the BTL will be in mine and the mrs. names, how is tax paid on the profit? I understand that interest may be deducted from the overall taxable amount, and so then how is the remaining portion taxed, I am a higher rate tax-payer and my wife isn't, so is the profit divided between the 2 of us and taxed accordingly ?
Which is my next question, do you pay an accountant to manage this for you, or do you do a self-assessment?
Thank you all for your input.
I'm not pursuing BTL, not solely based on PH advice, but have spoken to a mortgage adviser too and it is not very attractive at all.
Instead, I'm going to focus on overpaying my mortgage as much as possible, I can usually do at least £500/month over the current payment, but essentially going to focus on being rid of it in 10 years, making me 41, which would free up a good sum of cash monthly.
I'm not pursuing BTL, not solely based on PH advice, but have spoken to a mortgage adviser too and it is not very attractive at all.
Instead, I'm going to focus on overpaying my mortgage as much as possible, I can usually do at least £500/month over the current payment, but essentially going to focus on being rid of it in 10 years, making me 41, which would free up a good sum of cash monthly.
drainbrain said:
DonkeyApple said:
But, if you're buying up assets without leverage and have a book of them already that are showing good capital gain while all are underpinned by benefits revenue then I don't really see much of a risk there. As opposed to what I have mostly been invested in, where I think there is more risk given how that market has boomed and there is no potential for support for rents so pure market forces would prevail.
But you've given the impression that the assets you are currently buying you're paying cash for and in that regard we probably have an identical view that the current market is not smart for leverage. In property I wouldn't want anything in the U.K. on less than 50% margin and I certainly wouldn't want anything where I couldn't happily finance a 12 month void, sitting tenant or trashing.
I've never had an issue sitting on cash as it's just another asset class and it tends to be a good one to be in when other assets are falling in demand and then value.
Also, having cash when property values are falling and banks are knocking for a margin call means you can keep them off your back which is why I'm of the view that paying down a mortgage beyond a certain level is less beneficial at the moment than putting the cash to one side and deciding at a later date whether to pay down the debt. And why I don't think it's the right time to be increasing debt levels. Nothing wrong with continuin to invest in property but I don't think it's the time to be doing so with leverage.
Absolutely. The op's plan in this thread - effectively borrowing 100% of the purchase price - was just bonkers. Mind you, there are people who are still using well thought out plans which include expanding strong portfolios with borrowings. But that's because they have lengthily held portfolios of now unburdened property, so it's of no real risk at all to refinance say 20-25% of it to add further (anyway self-servicing) stock, which once added further lowers their global LTV below even those modest 20-25% levels. And the game goes ever on. But you've given the impression that the assets you are currently buying you're paying cash for and in that regard we probably have an identical view that the current market is not smart for leverage. In property I wouldn't want anything in the U.K. on less than 50% margin and I certainly wouldn't want anything where I couldn't happily finance a 12 month void, sitting tenant or trashing.
I've never had an issue sitting on cash as it's just another asset class and it tends to be a good one to be in when other assets are falling in demand and then value.
Also, having cash when property values are falling and banks are knocking for a margin call means you can keep them off your back which is why I'm of the view that paying down a mortgage beyond a certain level is less beneficial at the moment than putting the cash to one side and deciding at a later date whether to pay down the debt. And why I don't think it's the right time to be increasing debt levels. Nothing wrong with continuin to invest in property but I don't think it's the time to be doing so with leverage.
IMO anyone now entering the btl market would be best advised to buy a humble and lower end startup, preferably BMV, and with 100% cash, and place the btl skilfully with effective and professional management. After even 12 months the reality (especially the arithmetic) of matters will have become apparent. Because if it's been bought BMV it can be sold pretty rapidly BMV again. Or, if the arithmetic says expand the venture then re-mortgage it. Whatever.
Taking a punt on something nice (i.e. expensive) using borrowed funds, including from the family home, with the idea of some certainty of either capital gain or even letting profit is, currently, going to require a chunky slice of luck to work out well.
I thought nowadays lenders had developed systems to prevent such follies? Any sub prime lenders I've encountered lately certainly wouldn't supply the op's scheme with their money assuming the plan was put openly to them.
Edited by drainbrain on Saturday 22 July 00:15
Still, thanks for the insight, BTL no longer being considered.
My apologies, I obviously have misunderstood, my knowledge of finance is obviously not near what it should be to meddle in finance, I'm an Electrical Engineer by trade, so I'm going to stick with what I know, making sure your lights stay on, and go with the mortgage over-payment option.
Edited by rossw46 on Saturday 22 July 21:18
Gassing Station | Finance | Top of Page | What's New | My Stuff