Best method of saving?

[theboyfold]

I'm trying to work out what the best method of saving is at the moment. The plan is that theladyfold, thebabyfold and I will move out to a new house in a few years, so this is my ultimate goal ATM.
However I'm not sure what the most effective method is. In an ideal world I'd like to keep and rent out the house I'm in and move to another one (although this might be a non-starter due to the Nationwide not allowing buy to lets ATM). So my options are:

• Overpay on the mortgage, which we are already doing and have no penalties for doing so. This will of course make the potential rent on the current house more effective, but reduces the size of the deposit. Is there a target LTV to get to so if I have to remortgage to let the place my rates as good as possible? We're currently at 40% or so.
• Squirrel it away month by month in a savings account, although after an ISA I'm not sure if putting under the mattress is a that bad an idea right now! If I do lock money away I'd only want to do it for max 2 years.
• Pay it in to my pension, which although does nothing for the house move it's the most efficient use money as far as income tax is concerned.

So, any thoughts or suggestions? I'm not sure what's the most effective plan...

[Steffan]

Firstly I would avoid any pension plan unless self administered in a proper Trust with IR approval. Trust yourself in this society. No one else.

Secondly a planned saving program provable with Bank statements or other statements is good. When lending comes back on, which it will, this kind of clear evidence of responsibility and thrift will help get a mortgage. ISA is probably the best saving return.

Thirdly the Nationwide will do nothing if you let out the house. Up to you if you tell them. If you do then this may be difficult. Many many borrowers do not.

Your primary duty is to pay the mortgage. Do that and you discharge your obligations. The rest is just hot air.

In time you will have a deposit. Buy another buy to let or a commercial property which you probably could get a pension mortgage on and add to your pension. Semi commercial such as post office with flat over may qualify.

Finally I retired as a Chartered Accountant last year. Hence the advice.

NB These comments are offered freely and without payment or liability, and are simply my personal opinion expressed in an open forum and do not form investment advice within the meaning of the Acts governing investment advice within the UK.

I would recommend seeking the advice of a Chartered Financial Planner before proceeding.

[cslwannabe]

What is your mortgage interest rate?

[theboyfold]

Steffan, thanks for the above, will tap out a worthy reply when I'm not on my mobile.

My rate is currently 2.5%

[princeperch]

Steffan said:

Firstly I would avoid any pension plan unless self administered in a proper Trust with IR approval. Trust yourself in this society. No one else.

Secondly a planned saving program provable with Bank statements or other statements is good. When lending comes back on, which it will, this kind of clear evidence of responsibility and thrift will help get a mortgage. ISA is probably the best saving return.

Thirdly the Nationwide will do nothing if you let out the house. Up to you if you tell them. If you do then this may be difficult. Many many borrowers do not.

Your primary duty is to pay the mortgage. Do that and you discharge your obligations. The rest is just hot air.

In time you will have a deposit. Buy another buy to let or a commercial property which you probably could get a pension mortgage on and add to your pension. Semi commercial such as post office with flat over may qualify.

Finally I retired as a Chartered Accountant last year. Hence the advice.

NB These comments are offered freely and without payment or liability, and are simply my personal opinion expressed in an open forum and do not form investment advice within the meaning of the Acts governing investment advice within the UK.

I would recommend seeking the advice of a Chartered Financial Planner before proceeding.

whilst the nationwide might not do anything his insurer will be very cross if they are faced with a claim and non disclosure....

[The Ferret]

princeperch said:

whilst the nationwide might not do anything his insurer will be very cross if they are faced with a claim and non disclosure....

Or very pleased, since they won't need to pay out.

[Steffan]

The Ferret said:

princeperch said:

whilst the nationwide might not do anything his insurer will be very cross if they are faced with a claim and non disclosure....

Or very pleased, since they won't need to pay out.

In my experience many landlords fall into letting properties because they need to relocate, need a bigger house, want to buy elsewhere and so on. I have dug a fair few out of the clag with the IR because they omitted to declare the circumstances. Generally the IR are not desperately bothered unless there is obvious dishonesty which is fortunately rare.

Settled the cases with minimal penalties.

Only a fool would not tell the Insurance Company. None were fools.

A number had not told their original lenders. Up to them I had no duty to inform. It is not a practice I recommend. It is widely practiced.

[K12beano]

Interesting.

Just a coupe of points:

Is it really worth the risk of not being straight with IR? (Perhaps minor, as pointed out they might be favourable of oversight, but not fraud, although pleading ignorance is surely no defence!)

Lenders, sooner or later, will work out one is living elsewhere, surely? (You can't keep getting your post re-directed by Royal Mail forever, for example. Seems more likely to get grief than anything else)

[scotal]

Steffan said:

In my experience many landlords fall into letting properties because they need to relocate, need a bigger house, want to buy elsewhere and so on. I have dug a fair few out of the clag with the IR because they omitted to declare the circumstances. Generally the IR are not desperately bothered unless there is obvious dishonesty which is fortunately rare.

Settled the cases with minimal penalties.

The growth of BTl has made HMRC sit up and take notice. They claim that undeclared rental income is going to be one of their targets for the next couple of years. HOWEVER, I'm not sure how they intend to police this.

Steffan said:

Only a fool would not tell the Insurance Company. None were fools.

There are some insurance co's now asking to see either PTL letters or BTL offers when LAndlord insurance is arranged. We've had a couple of cases lately where this documentation has been asked for, especially in the Let-to-but arena

[scotal]

theboyfold said:

Is there a target LTV to get to so if I have to remortgage to let the place my rates as good as possible? We're currently at 40% or so.

65% is the top of the first tier for BTL, so you'd be fine there. The only stick point is that Nw woun't allow you to keep the 2.5% rate if you let to buy. (Or rather they will, but you have to be in a position to fund both properties from income, without taking rental into account.)

[Steffan]

K12beano said:

Interesting.

Just a coupe of points:

Is it really worth the risk of not being straight with IR? (Perhaps minor, as pointed out they might be favourable of oversight, but not fraud, although pleading ignorance is surely no defence!)

Lenders, sooner or later, will work out one is living elsewhere, surely? (You can't keep getting your post re-directed by Royal Mail forever, for example. Seems more likely to get grief than anything else)

There is an important distinction in Fraud cases.

As the Revenue now know to their considerable cost over the Harry Redkapp fiasco.

I predicted from the start of that fiasco that the Revenue were at risk of losing and that the Ken Dodd defence would work and it did.

Redknapp was not trying to fiddle. He thought it was a legal affair. So did the Jury. He may have made a mistake. It was never fraud. Never.

He was already paying in excess of a Million a year tax anyway. Would he bother with a £40,000 fiddle? Committing fraud? No.

The Revenue deserved to lose.

Fraud charges require the prosecution to prove intent.

To commit fraud you must INTEND to commit the crime and be in full knowledge that the action is a crime at the time of the offence.

Making a mistake, whereby, for example, you fail to realise a house letting is taxable, is an entirely understandable oversight, that occurs frequently. I have seen cases going back literally years, where the Revenue have accepted fraud was not intended.

There will be penalties there may be other sanctions, interest etc.

In cases of fraud, which are rare, the consequences are far more serious. Quite rightly.

The Piggott case was the classic deliberate fraud case.

After the riot act was read by the Inland revenue Investigator a huge investigation commenced and full and final disclosure was made by Mr Piggott.

On that basis the Revenue settled the case with severe penalties.

MR Pigott gave them a cheque immediately on an offshore Bank Account in full and final settlement> Sadly in a false name and from an account that neither his Accountants nor the Inland Revenue knew anything about.

That was undoubtedly bloody stupid fraud.

To offer payment from an undisclosed bank account, which it transpired had £3,000,000 in it undeclared totally over many years, when you had in the same meeting on oath, made a full and final disclosure on penalty of perjury is fraud. Plain and simple. Also very very silly.

Lester was the greatest jockey of all time. Unfortunately he was not entirely honest. Or the brightest button financially. One hell of a man.

[theboyfold]

Steffan said:

First post

My pension is sorted by an IFA and all above board. He was recommended to me and I felt happy with the advice that I've had from him so far.

I don't really have a plan as such, but I've had a job for the last 20 years, so have a decent credit rating and my bank seem to like me.

I will hunt out the advice of a professional before I do much else, but it's always interesting to see what the folks on here say.

I'm not happy go against the rules of my mortgage lender, and anything that I do with the house will be above board. I understand the basics of the tax system with renting a property and when that time comes I'll make sure everything is in place.

scotal said:

theboyfold said:

Is there a target LTV to get to so if I have to remortgage to let the place my rates as good as possible? We're currently at 40% or so.

65% is the top of the first tier for BTL, so you'd be fine there. The only stick point is that Nw woun't allow you to keep the 2.5% rate if you let to buy. (Or rather they will, but you have to be in a position to fund both properties from income, without taking rental into account.)

Thanks, I wasn't aware of that point about being able to cover both houses with income, so it could be beneficial to keep hammering the mortgage, although it will reduce the amount of deposit and mean that we have to re-mortgage. Which is where the dilemma lies, to 'spend' on the mortgage or save in an account.
Although, as discussed in our emails, I've run the idea of a 911 GT3 past the wife and it didn't go very far...

[scotal]

theboyfold said:

Although, as discussed in our emails, I've run the idea of a 911 GT3 past the wife and it didn't go very far...

Easier to apologise than ask permission.

(This does not constitute advice, I can't be held liable for the breakup of your marriage following a car purchase etc etc ....)

[K12beano]

scotal said:

Easier to apologise than ask permission.

(This does not constitute advice, I can't be held liable for the breakup of your marriage following a car purchase etc etc ....)

"The value of your home may plummet if you set fire to it" as one of my compliance colleagues used to observe to be the more appropriate risk warning.....

[Fatman2]

scotal said:

theboyfold said:

Is there a target LTV to get to so if I have to remortgage to let the place my rates as good as possible? We're currently at 40% or so.

65% is the top of the first tier for BTL, so you'd be fine there. The only stick point is that Nw woun't allow you to keep the 2.5% rate if you let to buy. (Or rather they will, but you have to be in a position to fund both properties from income, without taking rental into account.)

That's an interesting one. We're just about to complete on a BTL at 70% LTV. I would have maintained our current 50% but was advised against this (rightly or wrongly) to minimise the higher rate tax that I'd pay on the rental income. Our rate is 3.99%, which is poor compared to the existing rate (approx 2.5%) but given it's a BTL and the LTV is higher then I don't mind, given we have released some equity and the tenant will be paying the mortgage.

In terms of saving I'm struggling with this too as I now have some liquid and have more than my ISA allowance.

Damn the offset thing was sooo simple.

[scotal]

Fatman2 said:

I would have maintained our current 50% but was advised against this (rightly or wrongly) to minimise the higher rate tax that I'd pay on the rental income.

And besides there's more commission in the bigger mortgage.
Cynical, moi?

[Fatman2]

scotal said:

Fatman2 said:

I would have maintained our current 50% but was advised against this (rightly or wrongly) to minimise the higher rate tax that I'd pay on the rental income.

And besides there's more commission in the bigger mortgage.
Cynical, moi?

LOL I did think of this but it was advice from the accountant.

It was a logical move though as we need some of the equity to put down as a deposit for the next house (if we decide to buy here). It's a bit touch/go whether we're staying in the UK so the liquidity will no doubt help either way. It's just knowing what to do with it in the meantime.

[theboyfold]

Fatman2 said:

LOL I did think of this but it was advice from the accountant.

It was a logical move though as we need some of the equity to put down as a deposit for the next house (if we decide to buy here). It's a bit touch/go whether we're staying in the UK so the liquidity will no doubt help either way. It's just knowing what to do with it in the meantime.

This is my exact issue, if I save for a deposit it means my mortgage(s) will be higher, if I pay off the existing loan then I will have less for a deposit.

What I'm thinking is that I save as much as possible, ignoring any additional overpayments then when it comes time to move I can either pay another lump sum off the mortgage or put it towards the next house...

[scotal]

theboyfold said:

This is my exact issue, if I save for a deposit it means my mortgage(s) will be higher, if I pay off the existing loan then I will have less for a deposit.

What I'm thinking is that I save as much as possible, ignoring any additional overpayments then when it comes time to move I can either pay another lump sum off the mortgage or put it towards the next house...

If and when you come to remortgage the existing property to a BTL, you will be able to raise money against the equity. The only time you can't do it is if you stick with the current mortgage.

The firms that allow let to buy expect you to remortgage for a higher amount outstanding to take out equity.

[scotal]

Fatman2 said:

It was a logical move though as we need some of the equity to put down as a deposit for the next house (if we decide to buy here). It's a bit touch/go whether we're staying in the UK so the liquidity will no doubt help either way. It's just knowing what to do with it in the meantime.

If you've remortgaged to a BTL, where are you living now?