Buy to let (again)

[Alrey87]

I've got enough deposit to get an 80% LTV BTL alongside my own property. Would make my total monthly mortgage payments about 1k with an average income of £2350 net from my job. The rental would bring in about £650 rent. So probably only breaks even by the time expenses and tax are taken out of that, but someone else is paying for my second house as long as it's tenanted. Is this a good idea or would I be better served paying down my own mortgage, bearing in mind the interest rate is currently very low.

[anonymous-user]

Alrey87 said:

I've got enough deposit to get an 80% LTV BTL alongside my own property. Would make my total monthly mortgage payments about 1k with an average income of £2350 net from my job. The rental would bring in about £650 rent.

The amount they will lend you is more down to monthly rent as this is stress tested now. Basically the monthly rental income has to cover the monthly mortgage payment assuming a rate of 5.5%.

Unless you can buy a property for under £100K I suspect you will struggle to get an 80% mortgage.

[anonymous-user]

Adding a BTL,

• Costs of entry
• Costs of exit
• Cost of complying with increasing regulation (deposit rules, electrical testing, fire alarms etc)
• Tenant risk
• Void risk
• Management cost (unless you DIY)
• Interest cost on money borrowed
• CGT at enhanced rate upon sale

Paying down your mortgage,

• No costs
• No hassle
• The cash you used to pay in mortgage interest can be invested to grow tax free in an ISA
• When you sell your main residence the increase in value is completely free from CGT
• You can eventually buy a better main residence which will also be completely free from CGT

[Killer2005]

Joey Deacon said:

Alrey87 said:

I've got enough deposit to get an 80% LTV BTL alongside my own property. Would make my total monthly mortgage payments about 1k with an average income of £2350 net from my job. The rental would bring in about £650 rent.

Unless you can buy a property for under £100K I suspect you will struggle to get an 80% mortgage.

We do some 80% LTV BTL products, higher rates though.

[Alrey87]

I'm being offered 89 mortgage products at 80% LTV on compare the market. Only 3 at 85% so it seems 80 is the threshold nowadays. Nobody has said it's a good idea yet though.

[Groat]

It's not (a good idea).

[anonymous-user]

Alrey87 said:

I'm being offered 89 mortgage products at 80% LTV on compare the market. Only 3 at 85% so it seems 80 is the threshold nowadays. Nobody has said it's a good idea yet though.

Have you actually spoken to a broker or is this just online calculators? I would be amazed if you could get a mortgage after speaking to an actual broker with a 20% deposit unless the property is seriously cheap.

[dazmanultra]

Doesn't seem much point in going in to BTL now unless you're going to do it professionally (i.e. it's your day job), or, if you have some kind of advantage in terms of acquiring properties or bringing them up to standard. Even then, doing it as a day job you might actually be better off running a property management firm and not owning anything.

[Sarnie]

Killer2005 said:

We do some 80% LTV BTL products, higher rates though.

His point was the stress rates..........the larger the loan, the less likely it is to pass the stress rates.

[Sarnie]

Alrey87 said:

80 is the threshold nowadays.

It's not.

75% is and always has been the main LTV threshold.

And 89 products listed on a comparison site, is not the same as 89 products actually available to you......

[Alrey87]

Ok fair enough. What to do with 25k then? No more stocks and shares for me as I've made some serious mistakes there in the past. I could soon save up enough to get a bigger deposit on a BTL. My mind struggles to see something that will make more money than someone else buying an asset for you that is almost guaranteed to appreciate massively.

[I 8 a 4RE]

Most BTLs after all expenses, tax, voids, etc. will wash their own face ... of an INTEREST ONLY mortgage only.

You can get good streaks with fantastic long-term tenants and really plough into paying off mortgage, but they are rare.

The safest option is to pay off your mortgage. Give your bank a call and ask: if I overpay X, how much interest do I save over the lifetime of the mortgage?
The answer should make you happy...

[Groat]

Alrey87 said:

Ok fair enough. What to do with 25k then? No more stocks and shares for me as I've made some serious mistakes there in the past. I could soon save up enough to get a bigger deposit on a BTL. My mind struggles to see something that will make more money than someone else buying an asset for you that is almost guaranteed to appreciate massively.

If you want to get into letting then buy a cheaper property with either no loan or a small REPAYMENT loan that the rent can easily cover as well as covering all the other costs. As soon as it's paid off you'll be on the first rung of a 'good idea'. Before that the only person making any money from your idea is the lender. And if you play at interest only borrowing that's a monkey that won't be off your back till you sell it.

Borrowing 75% LTV to buy a property on an interest only loan which makes no operating profit CAN turn out ok after a considerable period of time, but you'd have to be a terrific optimist with great patience.

Ps: Have you considered a REIT?

Edited by Groat on Thursday 24th October 20:18

[red_slr]

Not worth it IMHO unless you have a lot of other investments and maxing out SIPP, ISAs etc.

In years gone by it was a good investment for your average person but in todays market I really don't see how the money stacks up.

A mate of mine just started one and he is clearing £50 a month.... I told him he is nuts but wont have it. Bit of a gamble to say the least. Best of luck to him.

I sold my BTL in Jan and I do not miss it one bit.

[Benbay001]

Alrey87 said:

No more stocks and shares for me as I've made some serious mistakes there in the past.

What did you buy?

[JapanRed]

I’m going to go against the grain here and say I don’t think it’s a bad idea. PM me if you want to chat OP. I’ve got a BTL and it works out well overall. Also got investments in watches, cars, stocks and shares. I’ll probably buy more BTL’s in next few years as our residential mortgage should be paid off next year.

Main thing is I think you need to be in BTL for the long haul. I don’t see any income from mine, and won’t sell it until I retire in 20-30 years time.

[Sheepshanks]

Alrey87 said:

.....but someone else is paying for my second house as long as it's tenanted.

A few comfortably off families we know did this years ago, so someone else could pay for properties for their kids. - as long as it more or less broke even, they weren't bothered about the precise finances.

[rufusgti]

Sheepshanks said:

A few comfortably off families we know did this years ago, so someone else could pay for properties for their kids. - as long as it more or less broke even, they weren't bothered about the precise finances.

That's a great way of looking at it really. Like helping kids with a deposit on a house, but 20 years early.. and the house is payed for when they are ready. If getting your kids on the housing ladder is your main aim then it's a very focused way of achieving that. There's no saying a fund will keep up with house prices over 20 years, but a house will, either up or down.

However there's no way anyone is getting through 20 years of btl without heartache, grief and grime. It can be a thankless industry and it's the landlords/lady's that always bare the costs in my experiences. That's only going to get harder.

The idea of a btl not, or only just covering it's costs is an unpleasant one for me. Not to mention the risks. I'm begining to wonder if rates will ever go up now, but if they do I think most people I know in btl are stuffed.

[cml24]

I'm an accidental BTL owner. Bought our first house and then moved abroad for work. We're back now but live elsewhere. Fortunately the work abroad helped us pay off the mortgage though.

I'm not very financially savvy, but I assume I am getting a yield of 3.3% (yearly rent (with tax taken off my share) divided by estimated value of property). That is in a year when there are absolutely zero maintenance costs. Had to replace the boiler last year, so that reduced yield to around 2.5%. Considering buying property is a relatively long term investment it doesn't seem great, considering the risks.

Can't wait to sell next year.

[Nickbrapp]

rufusgti said:

That's a great way of looking at it really. Like helping kids with a deposit on a house, but 20 years early.. and the house is payed for when they are ready. If getting your kids on the housing ladder is your main aim then it's a very focused way of achieving that. There's no saying a fund will keep up with house prices over 20 years, but a house will, either up or down.

However there's no way anyone is getting through 20 years of btl without heartache, grief and grime. It can be a thankless industry and it's the landlords/lady's that always bare the costs in my experiences. That's only going to get harder.

The idea of a btl not, or only just covering it's costs is an unpleasant one for me. Not to mention the risks. I'm begining to wonder if rates will ever go up now, but if they do I think most people I know in btl are stuffed.

Is it really worth while with a BTL? Surely a managed portfolio of stocks and shares will return a good rate, don’t they predict 8%? Without any of the hassle of becoming a landlord and doing repairs?

What happens if the house is vacant? There’s a flat in my block that’s a rental that’s been empty for coming up to 5 months now, that must be hurting unless you can get rent insurance?