[Finance] Buy to Let Mortgages

cjd · Mar 13, 2018

Triggaaar said:
Firstly please note we're only talking about Buy To Let properties. Properties where you're paying tax on the rental income.

Secondly, it's all change now anyway, as the government phase out the mortgage interest tax relief (up until Apr 17 you could deduct your mortgage interest from your revenue, but that's being phased out unless you've got it in a company).

So if you have that tax relief, you don't need the ISA to beat the interest of your mortgage.

The tax relief on a Buy to Let Mortgage is not being phased out.

It is just being restricted to the basic rate of income tax of 20% as opposed to some Landlords who were getting relief at 40%. Even this reduction will not come fully into effect until April 2020.

Herr Tubthumper · Mar 13, 2018

cjd said:
The tax relief on a Buy to Let Mortgage is not being phased out.

It is just being restricted to the basic rate of income tax of 20% as opposed to some Landlords who were getting relief at 40%. Even this reduction will not come fully into effect until April 2020.

By then Corbyn will be running the nation; he doesn’t like BTL landlords.

Uncle Spielberg · Mar 13, 2018

Herr Tubthumper said:
By then Corbyn will be running the nation; he doesn’t like BTL landlords.

Nor do the Tories

Normski1989 · Mar 13, 2018

cjd said:
The tax relief on a Buy to Let Mortgage is not being phased out.

It is just being restricted to the basic rate of income tax of 20% as opposed to some Landlords who were getting relief at 40%. Even this reduction will not come fully into effect until April 2020.

It also changes the way the calculation is done, so it might push people into the higher rates tax bracket but then only allow relief at the basic rate of 20%. Lots of people will get caught unaware.

LlcoolJ · Mar 13, 2018

cjd said:
The tax relief on a Buy to Let Mortgage is not being phased out.

It is just being restricted to the basic rate of income tax of 20% as opposed to some Landlords who were getting relief at 40%. Even this reduction will not come fully into effect until April 2020.

True. It's a bit more snide than that though with the way that you have to account for the gross rents as income when calculating if you do go into the 40% bracket. It will push many people who are currently basic rate taxpayers into the higher rate purely because of their rental property, and then they lose that part of the tax relief on the interest.

As I've said before, it's clever stuff as on the face of it the policy is to tax unscrupulous BTL landlords more heavily and assist first time buyers by freeing up more property. In reality it just plays into the already incorporated hands of the big boys (and screws the middle earners as per usual) without doing anything material to change the housing market.

LlcoolJ · Mar 13, 2018

Uncle Spielberg said:
Nor do the Tories

Not the small ones. Big companies owning swathes of property, they're cool with that.

Herr Tubthumper · Mar 13, 2018

Uncle Spielberg said:
Nor do the Tories

Good point.

Herr Tubthumper · Mar 13, 2018

LlcoolJ said:
Not the small ones. Big companies owning swathes of property, they're cool with that.

Better point.

Triggaaar · Mar 13, 2018

LlcoolJ said:
When you managed to get your second property (accidental landlord style) on a non BTL mortgage and it turned out that after the fixed rate finished it reverted to .75 above base rate so you don't want to switch it or rock the boat. [emoji6]

I'll take that as a no.

And if it's .75 over base, the last thing you want to be doing is paying it off

LlcoolJ · Mar 13, 2018

Triggaaar said:
I'll take that as a no.

And if it's .75 over base, the last thing you want to be doing is paying it off

What other option would you suggest in this hypothetical case then?

Triggaaar · Mar 13, 2018

cjd said:
The tax relief on a Buy to Let Mortgage is not being phased out.

True it's not completely going, but it is changing significantly.

It is just being restricted to the basic rate of income tax of 20% as opposed to some Landlords who were getting relief at 40%.

Well there's more to it that that. You can't deduct the mortgage costs from your revenue when calculating your profit, but you can get a tax discount at 20% of mortgage interest - for low earners that will mean your tax is the same, but because the discount is given after calculating profit, your profits declared as higher than before which can push you into higher tax brackets.

Even this reduction will not come fully into effect until April 2020.

If you're planning a long term investment like a BTL, that's pretty close.

Triggaaar · Mar 13, 2018

Renegade1 said:
How does an equity release loan work?

Buy a flat for £80k, get a mortgage for £60k. Some years later the property is worth double, so you want to get a bigger mortgage, so you can use the money to buy more.

I was talking about if you came into some money and just owned your home,then whether it would be better to pay off some of your mortgage or stick it in the bank as that way you have liquid cash.Assuming there is little difference between your mortgage rate and your savings rate then the bank is a better option?

Well you'd have to pay tax on the interest earned in the bank. And getting a bank rate to match your mortgage isn't easy. But otherwise sure, you get the flexibility of having it in the bank which is good. But I was comparing paying off your home mortgage with paying off a BTL mortgage.

Triggaaar · Mar 13, 2018

Renegade1 said:
So basically the option of using what's left of your rent after paying the interest to pay off your home mortgage will be gone when interest tax relief is phased out.

As cjd pointed out, I wasn't right to say it's being phased out completely, but it is changing significantly. If after rent you're still not in the higher tax brackets, then it's ok for you.

So the other option as stated is to use what's left to put it into an ISA assuming the rate is higher than your BTL mortgage rate.

An ISA was just one example. All things being equal, you just don't want to push your tax up.

Out of interest,if you guys won 500k on the lottery tomorrow,how would you invest it?Property?shares?other ways?A mix?If a mix what would be the split?

It all depends too much on personal circumstances, your age, your earnings, your wealth, your experience with these things. Property can be an unnecessary headache for someone without experience who earns good money without spending their time trying to look after property.

LlcoolJ said:
What other option would you suggest in this hypothetical case then?

So you've got a BTL with an interest only mortgage that's .75 over bass. Pay the interest, invest your profits however you see fit. Do not pay down the mortgage. Is that what you're asking?

LlcoolJ · Mar 13, 2018

Triggaaar said:
So you've got a BTL with an interest only mortgage that's .75 over bass. Pay the interest, invest your profits however you see fit. Do not pay down the mortgage. Is that what you're asking?

No. As I said, the mortgage isn't BTL and it is repayment. Hence the best plan being to leave it alone........

Otherwise it would be a no brainer as you say.

Triggaaar · Mar 13, 2018

LlcoolJ said:
No. As I said, the mortgage isn't BTL and it is repayment.

Although not a BTL mortgage, you said second property, so I assume the property is a BTL?

Hence the best plan being to leave it alone........

Probably worth doing some maths, but yeah, you can't be ditching a mortgage like that. Could you perhaps transfer it to your home instead, and get a new BTL for the rented property?

LlcoolJ · Mar 13, 2018

Triggaaar said:
Although not a BTL mortgage, you said second property, so I assume the property is a BTL?

Probably worth doing some maths, but yeah, you can't be ditching a mortgage like that. Could you perhaps transfer it to your home instead, and get a new BTL for the rented property?

Home mortgage is being overpaid already and should be gone in under 5 years, not worth messing with.

Similar term left on the other one. That's when some serious maths will need doing though, you're right.......

Uncle Spielberg · Mar 13, 2018

LlcoolJ said:
Home mortgage is being overpaid already and should be gone in under 5 years, not worth messing with.

Similar term left on the other one. That's when some serious maths will need doing though, you're right.......

You know your stuff and added great value to this thread

Birdie Boy · Mar 13, 2018

So, if you are already in the 40% tax bracket, with no BTL, are we saying it is not worth the bother?

Weststander · Mar 13, 2018

Birdie Boy said:
So, if you are already in the 40% tax bracket, with no BTL, are we saying it is not worth the bother?

BTL’s are partly bought for the capital appreciation, which is inevitable over the medium to long term in southern England. If there are borrowings, rental income after costs and interest may well be modest in the early years. Taxation hasn’t prevented huge numbers of wealthy individuals acquiring BTL’s as they make great investments:

Is it PotG? · Mar 13, 2018

Indeed, we have a BTL on interest only. The (hopeful) capital appreciation makes it a long haul job, the rental income (less costs) paying the mortgage more or less to the penny.

NB. We do not fall into the 'wealthy individuals' bracket.

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[Finance] Buy to Let Mortgages

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