[Finance] Buy to Let Mortgages

[Uncle Spielberg]

I know there should be enough equity in properties that have both started with a decent deposit and gone through decades of price rises - I'm asking about the mechanics of when the property owner leaves it to the last minute, and then the mortgage is due to be repaid. How much time do they have, what interest do they pay in the meantime etc?

Well they have plenty of notice so as long as they market it in time, it will sell at the right price or if their lender will not extend the term they can, criteria and personal circumstances allowing, re mortgage to another lender who will lend to a higher age

 

[Uncle Spielberg]

So as an ISA should have a higher interest rate than a mortage it's better rather than to overpay an interest only mortgage,put that overpayment into an ISA?
What are ISA rates?


I would be interested to know for every 100m invested in this country what this money is invested into and what percentage.Am I right to assume the No 1 investment would be property?

It is impossible to answer without knowing future mortgage rates, investment rates and property market gains or losses

 

[Triggaaar]

Plus you don't end up with the scenario Trig is asking about. You end up owning the property.

You own the property either way, but if you don't pay down the mortgage you also have a large debt to go with it But if you've invested the savings, you can pay off that debt and then some.

 

[Triggaaar]

Well they have plenty of notice so as long as they market it in time, it will sell at the right price

Of course, I'm just wondering what happens if they don't. I'm wondering what the rules are if they just leave it until the mortgage has to be settled.

or if their lender will not extend the term they can, criteria and personal circumstances allowing, re mortgage to another lender who will lend to a higher age

and what if no lender will give them a mortgage? Maybe there are no rules, I just thought there may be regulations that stop the lender repossessing on day 1 etc - for example, if the lender had to accept interest payments at their standard variable rate for at least 12 months before they're allowed to repossess. No worries if it's not something you've come across, I just wanted to know.

 

[Renegade1]

It's all about tax. When you earn revenue from rent, you pay tax on that revenue, but only after you have deducted the interest on the loan you used to purchase the property. If you pay down the mortgage, then the amount of interest you're paying on the property goes down, so you pay more tax.

Of course paying less interest is good, but that's balanced by your alternative use of the cash earning interest. If you're investing in BTLs, then you should be doing well with your investments - better than using the cash to pay off a mortgage and increase your tax.

An alternative to ISAs etc would be to repay the mortgage on your home instead. You're not getting tax relief on that anyway, so repaying that is good.

I guess the exception would be if you've got a rubbish BTL mortgage and your rate is much higher than you can earn with investments.

They are phasing out claiming the interest against tax?

I get the idea of making payments against your home rather than against a BTL and looked at this in the past.I wondered if it was
possible to transfer the mortgage on your home onto the one for the BTL therefore increasing the interest payments so more to claim
against tax.In the end I don't think it could be done.

Then there's the whole question about if you came into some money should you put it against your home mortage or BTL.
Some people are obsessed with paying off their mortgage ASAP.However if there is little difference between interest on a mortgage
and interest on savings then surely best to opt for a savings account therefore having the flexibility of liquid cash?

 

[LlcoolJ]

You own the property either way, but if you don't pay down the mortgage you also have a large debt to go with it But if you've invested the savings, you can pay off that debt and then some.

I do get the logic, it's the "if you've invested the savings" bit that very many BTL landlords don't do though. Instead treating all the profit as income and then ending up with your scenario. Paying off the mortgage on a monthly repayment basis removes the possibility. It all depends on the sums involved of course but it's really not as simple as interest only good/repayment bad. At all.

 

[Triggaaar]

So as an ISA should have a higher interest rate than a mortage it's better rather than to overpay an interest only mortgage,put that overpayment into an ISA?

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.

 

[Renegade1]

It is impossible to answer without knowing future mortgage rates, investment rates and property market gains or losses

As rates are not changing at a rapid speed and rates are set to go up very very slowly,you could take out an ISA then review it when the term is finished?

 

[Triggaaar]

They are phasing out claiming the interest against tax?

Yes. Unless you've got your BTL in a company, this basically no longer applies from now. A BTL now is a pain.

I get the idea of making payments against your home rather than against a BTL and looked at this in the past.I wondered if it was possible to transfer the mortgage on your home onto the one for the BTL therefore increasing the interest payments so more to claim against tax.In the end I don't think it could be done.

The tax rules said that for the loan interest to be tax deductible, the loan had to be used to purchase the property in the first place, but many investors used equity release loans (in their BTLs) to help buy more BTLs to expand their portfolio and their accountants argued that the loans were being used for purchasing BTLs and treated the whole lot (all properties and morgages) together. I don't think you'd get away with it if you were moving your home mortgage.

Then there's the whole question about if you came into some money should you put it against your home mortage or BTL.
Some people are obsessed with paying off their mortgage ASAP.However if there is little difference between interest on a mortgage
and interest on savings then surely best to opt for a savings account therefore having the flexibility of liquid cash?

Unless the rates are significantly different, paying off your home mortgage surely beats paying off a BTL? As for doing something else with it, that depends how good you are at investing

I do get the logic, it's the "if you've invested the savings" bit that very many BTL landlords don't do though.

Well yeah obviously it's financially better in the long term to pay off a mortgage than piss your profits up the wall, that goes without saying. But the latter should be more fun

Paying off the mortgage on a monthly repayment basis removes the possibility.

It's not the best way to invest though (although the rule changes are affecting that).

It all depends on the sums involved of course but it's really not as simple as interest only good/repayment bad. At all.

Up until the rule changes, can you give me an example of how BTL repayment beats interest only (comparing with party boy doesn't count)?

 

[Weststander]

They are phasing out claiming the interest against tax?

Yes, unless you run a small ltd co to own the BTL's (with their bank loans), where you will continue to get full relief for interest paid and lenders other charges against profits subject to corporation tax.

 

[Renegade1]

Yes, unless you run a small ltd co to own the BTL's (with their bank loans), where you will continue to get full relief for interest paid and lenders other charges against profits subject to corporation tax.

How much does it cost to set up a ltd conmpany?

 

[LlcoolJ]

Up until the rule changes, can you give me an example of how BTL repayment beats interest only (comparing with party boy doesn't count)?

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]

 

[LlcoolJ]

How much does it cost to set up a ltd conmpany?

£12

https://www.gov.uk/limited-company-formation/register-your-company

Be aware that it's not as simple as "chuck the property in a Ltd Co" though. You need proper professional advice.

 

[Uncle Spielberg]

How much does it cost to set up a ltd conmpany?

The rates and fees are much higher for a limited company buy to let. Re the tax seek the advice of an accountant

 

[Renegade1]

Yes. Unless you've got your BTL in a company, this basically no longer applies from now. A BTL now is a pain.

The tax rules said that for the loan interest to be tax deductible, the loan had to be used to purchase the property in the first place, but many investors used equity release loans (in their BTLs) to help buy more BTLs to expand their portfolio and their accountants argued that the loans were being used for purchasing BTLs and treated the whole lot (all properties and morgages) together. I don't think you'd get away with it if you were moving your home mortgage.

Unless the rates are significantly different, paying off your home mortgage surely beats paying off a BTL? As for doing something else with it, that depends how good you are at investing

Well yeah obviously it's financially better in the long term to pay off a mortgage than piss your profits up the wall, that goes without saying. But the latter should be more fun

It's not the best way to invest though (although the rule changes are affecting that).
Up until the rule changes, can you give me an example of how BTL repayment beats interest only (comparing with party boy doesn't count)?

How does an equity release loan work?

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?

 

[Renegade1]

£12

https://www.gov.uk/limited-company-formation/register-your-company

Be aware that it's not as simple as "chuck the property in a Ltd Co" though. You need proper professional advice.

Why do you think I come on here? To talk about football ?

 

[Herr Tubthumper]

£12

https://www.gov.uk/limited-company-formation/register-your-company

Be aware that it's not as simple as "chuck the property in a Ltd Co" though. You need proper professional advice.

Quite. I understand you will need to sell it to the business at the going market rate. So you’ll have the fees for selling it and then buying it plus possible capital gains.

 

[Renegade1]

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.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.

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?

 

[Herr Tubthumper]

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?

Property.

 

[LlcoolJ]

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.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.

No. The removal of interest relief just means that you pay (much) more tax on the rental profit as the BTL interest is not an allowable expense. What you do with what's left (if there is anything) is entirely up to you.

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?

You'd have to ask me once I'd sobered up.