[Finance] Buy to Let Mortgages

[Birdie Boy]

I'm thinking long haul as in 15 years To boost pension.

 

[Shropshire Seagull]

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]

If you lived in a property and then moved out and let it, this is called a let-2-buy mortgage. They basically convert your primary residence mortgage to a BTL

All this talk of mixing residential with letting mortgages - remember the basic principle is that everyone can have a primary residence mortgage [assuming lending criteria met] but as soon as you want another property mortgage - e.g. BTL this is a kind of business loan so must attract a slightly higher % rate.

Also, the point of making over payments on an Interest only mortgage does not, in my experience with Nationwide, actually reduce the capital [principle sum] of the loan. Your account simply goes into credit which will allow you to take a payment "holiday" if you wish, or have the money returned. I suppose it might be possible to ask the lender if they would accept it as payment against capital, but you cannot have an interest only mortgage and treat it as if it were a repayment mortgage [to your benefit].

 

[Shropshire Seagull]

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

Given that the criteria for BTL lending is the rental stress-test then surely the age / income of the borrower is of no relevance.
I fully expect that when my BTL interest only mortgages reaches maturity, the value of the property will have gone up, the rental value likewise, but the loan to value will be less which should make the stress-test easier to pass. I would not expect any problem in continuing [re-mortgaging] a BTL interest-only mortgage until the day I drop. Am I missing something?

I also have no desire to "own" my BTLs so not interested in repayment mortgages - far better to use any surplus on something closer to home like your primary residence mortgage over payment.

 

[LlcoolJ]

If you lived in a property and then moved out and let it, this is called a let-2-buy mortgage. They basically convert your primary residence mortgage to a BTL

It wasn't quite like that. Fortunately as there's no way the deal would have ended up as good as it is.

Agree with everything else you've written though.

 

[LlcoolJ]

You know your stuff and added great value to this thread

Nice to know from an expert (which I'm very much not). Thanks US.

 

[Renegade1]

You know your stuff and added great value to this thread

There's a bunch of you here who know your stuff and it was a smart move of me to start this thread because I've learnt some very useful stuff.
(even if it's not all clear to me)

 

[Renegade1]

Here's one for you guys and relates to someone I know.

You have a flat you rent out with a lease of 93 years.To bump that lease up will cost around 36K.
To sell and buy a freehold flat will mean you will pay around 36K in CGT.

Is there another option?

 

[Renegade1]

True it's not completely going, but it is changing significantly.
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.
If you're planning a long term investment like a BTL, that's pretty close.

So you are saying if your interest is for example £200 per month,rather than claiming that full amount against tax due,you can only claim 20% of that?

 

[Renegade1]

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.

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.

The flat is worth £160k so you can borrow another £80k for a deposit to buy another property?

Is this how some people get to own many properties?I knew a couple of guys who built up something like 150 properties.

 

[Triggaaar]

So you are saying if your interest is for example £200 per month,rather than claiming that full amount against tax due,you can only claim 20% of that?

No I'm not saying that. A link explains it more easily:

https://www.propertygeek.net/article/mortgage-interest-relief/

 

[DJ NOBO]

Question for the panel.

I bought my btl in 2006. .
I never deducted the cost of setting up the mortgage (2k) in my annual self assessment as an allowable expense as I thought it was a capital expense. I was wrong.
Can I still claim now on this year’s income return ? (Potentially saving hundreds ) Or is it too late ?

 

[Triggaaar]

The flat is worth £160k so you can borrow another £80k for a deposit to buy another property?

Is this how some people get to own many properties?

Yes. Although perhaps not another £80k, but certainly a good chunk more, enough for a deposit on another property or two.

I knew a couple of guys who built up something like 150 properties.

Indeed.

 

[cjd]

So you are saying if your interest is for example £200 per month,rather than claiming that full amount against tax due,you can only claim 20% of that?

No.

You can set all the interest paid against your income. But you will only get relief on your tax bill at 20% and not the 40% that those in the higher tax bracket claim at present.

Would probably be a good idea to google tax relief on Buy to Let properties. They will give actual examples.

 

[Triggaaar]

You know your stuff and added great value to this thread

If only I knew enough to get praise like that.

 

[Triggaaar]

Also, the point of making over payments on an Interest only mortgage does not, in my experience with Nationwide, actually reduce the capital [principle sum] of the loan. Your account simply goes into credit which will allow you to take a payment "holiday" if you wish, or have the money returned.

Each month they calculate how much interest you have to pay them. When they make that calculation, do they use the principle sum of the loan, or deduct the credit amount first? If the latter, then you pay less interest, so you pay more tax.

I suppose it might be possible to ask the lender if they would accept it as payment against capital, but you cannot have an interest only mortgage and treat it as if it were a repayment mortgage [to your benefit].

What does that mean?

 

[Triggaaar]

You have a flat you rent out with a lease of 93 years.To bump that lease up will cost around 36K.

93 years is a good length of time, where did you get the quote from, I wouldn't expect it to be that much unless it's a really expensive flat.

To sell and buy a freehold flat will mean you will pay around 36K in CGT.

Is there another option?

Big questions, little information. Why do you need to extend it now? Why can't you keep going as is?

 

[Renegade1]

93 years is a good length of time, where did you get the quote from, I wouldn't expect it to be that much unless it's a really expensive flat.
Big questions, little information. Why do you need to extend it now? Why can't you keep going as is?

It's not my property.The owner wants to leave it to his daughter when he dies and wants to leave it with a long lease.
The flat is worth around 250K.

 

[Renegade1]

Yes. Although perhaps not another £80k, but certainly a good chunk more, enough for a deposit on another property or two.
Indeed.

Assuming you can borrow another 50k for a deposit on a flat worth 200k.Where does the other 150k come from?
I'm interested to know how people like those two guys got to build up to around 150 properties.
How others might do 10/20/30 properties?

 

[Triggaaar]

It's not my property.The owner wants to leave it to his daughter when he dies and wants to leave it with a long lease.
The flat is worth around 250K.

Find out the ground rent and enter the details into an online calculator to find out how much it should cost to extend the lease. £36k sounds way off to me.

Assuming you can borrow another 50k for a deposit on a flat worth 200k.Where does the other 150k come from?

Er, a mortgage

I'm interested to know how people like those two guys got to build up to around 150 properties.
How others might do 10/20/30 properties?

Well it's different now, but in the old days you could get 100% mortgages, and property was not too expensive.

 

[Uncle Spielberg]

If only I knew enough to get praise like that.

You are decent as well