Updating post from Reddit.
Hey guys just after your advice on the financial side as a landlord:
Have a BTL interest only up for renewal in 2027.
house value approx 225k Current loan £126k at 2% (£216pcm) Current rent £950pcm (I increase 5% every year).
When I renew interest may be around. 4.5/5%? Taking loan payments to £450 roughly?
Do I just keep everything the same (apart from rent increase) and just take the hit? (Down to £5k a year profit (on a good year).
Or remortgage to £180k, leave 20% LTV, pocket the extra 55k. Have mortgage payments of £750 (rent will be roughly £1050) and just not plan on making anything meaningful on the rent?
Hopefully you see my conundrum?
Thanks!
UPDATE 1: ideally I want to keep the property for life, but obviously if it doesn't make business sense anymore, then no.
Take the additional borrowing only if this is to be reinvested.
Yes of course. To go into another property. Or do I sell everything and wait for the impending crash 🤣😅
Not another one 😂
I agree with the remortgage up to a higher LTV but given your yield you might struggle to get to 80%. Only a few lenders go that high on BTL and even 75% might be a struggle to get past the stress tests. Go as high as you can though.
We don’t know what rates will be by then, but even now you’d be better with TMW at 3.59% and add the 3% fee to the balance (which you still put through your tax return as a finance cost)
Thank you for this. Much appreciated. I don't mind keeping 25% LTV in, it would cover CGT if needed/forced to sell. Although if that market drops at any point, could get hairy 😀
Will you even want to stay in the market in 2027?
What do you want from your property?
Honestly, until you answer these, no one can give you any advice really...
Ideally make rent and watch the loan fizzle into insignificance due to inflation. Or keep refinancing also to draw 50-70k every 5 years or so depending on what the market is doing and then just sell it for no profit at the end.
I know that doesn't make it clearer, but any short term money is never better than keeping hold of an assert in my mind
You've answered one, but not the most important one.
Until you know if you want to be in the market in 2027, what does it matter?
Sorry if I'm being thick. I bought it cheap, so at the moment the ROI makes sense on paper. It's not in a great area or anything. As long as it makes 7% plus, I'd stay, otherwise I'd sell, I'm not precious about it
Go and read about the proposed rental reforms.
Understand then implications.
Then recognise what that means for you.
Then think about whether that impacts your decision.
Letting in 2027 likely won't mean the same as letting now.
Sorry yes I have read all that. More then likely, I think they will become just another step in doing business for the most part. They still don't seem like killers of this business model. I may be wrong of course. The people at the top never introduce laws that they can't work around. And if they can, we all can.
Hat tip to that answer. That’s probably the most logical sensible answer I’ve seen in response to those that think BTL is going to collapse due to the new reforms being introduced.
I think by 2027 you’ll hopefully be looking at 3 -4% max mortgage rate, so hopefully not as painful as it could be.
I’m currently remortgaging a BTL at 4.2%, taking some additional borrowing to increase to 75% LTV.
I’m not 100% certain of where the extra 50k will go initially, probably just sit in a fixed rate isa generating more interest than I’m paying to borrow it (which funny given I’ll get tax relief on the interest in the BTL as well)
Then I can either pay down our residential mortgage when we have to renew that at a higher rate in 2026 or I might just leave it in a S&S ISA, see if the S&P 500 keeps giving 15% returns…
Though with those sort of returns available else where you could also consider selling up. If you put it in the market and sold at the end of the fixed mortgage then how much cash would you come away with after CGT etc?
Thanks for the tips!
That particular one, was valued at 150k, I bought it off my parents for 120k, but gave them 30k cash, so bought it at 90k technically. Now I don't know where the line is drawn there as far as what I've made in capital gains.
If it's at 90k, and sell at 225k (at the very lowest) that's 135k difference, 28% cgt is £37.8k, and with a 126k mortgage at the moment, I'd have about 60k left after solicitors fees etc. Roughly.
If it would be drawn at 120k or what it was actually worth (150k) then I'd be u to 76k profit.
It is a tough one
Wouldn’t it be a bit risky to declare you paid 30k cash?. That would have likely impacted the amount of stamp duty you paid would it not? Also, did your parents declare that 30k to HMRC?
If it’s not written down anywhere, then I’d consider not to mention it.
No as I was first time buyer, and at that point there was no stamp duty below 500k. So made no difference.
And my parents were selling this home and buying their next one. (Main residence, no other properties). They wouldn't have had to pay tax on the 120k they got from the sale. So why would they if they got 90k from the bank and 30k direct cash. It was only to keep the mortgage smaller for me. It would have made no material difference to anything else. I hope I'm right anyway 😅😁
Honestly the way things are going with regulation/ tax I'd take the lump sum out personally. You don't get taxed on refinancing a loan but you do get taxed on profit cash flow. (Assuming it's a limited company)
Not in a Ltd company unfortunately. Been doing the old, buy, live in it whole renovating then rent out. Would like to get them across into a Ltd company but the stamp duty will kill me
You make it back in tax write offs pretty quickly. Interest from mortgage is tax deducted on profit unlike in personal name, management fees too. Payout for dividends is 8.75% up to personal income of 50k instead of paying income tax.
Plus if you're interested you can write solar panels off on tax at 130% of their value so the government is literally paying you to buy more of the means of production