Looking to get into Buy to Let

PaulSMallinson · 1 June 2017 at 4:42AM

Hi,

I am looking to set up my first buy to let property in the not to distant future and cant seem to find advice that I am looking for elsewhere on the net, so thought I would register on here and see if you folks can offer some advice.

I have a company share scheme and have so many shares now available to sell, enough for a reasonable deposit on a small house.

Currently my wife and I jointly own our house (mortgaged), I work and I am in the 40% tax bracket. My wife currently isn't employed, she is bringing up our children.

I am hoping that we will be able to:

Buy a small house/flat to rent out on a repayment Mortgage (rather than a Buy to Let interest only Mortgage)

Set up a new bank account that the mortgage payments will come out of, along with any other costs (insurance etc) and that the rent goes into. Any profits would build up in the account, to cover any unforeseen maintenance costs, and hopefully ultimately put towards another property in the future to rent out.

The profits would hopefully be in my wife's name to take advantage of her currently unused tax code, and thus go un-taxed.

Is it possible to proceed as I have described?

What would our first steps be? Other than, securing a mortgage, setting up a bank account, finding a property.

I would probably look to use a letting agent to market, help find a tenant, and draw up a contract, but after that, to maximise income I would rather take care of things between my wife and myself. I have done my sums, and I am confident that I can buy a property, let it, pay the mortgage and still have approx £100-200 left over a month in profit.

Thanks in advance for any advice and guidance.

Paul

agrinnall · 1 June 2017 at 8:07AM

I'm sure G_M will post his links at some point, but one thing to consider in the meantime is your desire to take out a repayment mortgage. I'm not sure whether lenders offer these on Buy to Let properties anyway, but even if they do it may not be a good idea. The reason for this is that you can only claim as an expense against your letting profits the interest element of mortgage payments, so if you have a repayment mortgage the capital payments are not allowable expenses. This is one reason why most BTLs are purchased using an interest only mortgage (as well as keeping the repayment costs lower).

LdnFtB · 1 June 2017 at 8:43AM

agrinnall wrote: »

you can only claim as an expense against your letting profits the interest element of mortgage payments, so if you have a repayment mortgage the capital payments are not allowable expenses. This is one reason why most BTLs are purchased using an interest only mortgage (as well as keeping the repayment costs lower).

This isn't the case any more - mortgage interest relief is being phased out so that your entire rental income will be taxed as profit.

The Guardian - How a healthy buy-to-let profit could soon become a painful loss

tom9980 · 1 June 2017 at 8:54AM

Are you aware that you will have to pay extra stamp duty?

Are you willing to self manage the property? Giving an agent 10% of your income seems stupid to me.

Do you both have adequate pensions, investments and 6 months expenses in cash savings? Ideally property should be less than 25% of your net wealth.

Are you aware of the huge amounts of rules and regulations you must follow while being a landlord? For instance getting the deposit protected can result in a 3x penalty for doing something as simple as forgetting to print some documents and resend them when a tenancy is renewed despite the deposit being protected.

Personally I think the learning curve of all this regulation is too much a risk now there can only be more regulation and tax on the way.

You can also see that confidence in the housing market has slowed with transactions low, it seems house prices will stagnate or maybe reduce over the next 5 years.

Have you worked out the yields on potential investments?

Pixie5740 · 1 June 2017 at 9:01AM

Threads within the last week started by would-be landlords.

http://forums.moneysavingexpert.com/showthread.php?t=5657080&highlight=btl

http://forums.moneysavingexpert.com/showthread.php?t=5654232&highlight=btl

http://forums.moneysavingexpert.com/showthread.php?t=5647104&highlight=btl

http://forums.moneysavingexpert.com/showthread.php?t=5656295&highlight=btl

http://forums.moneysavingexpert.com/showthread.php?t=5654037&highlight=btl

http://forums.moneysavingexpert.com/showthread.php?t=5654073&highlight=btl

Enjoy

00ec25 · 1 June 2017 at 10:39AM

PaulSMallinson wrote: »

What would our first steps be? Other than, securing a mortgage, setting up a bank account, finding a property.

I would probably look to use a letting agent to market, help find a tenant, and draw up a contract, but after that, to maximise income I would rather take care of things between my wife and myself. I have done my sums, and I am confident that I can buy a property, let it, pay the mortgage and still have approx £100-200 left over a month in profit.

Your first steps will be to drop use of the words "our" and "I" given the tax position.

Your wife is the only person who can own the property if "you" do not want to be liable for a share of the income at your higher rate tax. Just because there is a separate bank account does not mean that you have no tax liability if you are a co-owner.

The criteria for a BTL mortgage (repayment or IO) often require a minimum income underpinning the actual affordability used, ie interest cover and LTV. Would your wife be able to get the mortgage without you being party to it?

It is possible to be "on" a mortgage but not "on" the property deeds. Just be aware of that possibility given your tax plans. If you are party to the mortgage then the wife cannot claim all of the interest charge since part of it is yours, but you won't have a share of the rental income so cannot claim tax relief on your share of the interest

LdnFtB wrote: »

This isn't the case any more - mortgage interest relief is being phased out so that your entire rental income will be taxed as profit.

Sorry but that is misleading because it is not that simple

it is true that interest is no longer deducted before working out the profit, but it is untrue to say tax relief is being phased OUT

tax relief will carry on, but it is capped at 20% not your marginal tax rate. Therefore anyone who is above basic rate tax will pay more tax on their profits, but will still get 20% tax relief on their interest charge.

Their profits could also be higher than they were used to before and thus they are "pushed" into the higher rate tax band depending on their figures.

rather than one line attempts at tax summaries, the best place to read about tax is from the government, they make the rules after all!

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

Crashy_Time · 1 June 2017 at 1:12PM

So in a word....Don`t?

Crashy_Time · 1 June 2017 at 3:56PM

00ec25 wrote: »

Your first steps will be to drop use of the words "our" and "I" given the tax position.

Your wife is the only person who can own the property if "you" do not want to be liable for a share of the income at your higher rate tax. Just because there is a separate bank account does not mean that you have no tax liability if you are a co-owner.

The criteria for a BTL mortgage (repayment or IO) often require a minimum income underpinning the actual affordability used, ie interest cover and LTV. Would your wife be able to get the mortgage without you being party to it?

It is possible to be "on" a mortgage but not "on" the property deeds. Just be aware of that possibility given your tax plans. If you are party to the mortgage then the wife cannot claim all of the interest charge since part of it is yours, but you won't have a share of the rental income so cannot claim tax relief on your share of the interest

Sorry but that is misleading because it is not that simple

it is true that interest is no longer deducted before working out the profit, but it is untrue to say tax relief is being phased OUT

tax relief will carry on, but it is capped at 20% not your marginal tax rate. Therefore anyone who is above basic rate tax will pay more tax on their profits, but will still get 20% tax relief on their interest charge.

Their profits could also be higher than they were used to before and thus they are "pushed" into the higher rate tax band depending on their figures.

rather than one line attempts at tax summaries, the best place to read about tax is from the government, they make the rules after all!

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

Tax relief could be phased out in future though?

Cakeguts · 1 June 2017 at 5:35PM

You can only do this if you can afford to pay both mortgage without using any rent. If you get a problem tenant and they stop paying the rent you may have to pay the rent for all of the 6 months it might take for your possession case to come to court without any rent. You also have to carry on making repairs even if your tenant has stopped paying rent.

Crashy_Time · 1 June 2017 at 6:25PM

Cakeguts wrote: »

You can only do this if you can afford to pay both mortgage without using any rent. If you get a problem tenant and they stop paying the rent you may have to pay the rent for all of the 6 months it might take for your possession case to come to court without any rent. You also have to carry on making repairs even if your tenant has stopped paying rent.

How many people getting into BTL would seriously consider that though, for more than a millisecond anyway? The only thing that will focus people`s minds away from BTL is the level of tax the PTB fancy trying to extract from it.

PaulSMallinson · 2 June 2017 at 1:14AM

Yes, I am aware that buying a second property incurs additional rates on stamp duty, and yes, I would prefer to manage myself, I don't like the idea of a letting agent taking 10% of the rent, I don't think that id good value for money for what they do, and I have enough spare time to be able to do it myself.

My wife doesn't have a pension, but I have a good company pension. I have several investments in place through my work, in the guise of various share saving schemes, most of which I cannot touch at present (and the one I can would be cashed in to pay the deposit on the rental) but could be cashed in readily in times of financial hardship.

I must admit I am not fully aware of all rules and regulations of being a landlord, but was planning on receiving help from a letting agent (and a accountant friend) in setting a rental up and finding a tenant, but then managing myself once set up.

I have worked out yield on a potential purchase to be in the region of 8-12%, which from what I have read is a good return.

Edit: Having done some more reading and research, I now realise I would need a bigger deposit than first thought, and probably have to pay a higher interest rate, so now think the yield would be nearer 6%. Not quite so good.

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Looking to get into Buy to Let

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