Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • pph
    • By pph 14th Apr 17, 5:55 PM
    • 140Posts
    • 11Thanks
    pph
    Going buy to let: "So Sir, what's your strategy for paying back the capital?"
    • #1
    • 14th Apr 17, 5:55 PM
    Going buy to let: "So Sir, what's your strategy for paying back the capital?" 14th Apr 17 at 5:55 PM
    Hi again.

    Me and my significant other are moving to another city, leaving where we own on an interest only mortgage and using the margin between our new mortgage payment (much lower than out current capital repayment residential mortgage) to offset the cost of renting in a new place in the town we are moving to.

    (We have checked with the bank and it's fine to transfer the residential mortgage into a buy to let. We're also aware that if/when we come to sell we'll need to pay capital gains tax. Am also aware we'd need to declare the rent as earnings.)

    We are going for our meeting with the bank to make the mortgage application to switch to a buy to let where we currently live. They have asked me what our repayment strategy is - i.e. if we go for a 25 year mortgage and not pay back any of the principal of the loan during that term, what will we do in 25 years? These are the options I can think of:


    1) I have assumed that a 2 bed property in zone 2/3 North West London will appreciate in value by an average of 3% p/a over the term of the buy to let mortgage (25 years). But we would plan to sell the place in year 20 and the selling price would be 4 times the value of the mortgage left. Is assuming 3% rise in value going to sound reasonable?

    2) I have calculated the value of my own pension in 20 years (just adding mine and my employer's contribution, no growth) - my g/f hasn't got a pension. The total value of all my pension in 20 years from now will be pretty much bang on the amount of of loan we own the bank. I am 38 now so in 20 years under changes in pension law I should be able to start taking it out and pay back the bank what's owed to them (even if I need to do it over 5 years), then sell the house and keep all the proceedings (or carry on renting it out and that will be my pension).

    Are these two strategies sounding reasonable to the MSE community?

    Ideally, we would save the margin we earn between the buy to let mortgage and the amount we would let the place in London for in a high interest account but we need that money as we are both taking a big step down in salary moving away from London and she's going freelance so just starting out on a new career.
Page 2
    • Thrugelmir
    • By Thrugelmir 15th Apr 17, 10:10 AM
    • 53,847 Posts
    • 46,634 Thanks
    Thrugelmir
    they have a policy of issuing "permission to let". Woolwich/Barclays certainly have and a few years back they granted this for a small admin fee of less than £50.
    Originally posted by Mutton Geoff
    Consent to Let is normally determined on a case by case basis. Some lenders only view this as being a temporary arrangement.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • Mutton Geoff
    • By Mutton Geoff 15th Apr 17, 12:23 PM
    • 796 Posts
    • 613 Thanks
    Mutton Geoff
    Consent to Let is normally determined on a case by case basis. Some lenders only view this as being a temporary arrangement.
    Originally posted by Thrugelmir


    Quite, but isn't life itself a temporary arrangement?
    Compensations/Refunds from Banks & Institutions - £3,435 | Stooz Profits - £7,636 | Quidco - £3,903

    All with a big thank you to Martin and MSE.com from Mutton Geoff!
    • Crashy Time
    • By Crashy Time 15th Apr 17, 6:19 PM
    • 4,256 Posts
    • 1,988 Thanks
    Crashy Time
    It's appreciated 70% in value since Aug 2012.. but with Trump / Brexit / Goodness knows what... hence I am being conservative with the 3% thing.

    If we sold it tomorrow we'd easily pay back the principal of the loan.
    Originally posted by pph

    If you can find a buyer. You need to get it on the market ASAP, and be prepared to drop the price IMO.
    • Thrugelmir
    • By Thrugelmir 15th Apr 17, 9:36 PM
    • 53,847 Posts
    • 46,634 Thanks
    Thrugelmir
    Quite, but isn't life itself a temporary arrangement?
    Originally posted by Mutton Geoff
    Life is more often or not longer than say 3 years.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • BLOW FLY
    • By BLOW FLY 16th Apr 17, 1:06 AM
    • 85 Posts
    • 69 Thanks
    BLOW FLY
    OP what if house prices go down? Your >3% pa growth plan is instantly obliterated.....

    Have you considered all the angles of being a LL?


    BF
    • Crashy Time
    • By Crashy Time 16th Apr 17, 10:10 AM
    • 4,256 Posts
    • 1,988 Thanks
    Crashy Time
    https://audioboom.com/posts/5793636-sell-up-hold-or-expand
    • pph
    • By pph 17th Apr 17, 11:41 AM
    • 140 Posts
    • 11 Thanks
    pph
    Don't you want to buy a property where you move to?
    Originally posted by Thrugelmir
    We'd have to sell the place in London:

    a) I believe that if there's one place in the UK property prices are going to be maintained / stay rising is London
    b) For personal reasons, we want out of London ASAP and don't want a 6-9 month transaction
    c) It's a buyers market now... maybe in the next cycle when the economy picks up and there's more demand we'll think about it
    d) My job starts 1st June


    Overall, no-one's got a crystal ball but we bought in an "up and coming area". Since then there has been a massive injection of cash to promote regeneration, they have pedestrianised the high street, crime has fallen, there's an HS2 station being planned for nearby.....

    Overall, we'll make a good margin on the BTL mortgage repayments on the London property and the price we rent it out for. This will allow us to offset the cost of renting in the new town.
    • pph
    • By pph 17th Apr 17, 11:50 AM
    • 140 Posts
    • 11 Thanks
    pph
    OP what if house prices go down? Your >3% pa growth plan is instantly obliterated.....

    Have you considered all the angles of being a LL?


    BF
    Originally posted by BLOW FLY
    We can pay back the bank in 20 years if house price inflation is zero and the property is worth the same in 20 years.

    We can pay back the bank loan in 20 years if house prices fall by 60% in 2037 - but will this happen? I am willing to take the risk it won't.

    And as already said:

    If you plan on selling the property, that answer will be fine.
    Originally posted by ACG
    As mentioned before, sale of property is a perfectly valid answer for a BTL and you do not need to qualify anything or justify what you think the property will be worth in 20yrs at all. Banks are not interested.
    Originally posted by Typhoon2000
    My personal belief is that after 5 years when we know where we stand in the world with respect to Brexit and Trump, that the economy will stop wobbling and prices will go up again, and more than 3% per annum on average. And the longer house prices stagnate.....

    http://www.bbc.co.uk/news/business-37864258
    Last edited by pph; 17-04-2017 at 11:52 AM.
    • Crashy Time
    • By Crashy Time 17th Apr 17, 2:31 PM
    • 4,256 Posts
    • 1,988 Thanks
    Crashy Time
    http://www.telegraph.co.uk/investing/buy-to-let/oxford-academics-house-prices-can-keep-rising-government-backs/
    • Crashy Time
    • By Crashy Time 18th Apr 17, 7:37 AM
    • 4,256 Posts
    • 1,988 Thanks
    Crashy Time
    https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies
    • pph
    • By pph 18th Apr 17, 1:13 PM
    • 140 Posts
    • 11 Thanks
    pph
    Well after Mrs May's decision to call an election, looks like hanging onto the property and BTL instead of selling might prove to be the right one. Can't see house prices going up for a little while now....
    • Crashy Time
    • By Crashy Time 18th Apr 17, 8:03 PM
    • 4,256 Posts
    • 1,988 Thanks
    Crashy Time
    No, and if France votes the "wrong" way, looking ever more likely, then all bets are off. FTSE well down already.
    • Thrugelmir
    • By Thrugelmir 18th Apr 17, 10:43 PM
    • 53,847 Posts
    • 46,634 Thanks
    Thrugelmir
    No, and if France votes the "wrong" way, looking ever more likely, then all bets are off.
    Originally posted by Crashy Time
    Leaving the Euro Zone isn't on the agenda though.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • brit1234
    • By brit1234 18th Apr 17, 11:56 PM
    • 5,144 Posts
    • 11,928 Thanks
    brit1234
    If you were looking to sell in London you have probably missed the boat. The house price downturn is now hitting the suburbs and South East England. This is the first year in ages I haven't heard much about the spring bounce. The general election is going to take us to the summer downturn holidays. We will see how strong the downturn is in late September, then we see if its stopped or accelerating.
    Scams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.

    Save our Savers
    • pph
    • By pph 19th Apr 17, 12:25 AM
    • 140 Posts
    • 11 Thanks
    pph
    Is it too simplistic to say there's an inverse relationship between house price rises and rental price rises?

    I.e. (and particularly in the London example) if the selling market drops off, rent there is likely to be an acceleration in the rise in rental charges? Similarly if there's lots of sales being made, there's less pressure on rental prices to go up?
    • Crashy Time
    • By Crashy Time 19th Apr 17, 8:23 AM
    • 4,256 Posts
    • 1,988 Thanks
    Crashy Time
    Leaving the Euro Zone isn't on the agenda though.
    Originally posted by Thrugelmir

    https://www.wsj.com/articles/french-election-puts-possibility-of-frexit-on-the-agenda-1487183427
    • Crashy Time
    • By Crashy Time 19th Apr 17, 8:25 AM
    • 4,256 Posts
    • 1,988 Thanks
    Crashy Time
    Is it too simplistic to say there's an inverse relationship between house price rises and rental price rises?

    I.e. (and particularly in the London example) if the selling market drops off, rent there is likely to be an acceleration in the rise in rental charges? Similarly if there's lots of sales being made, there's less pressure on rental prices to go up?
    Originally posted by pph

    Rent is driven by HB (government intervention) prices by credit price and availability (bank intervention) Any changes to this intervention (we are already seeing them try to pop the BTL bubble) will reduce property prices.
    • Crashy Time
    • By Crashy Time 19th Apr 17, 7:11 PM
    • 4,256 Posts
    • 1,988 Thanks
    Crashy Time
    http://moneyweek.com/property-crash-housing-bulls-turning-bearish/#.WPcj9fLxoHw.email?utm_source=emailfriend&utm_med ium=email&utm_content=SharedArticle&utm_campaign=A ddThis
    • Thrugelmir
    • By Thrugelmir 19th Apr 17, 9:04 PM
    • 53,847 Posts
    • 46,634 Thanks
    Thrugelmir
    Is it too simplistic to say there's an inverse relationship between house price rises and rental price rises?

    I.e. (and particularly in the London example) if the selling market drops off, rent there is likely to be an acceleration in the rise in rental charges? Similarly if there's lots of sales being made, there's less pressure on rental prices to go up?
    Originally posted by pph
    Interest rates and taxation policies will likewise influence the market.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • Crashy Time
    • By Crashy Time 20th Apr 17, 7:35 PM
    • 4,256 Posts
    • 1,988 Thanks
    Crashy Time
    Interest rates and taxation policies will likewise influence the market.
    Originally posted by Thrugelmir

    BTL tax kicks off this month doesn`t it?
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

4,204Posts Today

9,457Users online

Martin's Twitter