Remortgage thoughts - BTL

josiahk

I have been lurking on the forums for a while now, trying to pick up wisdom, but have finally decided to take the plunge and ask for myself.

In 2003 I purchased a 1 bed flat to live in on the outskirts of London. At the time I paid £95K, of which £15K was deposit and the rest was a mortgage (30 years). Using my savings I spent roughly £5K on renovations and decoration. The deposit came from my father, but as it was part of his retirement savings it was not a gift - by deed he owns 15% of the value of the flat.

Fast forward several years and my circumstances changed quite dramatically, meaning I have moved to the other end of the country. I now rent a flat where I currently live, and have tenants in the London flat. I am beyond the discount period of the mortgage so am already back on the SVR. I have been continuously employed throughout the period and have never been late or missed a mortgage payment. Through saving I have also cleared most of my non-mortgage debt (including credit cards and student loans). All that is left is about £3,000 of a bank loan - 18 further monthly payments. As I have about the same amount in my current account I guess the mortgage is my only real debt.

When I moved I had a great deal on my mind, and anecdotal advice led me to just leave the mortgage as it is - i.e. not inform the mortgage provider. Now I am a bit more settled I realise this is not the right course, and I need to get the mortgage sorted out.

As I do not intent to move back to London (certainly not within 3 years), I understand I will need to remortgage to a BTL mortgage.

I also understand that I will want to go to a fee free all of market broker for qualified advice.

Before that though, I want to do some ground work to clarify in my own head my priorities and strategy for my finances, so I can tell the broker what he needs to know in order to advise me best.

It is my belief that given the current economic climate and actions it is highly probable that in the next few years interest rates will rise drastically. For peace of mind therefore, my preference would be for a long-term fixed rate. I'm not sure however, what sort of rate I should expect or hope for. I don't even know if my above reasoning is sound or completely insane! I know BTL mortgages have higher rates than residential ones, but have no clue at all beyond that. I also have no idea if rates will fall in the near future, or if fixed rate BTL is never going to see any affect from the base rate cuts in recent weeks and months.

I dont have the paperwork to hand, but from memory the outstanding mortgage is roughly £76K, and a basically identical flat in the block next to mine has just sold for £120K (I keep an eye on the area using online searches). I don't know whether or how the deed for my father's 15% ownership affects the LTV for mortgage calculation.

I already have tenants, paying £700pcm. My current mortgage payments have now dropped down to about £450pcm, which after maintainence (window frames were rotten, so recently had double glazing installed throughout, plus standard furniture replacement costs as the flat is rented furnished) and letting agent fees means it basically covers itself, with maybe a very small amount on top.

I'm not looking for the flat to provide me with an income, as I have a job which provides me with that (currently £30K), I just want it to be able to pay the mortgage until I own the thing outright. Long term investment I guess you would call it. If at some point I really settled on an area to live and found a beautiful house I guess I might want to sell earlier to raise finances, but in the short to medium term that is highly unlikely.

Without going into the tax implications (which I know I also have to get sorted), does anybody have any thoughts or opinions for me? I have had this stressing me out for weeks now. I keep thinking about it and all the variables, and I always end up with my thoughts chasing each other round my head until it hurts :think:

Thanks in advance, and apologies for the long post - I wanted to cover all the relevant info.

Gorgeous_George

You will need to sort the tax situation and your tax office will be able to help. Call them anonymously if you prefer. This will relax your mind - it's hardly crime of the century. Do you know how much profit should have been declared?

As for the mortgage, what rate are you paying? Do you want a fixed rate? If you are happy with svr, 'consent to let' may be an option. What is the LTV that you will need? Anything over 75% and your options will be limited.

Don't worry.

GG

josiahk

Thanks for the response. To answer your questions:

The profit from the renting so far is very small. Definately something I can afford. I know I just need to sit down and do the maths to work out what is owed.

My current rate on the mortage is 5.44%. I'm with Abbey, so I think that is due to drop a little more again from the most recent rate cut.

As I said in the original post, I would feel most secure with a long term fixed rate if possible.

I thought 'consent to let' was only valid if you were renting temporarily (up to 3 years)? This is certainly not the case for me, and I don't want to lie.

No clue what LTV I would need. I was kind of hoping somebody here would have an idea?

silvercar

If you stick with your current lender then consent to let is the easiest option If you remortgage to a different lender you will have to apply for a BT mortgage.

76k out of 120k is 63%, so that won't be a problem.

AST of £700 pcm is well within the limits usually required for 76k mortgage.

So the only question in my mind is whether lenders are keen on borrowers looking for BTL mortgages when they don't own their own property. From memory this used to be an issue, now that a lot of people are wanting to rent while prices fall, it may not be such an issue.

Given the amount of maintenance you have doen, the mortgage interest, other costs you must have, I doubt that you have much of a tax bill - if any. You should have been declaring the income and expenditure but with no tax to pay the revenue won't be that anxious.

herbiesjp

Based on those figures you could look at BTL short term fixes from around 3.49% to longer term fixes from around 5.54%

All with differing fees mind you

payless

No tax !!!...

( as sounds on repayment mortgage - so only part is a valid expense) , if say on SVR of 4% at £76K = £254 pm and rent is £700! , need a lot of other expenses to avoid tax bill from now on ( Ok when mtg was higher might not be as bad)

josiahk

Thanks for all the responses.

A long term BTL fixed rate for around 5.54% sounds like just the sort of thing I was hoping for. It's a relief to hear something like that might be available.

As for the tax - I did mention I am aware I need to sit down and work it out. I was not proposing tax avoidance. It's just another thing on my list of not yet done. I don't believe I owe much if anything so far, due to the period it has been renting for and the amount of costs involved, but obviously this will be more of an issue in the future, particularly factoring in the repayment part of the mortgage payments.

Once again, thanks everybody :beer:

herbiesjp

Sounds like an accountant and whole of market mortgage adviser are just what you need to look for next