Level of Mortgage on a Buy to Let

anselld

JQ. wrote: »

. . . . . I know which one I'd prefer (and it's not your £20k)

Your choice. All I am saying is it depends what other opportunity you have for the capital, not on %yield.

200k in a property.
You release £150k by mortgage at 5%.
You then need to invest the £150k at better than 5% otherwise you are worse off overall.

If you can find another property with 10% yield great. If you keep the £150k in the bank at 2% then you are worse off.

So in the example above, I take the £20k unless/until I find another investment opportunity at better than 5% yield.

JQ.

I was just using your numbers as an example.

The OP will actually be able to borrow money at 3% not 5% as they can mortgage their own property rather than the BTL. If they don't want to re-invest in property, which would according your numbers produce an income of £50,000pa, they could stick it in a fixed rate bond - very secure. I believe you can currently fix for 5 years at 4.5%.

So, using your numbers - no mortgage produces £20,000 per annum

75% mortgage and placing the equity in fixed bonds produces £22,250pa

So by taking the equity out and re-investing the spread of return is actually £22,250 to £50,000 depending on your risk strategy.

It's all hypothetical, as I think it would be a struggle to secure a 10% return on any resi investment at the moment. I just wanted to show leaving the cash in the property is not necessarily the best option.

anselld

They were Raggs numbers actually, not mine.

But yes, I think we are actually agreeing - it is about the cost you can borrow at .vs. the alternative investment opportunity. Not, as the OP asked, getting the "largest mortgage so as to take advantage of tax relief".

JQ.

It's always nice to reach a happy conclusion.