Offset mortgage- question

Ricco

I took out an offset mortgage some 9 years ago. The rate of interest is guaranteed to be no more than 1% above bank rate. So currently, I'm paying 1.5%. Since then I've repaid the vast majority of the loan. Approx figures:

Original mortgage ('credit limit') £90,000
Offset accounts balance at today £25,000

I understand, from memory, that as well as repaying sums at any time, which I've done, I can re-borrow money at any time for any purpose, up to my 'credit limit' without further authorisation from the lender.

I see this as a possible opportunity to buy a bottom end of the market house to let, which should give a return of around 7-8%. So 7% return, 1.5% cost whilst buying a house, pretty good.

I don't want to contact the lender to see if this is OK, as quite obviously, their intention was to lend me the money to fund the buying of my house and not to fund a buy to let. Actually, buy to let is expressly forbidden in the basic terms that I've looked at. But, if I can re-borrow money for any purpose...

My question: If I transfer £60,000 from my mortgage account to my current account then buy a house, is this likely to alert the lender at all? And if so, If I state that the money is for private purposes, which could be argued, would the lender have any recourse that might threaten my position?

Thanks in advance for any replies.

I should add, my house is currently valued at around £200,000

Peter999_2

I paid enough into the savings pot of my mortgage to pay it off but never closed it in 2005.

When the interest rates shot down, I took out £70000 (interest rate is base rate + 0.75) and have it in a 4.25% interest account. I just transferred the money into my bank account and then straight into the savings account - the lender didn't ask any questions as to what it was for.

HappyMJ

Ricco wrote: »

I see this as a possible opportunity to buy a bottom end of the market house to let, which should give a return of around 7-8%. So 7% return, 1.5% cost whilst buying a house, pretty good.

I don't want to contact the lender to see if this is OK, as quite obviously, their intention was to lend me the money to fund the buying of my house and not to fund a buy to let. Actually, buy to let is expressly forbidden in the basic terms that I've looked at. But, if I can re-borrow money for any purpose...

My question: If I transfer £60,000 from my mortgage account to my current account then buy a house, is this likely to alert the lender at all? And if so, If I state that the money is for private purposes, which could be argued, would the lender have any recourse that might threaten my position?

Thanks in advance for any replies.

I should add, my house is currently valued at around £200,000

Buying a house is still quite a risky move. It might look good today. Borrow at 1.5% invest at 7% return but it doesn't work like that. You'll get your deposit out at 1.5% on 25% of the value of the property and then for tax reasons you'll need to get a buy-to-let mortgage on the other 75% that'll be around 5% at the moment. Otherwise you'll be paying 20% of the 7% in tax and when mortgages rates return to 5% you be losing every month.

You can withdraw money up to your credit limit to put a deposit a buy to let what they mean is the secured property the one you live it at the moment cannot be rented out to anyone.

Ricco

Thanks for the replies. I'm unable to get a buy to let mortgage as I'm working irregularly and not earning enough to qualify. Actually I'm earning so little that I don't pay any tax. I accept that I'll pay 20% tax on the 7% return on capital (or slightly less, as some of this would take me up to my £7500 annual tax free allowance).

I personally think that the return to base rates of 4% and above is a long way off. I also believe that houses, particularly bottom end ones, are at the bottom right now, and can only rise. A £60,000 house is affordable to many, the constraint has been in the reluctance of lenders to lend in recent times. And a general reluctance to buy, due to the feeling of doom and gloom. I can also see these things changing over the medium term.

So, my gamble is that I'm wrong about the above so I guess I need to decide whether I have the courage of my convictions...

dimbo61

We dont know where you live and the cost of buying a property and the rental you may get but there is lots to consider!
Gas safety checks, electrics, landlords insurance, agents fees, advertizing fees, repair costs etc

Tom_Pickering

Looks like very Tom, !!!!!! and Ricco want to get in on the BTL market with little or no experience, likely yields or any idea about how high borrowing rates will be 2, 4, 6 years into the future.....just hopeful of capital appreciation carrying them forward.

michaels

I believe you can offset the interest on the further advance against your home against the rental income for tax purposes.

Thrugelmir

Ricco wrote: »

I see this as a possible opportunity to buy a bottom end of the market house to let, which should give a return of around 7-8%. So 7% return, 1.5% cost whilst buying a house, pretty good.

How do you arrive at a 7% return?

getmore4less

As long as the money is available from one of the accounts you can just take it back.

On a £60k house with gross yield of 7%(or is that 7% net) is £350pm

What do the expences add upto?

Mortgage interest can be offset against the taxable income


One thing on depresed prices, I think the money is there to lend it is deposit that are the issue.

With more and more under income pressure saving for a deposit is going to remain a longer term issue.

VfM4meplse

Peter999 wrote: »

I paid enough into the savings pot of my mortgage to pay it off but never closed it in 2005.

When the interest rates shot down, I took out £70000 (interest rate is base rate + 0.75) and have it in a 4.25% interest account. I just transferred the money into my bank account and then straight into the savings account - the lender didn't ask any questions as to what it was for.

Sounds smart in theory but presumably you're still paying the monthly mortgage plus interest? What was the actual saving made per month and the net save since 2005?

Ricco

I should have said, I live in the north west of England. The area I'm looking at gives £400-425 gross rental on a house that can be bought for around £60,000. I have 4 years experience in renting properties, in the dim and distant past.