OMG - Wanting to MF but now also getting a BTL mortgage!!

craftingmad

Oh heck - what am I doing. We are desperate to be mortgage free asap and it has always been our dream to buy more property to rent/renovate once we had cleared the mortgage on our house.

However with rates as low as they are at the moment and prices low in the housing market as well (plus a brother in law who needs to rent a house from someone who will also let his dog live there too - i.e. a ready, willing and able to pay tenant) we have decided to take the plunge and are in the process of buying a property to rent to the aforesaid.

This means that we are now stopping the overpayments on our house in order to gain a good deposit for the house to let. We have also decided that any future repayments will currently be saved in an account ready to overpay on the new BTL mortgage in the future (we are locked into only able to overpay 10% on BTL mortgage in first two years in order to get a better rate). The BTL has a higher rate than our own mortgage.

Does everyone think this is a good idea or does it sound like suicide? Hope not cos the survey has been carried out and the solicitors are busy working as I type (well actually not as its a saturday but you know what I mean!).

Any words of encouragement or rants at how bonkers we are welcome xx

Sepa74

lol... it's not bonkers... if it works out. If it doesn't work out, then it is bonkers.

So basically my guess is as good as yours!

Good luck with it all!

linz

I don't think it's a daft idea, in fact i'm thinking of doing the same thing myself. Am by no means an expert but i've managed to get my mortgage down to about 12 years and have stopped OP'ing and started saving with a view to remortgaging. However with the recent news on public sector pensions i'm not sure what kind of a retirement i'll have to look forward to anymore so am thinking about renting out my house & buying another. This way, the BTL will be paid off in 12 years and it can effectively become my pension. I know there are prob loads of tax implications, but in a nutshell, i'm thinking along the same lines as you. Hope it works out !

craftingmad

Thanks for your comments - we know we can easily afford the mortgage even if the rates go up by 4% so hopefully it will all be good.

Linz, we are using the house for the same reason - our pension pot. We figure its a better and safer investment than a regular pension at the moment and hopefully should eventually net us more money in the longterm. Good luck to you to xx

gtub2000

hellooooooooo

just remember that house prices are still falling.....but from what i read it a long term investment, we are also is same situation just haven't took the plunge, plan is to have 2 btl's over long term investment of 25-30yrs.... hope all works out for you

Lois_E

It's not necessarily bonkers, but make sure you go into it with your eyes open. Having a BTL (even if only letting it to your BIL) is running a business as far as HMRC are concerned, so make sure you check out all the rules. There's lots of advice on the house buying/renting board here, especially in this thread. Check out post #12 especially.

Think carefully about whether to OP your own mortgage or the BTL one. The interest on your BTL mortgage is tax-deductible as a business expense, but of course your own mortgage interest is not. So you'll have to do some calculations to work out whether that more than makes up for the higher rate or not.

Good luck.

summerday

We have a BTL property, our former home that we had to move from quickly to be able to get the new house we had fallen in love with. We did some research, spoke to a tax adviser, read a book called 'Successful Property Letting' (quite good). All is going fairlywell so far, touch wood.

Our mortgage lender does not allow us to let the house out to family members, does yours definitely allow it? Hopefully all will go smoothly with it but if families fall out, and they are living in your property, it has the potential to go badly wrong. Sorry to put a dampener on things, but BTL is a business and you need to protect that above all else or you could lose a lot of money.

usa1

Hi

Its a good idea. We have a BTL which is let out to a family friend. We need it as I only have 7 years public sector pension and hopefully DH`s full police pension. I think its a good idea to spread the risk. I would like to buy more once I have sold the house.

Tammer

Hi,

It seems like a good idea and lots of people are doing it but make sure that you go into it with your eyes wide open.

Things to consider are:

• As a general principle, is it a good idea to borrow money to invest?
• Investing on 1 asset class (residential property) and 1 asset (a house) as a general principle is a very risky thing to do - as it's possible to lose everything in one go.
• The property market has boomed since 1980, until recently. Are prices likely to grow at the boom rate in the future?
• Property maintenance costs are increasing all the time and it's estimated that you need to spend £10k a year on a house to maintain it - decorations, fixtures, roof, building work etc.
• Interest rates may start to go up again in the next couple of years. Will you be able to afford 2 mortgages and will rent still cover the outgoings in 2 years?

Having said all of the above, thousands of people have done what you're doing and have made money out of it. You've just got to work out whether that's still going to be possible in the future.

All the best.

gallygirl

What if brother's circs change and he is unable to pay rent? HB are very hot on what they perceive to be contrived tenancies. What if there is a family fallout? Maintenance / repairs etc - will he expect you to be at his beck & call? Will he look after the place? These are risks with any rental but with the added dynamics of family involved.

Also, what if he wants to leave the area would you be happy to be a 'proper' landlord?

As someone who recently bought 'the accidental house' I'm not best placed to advise, but if you've considered all the above then go for it

craftingmad

hi everyone,

thanks for all your words of wisdom. We have looked into becoming tenants really well and are almost certain we are complying with all the legalities etc. With regard to the tax - apparentanly my hubby realises that we get interest releif on BTL mortgage and accordingly is planning to OP on our existing mortgage - which is fine by me.

This house purchase was always going to be a long term investment, we figure that if we can get the mortgage paid by the rent for the period of the mortgage (21 years) then we will have a good asset to become our pension at the end of it. However we do know that prices will flucuate and it is always a bit of a gamble.

With regard to brother in law renting - the family side does bother me a bit but they have lived in their rented house they are currently in for over 9 years and never not been able to pay the rent. They have both even given up smoking so that they can afford to make this house really nice for them which I think is a good sign. We are drawing up an official tenancy agreement for the property and holding deposit etc which the mortgage company are happy with so hopefully, fingers crossed, we have covered ourselves as much as we can. We do however understand that it is a business and have made it quite clear to BIL that if he cannot pay then we will have to evict and is fully aware of our situation.

With regard to maintenance we have it written in the agreement that my BIL is responsible for this (he works in the property maintenance business) (apart from any major repairs required) and we have as such given him a discount on rent so hopefully its a win win situation. The rent still more than covers our mortgage (plus allows extra for major repairs, interest rises etc) and the property will be well maintained (hes very good at his job - hes already done loads of work on the house he rents currently).

NOthing ventured, nothing gained as they say - your advice and wisdom really is valuable to us. Thanks.

Now I start the massive task again of how to earn/save more money for bigger overpayments - any ideas? xxx