BTL/MORTGAGE question.....anyone?

JBeau

Just wondering if anyone has any knowledge.
Thinking about purchasing flat...maybe in a year or two. Intend to buy this cash. Intend to use it as a rental income over the next 25 yrs. Will a mortgage provider lend more than the average 3.5 on our salaries - using the rental income as a means of repaying part of the loan????
I know at the moment I could find some crazed lender to offer me 5x salary, but my thinking is lending may well have tightened up in a few years. Would banks/bsocs lend based on what I could afford to repay???

Anyone with any experience of having done this themselves etc greatly appreciated.:o

clutton_2

BTL purchases are normally 15% deposit, and you borrow 85% of the asking price. The lender usually needs to know that the rent is 130% of the mortgage, and salary multiples are not an important part of the equation. IF the figures do not add up, a lender cannot get his money back, so, will not lend on it.

I suggest you go to a whole-market broker who will advise you - there are thousands and thousands of products on the market.

buying it all for cash is a huge waste of money

dunstonh

waste as the tax will eat up a big chunk of what you make (both income tax on the rental and capital gains tax when you sell).

If you arent going to borrow the money, the investing in property funds would be the better option as you can control the taxation by using ISAs, unit trusts, investment bonds or pension tax wrappers. If you assume unit trusts, you can also sell and rebuy a chunk each year to use up your annual CGT allowance. Something you cannot do with direct property ownership.

Plus property investment funds can access the areas of the world which offer far greater potential for property investment than the UK currently does.

JBeau

Thanks for the replies.

dunstonh - where can I find out about property investment funds? Everything you suggest to do re: controlling taxation......is this something that would require the services of an investment professional?

clutton - thks...doesn't sound too good "huge waste of money" - my idea behind that was that without the restraints of a mortgage we could be more competitive with the rent...if I'm to believe there are as many BTL landlords out there as people say.

clutton_2

if you have £100k you can buy a house outright and make, say, £600 profit per month.

If you were to put £25k deposit on 4 houses and get mortgages you will get £600 x 4 per month.

(terribly simple illustration above, don't quote the figures, its just a conceptual example!)

JBeau

clutton wrote:

if you have £100k you can buy a house outright and make, say, £600 profit per month.

If you were to put £25k deposit on 4 houses and get mortgages you will get £600 x 4 per month.

(terribly simple illustration above, don't quote the figures, its just a conceptual example!)

Sure. I have some cash - but not the brain of an investor. Your illustration is of great use. Many thanks

saintalan

Not forgetting that Mortgage Interest is tax deductable! So with a BTL Interest only mortgage your whole monthly payment is tax deductable.

I think where the better Capital Gains are is when you can afford to move and re-mortgage your original residence (on a BTL) then there are CGT benefits.

Good Luck.

Alan

pioneer

clutton wrote:

if you have £100k you can buy a house outright and make, say, £600 profit per month.

If you were to put £25k deposit on 4 houses and get mortgages you will get £600 x 4 per month.

(terribly simple illustration above, don't quote the figures, its just a conceptual example!)

You Also get 4 x 75K mortgages to repay = 4 x £600pm as well as
4 x managment agro and/or costs
4 x Interest rate exposure
4 x maintenance
4 x Depreciation/Appreciation
4 x Void Risk
4 x buying/selling costs

and i'm sure 4 x alot of other things; go careful 100K net takes alot of hours if you have to work for it, and I'd hate to see people throw it away in this climate !


dunstonh's example below is a cracker, I wish I'd bought in jul 06 when It was good value; now its a bit like the housing market. You could always stick your 1st 25K in it and pound cost average down after a
20% drop which looks like a good buy signal but you'll need a strong stomach; and you won't lose as much as the
housing market. No recommendation here you understand either of the fund or averaging.

dunstonh

dunstonh - where can I find out about property investment funds? Everything you suggest to do re: controlling taxation......is this something that would require the services of an investment professional?

There are lots of property funds now. Some actually invest in bricks and mortar and you share the rental income and growth (and declines). Others invest in property companies and developments or a combination.

Some examples would be Norwich Union Property fund. SWIP European Real Estate, Fidelity Global Property, First State Asia Property.

Prroperty funds/investments themselves are available in most of the UK investment tax wrappers to suit your requirements (ISA, unit trust, investment trust, investment bond and pension).

You dont need an investment professional to help you if you dont wish.

It is worth noting that property funds have generally been outperforming residential properties in the UK for some time. Past performance no guide to the future but when you invest you look to future potential and most UK property managers are indicating that 2007 could be a poor year. Whereas many overseas property markets have far higher potential.

For example, SWIP Euro Real estate fund is up 24% on August (just checked my holding ). And thats tax free as well as its in an ISA. (SWIP = Scottish Widows Investment Partnership).

I'm not saying that these will be right for you but it does give another option to invest in property which may take out a lot of the hassle and high risk that goes with mortgaged buy to lets.

JBeau

pioneer wrote:

You Also get 4 x 75K mortgages to repay = 4 x £600pm as well as
4 x managment agro and/or costs
4 x Interest rate exposure
4 x maintenance
4 x Depreciation/Appreciation
4 x Void Risk
4 x buying/selling costs

and i'm sure 4 x alot of other things; go careful 100K net takes alot of hours if you have to work for it, and I'd hate to see people throw it away in this climate !

I certainly will not purchase anything until prices have corrected! I have had some experience of renting property. I rented out a flat I owned and I remember how painful the whole experience can be! At the time I vowed I'de never do it again.:eek: :eek:

JBeau

dunstonh - thks for your time, plenty to consider.