Interest Only -> Repayment Query

RenovationMan

getmore4less wrote: »

Without knowing the rates this could be a very bad approach.

With a BTL property the owner can claim tax back against mortgage interest, so by paying down the capital, it reduces the tax rebate. By having any profit paid into an ISA, you get the benefits of tax free growth on the BTL profits and you maximise the tax rebate.

getmore4less

RenovationMan wrote: »

With a BTL property the owner can claim tax back against mortgage interest, so by paying down the capital, it reduces the tax rebate. By having any profit paid into an ISA, you get the benefits of tax free growth on the BTL profits and you maximise the tax rebate.

Without knowing the rates that may not be the best option

say you get 3% on savings and the mortgage rate is 5% tax rate 20%

£100 savings get you £3
£100 mortgage cost you £4

you are £1 down even with the tax relief

RenovationMan

getmore4less wrote: »

Without knowing the rates that may not be the best option

say you get 3% on savings and the mortgage rate is 5% tax rate 20%

£100 savings get you £3
£100 mortgage cost you £4

you are £1 down even with the tax relief

So not a huge dfference, even with a theoretical example skewed to make a point.

However, another advantage of having the BTL profit in an ISA is that it reassuring for a landlord to have an easy to access stash of money should anything go wrong, like a long void period or having to take out legal action on a tenant. Once money is locked away in an illiquid asset such as a mortgage, it's very difficult to get it back.

Let's not forget that BTL is a business. and as we have seen with the credit crunch, businesses that have survived are the ones with good cash flow and good cash reserves. Had Northern Rock had sufficient cash reserves it would have ridden out the crunch and still be in business.