Mortgage - which mortgage to pay down -advice sought please

Goodadvice75

Hi,

I hope this is the best thread to post this request. I'm hoping someone could offer me some advice.

I have about £80,000 in savings which has been dwindling away in different savings accounts for the last few years and have been too busy at work but also too indecisive to face up to tackling my finances and doing something useful with this money.

I have three mortgages - two are buy-to-lets and one is my residential house mortgage.

I'm trying to work out if it would be better to leave the savings where they are or to start paying off some of the mortgages and if so which one to pay off first.

I'm working part time right now so not earning a lot, hence the desire to streamline my outgoings as much as possible and make the best of what I have. Long term I hope to sell the buy to lets but they won't sell right now. I am a Basic Rate Taxpayer.

Mortgage 1: £141,000 buy to let - on standard variable rate paying around £780 per month (interest only mortgage)

Mortgage 2: £120,000 buy to let - on standard variable rate paying around £240 per month (interest only mortgage).

Mortgage 3: £119,000 - standard variable rate - interest only.

I don't think I would be able to re-mortgage any of these right now because I have lower part time salary.

One thing I can't work out is if I pay down either of the buy to let mortgages, whether this would have a negative effect on my tax, because at the moment I can claim all of the mortgage interest repayments against the rental income to reduce the tax.

I think on each mortgage I am now allowed to make a lump sum repayment but I will double-check to make sure there is no penalty for doing so.

If anyone is able to advise what would be the most sensible use of the savings I have I would be enormously grateful.

CLAPTON

maybe mention what the interest rates are on each mortgage

antrobus

Goodadvice75 wrote: »

...
One thing I can't work out is if I pay down either of the buy to let mortgages, whether this would have a negative effect on my tax, because at the moment I can claim all of the mortgage interest repayments against the rental income to reduce the tax....

Yes, for that very reason, the normal advice would be to pay down the mortgage on your own house first, since by doing so your are effectively getting a 'tax free' return on your 'investment' based on whatever interest rate you're being charged....

CLAPTON wrote: »

maybe mention what the interest rates are on each mortgage

..but it does depend on that. Looks like 6.64% and 2.4% (?) on the two BTLs.

jamesml

One thing to bear in mind on your point about tax savings is that your tax saving is proportional to the amount you actually have to pay - so even though you get really good tax savings, you will have to pay a chunk on the actual interest. Let us know what the headline rates you pay are, but then factor in the tax you save and you can rebase the rate to give post-tax effective rate of interest, which is a more relevant comparison.

Having said that, how do you intend to settle the interest only mortgage on your residential property? I would be tempted to clear down the residential mortgage first, purely from a prudent point of view - I would be happier knowing my home mortgage was as low as possible, particularly if you need to find a lump sum at some point down the line. Unless you have concrete plans on how to settle this, that is where I would put my money.

Goodadvice75

Hi,

Many thanks for the replies so far and sorry to take so long coming back.

The rates are as follow
BTL 1: £141K loan, 5.79% rate (pay back c. £680 pcm (got figure wrong first time)

BTL 2: £120K loan, 2.45% rate (pay back £243 pcm)

Own house: £118K loan, 5.47% rate (pay back £538 pcm)

Would be very grateful if someone could advise the best thing to do with the monies I have available. I am a basic rate tax payer now only and the "profits" on the BTLs are not huge once all expenses are considered.

I will also try to look into remortgaging but expect I won't be able to as I only have a part time salary now and BTL mortgages will be very hard to get.

Thanks again for any help. Have been putting this off for the last few years and really feel the need to do something constructive now with the cash I have as it's earning hardly any interest.

Mrs_Z

Hi, in your position I would pay off a chunck of your own residential mortgage but I would also leave some money for a rainy day, especially as you work part-time. Maybe pay off £68k from your residential mortgage? That's a very high interest you are paying on it.

ScotlandM

What are the lenght of terms for the three mortgages? You hopefully have a few years before you need to repay the interest only mortgages.

Depending on the value of your own house and LTV would you be able to repay some of the mortgage and then remortgage onto a lower rate? 5.5% seems high for a residential, though you seem to be doing nicely with the 2.5% for one BTL. Any other mechanism to repay the BTL morgages other than sell?

dimbo61

Knowing the LTV of all three properties might also help!
If you have 88% on one of the BTL and paying off say £10/15K would drop the LTV below 75% might be good business sense.
As you get NO tax relief on your residential mortgage and you are paying over 5% then paying some off that maybe a good idea.
But cash is sometimes KING when you need liquid funds to replace a boiler or central heating, put a new roof on your home, fit a new kitchen to one of your BTL,s
I would keep a very good savings pot in cash ISA,s and look at the LTV of all three properties

Goodadvice75

Hi,

Many thanks for the further helpful replies and sorry for my tardiness coming back to this. (Procrastination and hiding away from this are my two BIGGEST problems....!)

The £80k I've mentioned is savings I don't need access to and does not include another sum which I will be keeping back to (hopefully) cover rental void periods and any looming disasters (car, boiler) etc.

LTVs are difficult to work out the way the market is, but all three properties have lost money. Trying to be realistic(!), I've added in what I think the sale value figures are in blue.

BTL 1: £141K loan, 5.79% rate (pay back c. £680 pcm (got figure wrong first time) (SALE VALUE AROUND £180K)

BTL 2: £120K loan, 2.45% rate (pay back £243 pcm) (SALE VALUE AROUND £140K)

Own house: £118K loan, 5.47% rate (pay back £538 pcm) (SALE VALUE AROUND £145K)

I think I forgot to say that my residential mortgage is also interest only which I know is stupid and I'm just throwing money away. Having made so many bad decisions I'd really welcome some advice as to the best use to put this £80K to now.

I didn't understand the point about my residential mortgage having tax relief - please can any one explain further?

Re the lengths of the terms - I think they should all be around 20 years. I don't have any policies etc in place to pay off any of the mortgages, only my savings and reliance upon them selling!!

If there's any other info needed please let me know and I'll post back. All three mortgages are out of their fixed terms so I am free to make overpayments without penalty.

Many thanks again for the contributions/advice which will hopefully help me reach a decision and ACT on it!!

kidmugsy

Why not sell BTL1, add the capital liberated to your £80k and pay off the loan on your own house? Then you'll live mortgage-free in your own house while BTL2 should make a tidy monthly profit. You will also have reduced your weighting in property, which may be a good idea. If all this results in your having surplus income, just save it in Cash ISAs that earn more than 2.45% p.a. with a view to eventually paying off that mortgage too.

Goodadvice75

Hi Kidmugsy,

If only I could!! I tried it on the market earlier this year but no joy at all, for a variety of reasons. Selling BTL1 would be my ideal solution but the market just isn't there at the moment. I plan to try it again in the Spring. Difficulty always is that I can't afford to keep it empty whilst trying to sell it as I need tenants in place to meet the mortgage repayments. But maybe things will be brighter in the Spring.

Meanwhile I'd just like to invest the monies I have in the best way possible, so if anyone can guide me on this I'd be really grateful.

What I'd like to do is to reduce the mortgage and/or re-mortgage BTL1 so that the repayments aren't so huge and I could afford to have it untenanted say for a couple of months whilst I try earnestly to sell. With the repayments as they are I just can't afford to have it lying empty. But not sure if it's sensible tax wise to pay a lot off BTL1 mortgage as this will mean I'll have less interest to deduct against the rental profit and will push up my tax I think?