BTL - Interest or Repayment (Confused!)

drummer_666

CLAPTON wrote: »

Of course it's equally true over the long term or over the short term (obviously taking into account the tax situation as one would for any investment decision).

ok yeah, i do get it now. my brain has been a bit fried the last few days!

guess all depends on the rates!

My plan is to buy cheap props, renovate and sell on for a few years to build up my balance and 4-5 years down the line by the time I'm 32 I should own one BTL outright, have a seperate home and the money to be developing a property every year. of course, all subject to change

thank you everybody for helping my head think!

bluenose1

We are in the process of buying a BTL and I have been having the same dilemma.
The BTL house is worth £130,000 and we will be getting a 75% LTV.

somethingcorporate

drummer_666 wrote: »

ok yeah, i do get it now. my brain has been a bit fried the last few days!

guess all depends on the rates!

My plan is to buy cheap props, renovate and sell on for a few years to build up my balance and 4-5 years down the line by the time I'm 32 I should own one BTL outright, have a seperate home and the money to be developing a property every year. of course, all subject to change

thank you everybody for helping my head think!

That may have been a plan a few years ago with consistent house price rises but it is a lot tougher nowadays.

Good luck with your plan, start small and low risk. The more work you can do yourself the higher the profit margin. Fully expect it to cost more and take longer than you budget and plan for. Always does.

Thrugelmir

holly_hobby wrote: »

T. means interest offsetting isn't a benefit solely restricted to BTL/semi commerical finance .

As T says., as with all businesses, associated operational business costs and finance interest are a permitted HMRC deduction (notwithstanding as I say the celing on equity release exercises, which may take the effective business account overdrawn).

H x

Thank you for the correction Holly. :T

Thrugelmir

drummer_666 wrote: »

My plan is to buy cheap props, renovate and sell on for a few years to build up my balance and 4-5 years down the line by the time I'm 32 I should own one BTL outright, have a seperate home and the money to be developing a property every year. of course, all subject to change

In the boom years renovating wasn't even necessary in many cases. Simply buying and selling in the course of a year. Would have made the same profit as renovating a property.

While renovating may help a property sell quicker. Installing expensive fixtures & fittings, decking or landscaping the garden is unlikely to add real value.

glosoli

Personally with a buy to let i'd go interest only and over pay at a repayment level.

There are lenders out there (Clydesdale bank for example) that can offer you a fixed rate BTL mortgage in which there are no restrictions on monthly overpayments.

You can get it approved on interest only, and set the repayments at an repayment level, and revert to an interest only basis in your financial circumstances change (if property is untenanted, for example). I feel this flexibility outweighs the rigidness of a full repayment mortgage, and you achieve exactly the same thing at the end of the day - a property you own outright.

Thrugelmir

glosoli wrote: »

I feel this flexibility outweighs the rigidness of a full repayment mortgage, and you achieve exactly the same thing at the end of the day - a property you own outright.

Only if you track the amount of capital required to clear the mortgage. As the months tick by then the amount required increases significantly.

drummer_666

Thrugelmir wrote: »

In the boom years renovating wasn't even necessary in many cases. Simply buying and selling in the course of a year. Would have made the same profit as renovating a property.

While renovating may help a property sell quicker. Installing expensive fixtures & fittings, decking or landscaping the garden is unlikely to add real value.

Yeah, we're not in the boom years now. So buying something that needs an overhaul, for dirt cheap is profitable.

My current house I bought for 75k, will sell for 120-130k, having spent 16k. I've done most the work myself. Another house on the street, needing similar renovation is on the market at 95k.

It's my first house and doing it around a full time job, had never really done diy before so learnt a lot and wasn't in a rush - will sell it about 18 months after I bought it. Second time around, I'll be looking for something without major work, to turn around in 6 months.

kingstreet

drummer_666 wrote: »

My plan is to buy cheap props, renovate and sell on

For which you will struggle to find lending from a BTL lender. They are looking for readily-lettable property which will be good security for the loan.

If you want development finance, that's a commercial proposition.

drummer_666

Thrugelmir wrote: »

Only if you track the amount of capital required to clear the mortgage. As the months tick by then the amount required increases significantly.

why do you need to track the capital?

If you're overpaying by £100 every month that the house is tenanted, by the end of your term you're going to have paid off a big chunk (if not all) of the capital?

Also, as you're paying off the capital the interest decreases, so if you keep the overpayment the same amount then after say 10 years, the capital will be a lot less, so the interest will be less so you'll be paying off more of the capital?

As long as I've figured this out right, then I agree that a flexible IO mortgage with the option of overpaying a decent amount every month, would be the best option.