Wanting to keep my excellent 'lifetime tracker' mortgage

Dave_the_Ginger_Cat

I also think the rate they have offered you is pretty strong - I've seen much worse

Lots of users have told you that this is a higher risk - I'd like to elaborate on why (and these are based on stats. There are some people who are better, and some worse, but past customer behaviour does accurately predict those in the same circumstances

Non-resident mortgage holders do not pay their mortgages as well. If dry periods occur, most borrowers struggle to pay as they are not taking it seriously as a business - have not set reserves, do not have good insurance cover. Stats differ for each lender, but it's worse
They do not look after their houses as well. The asset base does not therefore hold its value as well
If a house were to be reposessed, it is difficult, expensive and lengthy to get tenants out.

There are more factors here, but these are some. All these eat away at value. If a house is 75% LTV today, there is no guarantee that should one or more of these occur, then it would still have a value after court proceedings and fees.

So I know you don't like the answer, but it's absolutely true - you've had good advice on alternate approaches

Tykva

Hello everyone,


Frances63, my question is more about your interest rate rather than an answer. My brother in law also has a below 1% tracker interest rate on his mortgage. Im thinking of moving to a bigger place and of course need a mortgage as well. So from your first post in this thread do I understand correct that the bigger deposit the lower interest rate can I expect? My brother in law isn't sure how he got his, as a GF of his organized a mortgage broker helped him to get it. Thank you!

Frances63

Thanks for all your responses. It seems I'm very out of touch with BTLs. I do appreciate all the advice, and feel better now I know it's normal to get a 2% loading. I was just shocked by it as I know, no matter what, I will always pay the mortgage as it is.

The loading takes away a good chunk of the profit from letting, bearing in mind I have to live elsewhere. It means living in a small cheap flat out in the sticks rather than a nice house in an expensive area. It makes me wonder if it will be worth the sacrifice.

What I might do is see if I can transfer the residential mortgage to the new flat (currently mortgage free) but the LTV would be much lower.

More like 30% than 75% would still be owned outright. However this is about the position I was in when I first took the loan 13 years ago, so perhaps they will allow me to move the mortgage to the flat & pay off the house I'm considering renting. That way there will be no need for a BTL at all and possibly I will still be able to claim tax relief on the interest on the residential mortgage instead if I can prove I've had to do this to enable me to let? (ViolaLass helpfully mentioned this, post #20).

Frances63

Tykva wrote: »

Hello everyone,


Frances63, my question is more about your interest rate rather than an answer. My brother in law also has a below 1% tracker interest rate on his mortgage. Im thinking of moving to a bigger place and of course need a mortgage as well. So from your first post in this thread do I understand correct that the bigger deposit the lower interest rate can I expect? My brother in law isn't sure how he got his, as a GF of his organized a mortgage broker helped him to get it. Thank you!

Hi Tykva, I'm not so sure of the ease of getting tracker mortgages these days. 13 years ago they were all the rage. I do believe the rate I achieved was partly down to having a large percentage as a deposit (about 30% at the time). I would expect to get a better rate once the Loan to Value (LTV) ratio improved, but you would need to speak to a mortgage broker for an up-to-date answer. I'm a bit behind the times it seems.

All the best with your venture!
.

holly_hobby

Frances63 wrote: »

The loading takes away a good chunk of the profit from letting, bearing in mind I have to live elsewhere. It means living in a small cheap flat out in the sticks rather than a nice house in an expensive area. It makes me wonder if it will be worth the sacrifice.

Your associated BTL mortgage interest is fully tax deductable - except where there has been an equity release, the permitted mge interest is capped at a sum equal to the value of the property when it entered the business (ie became available for let).

Frances63 wrote: »

What I might do is see if I can transfer the residential mortgage to the new flat (currently mortgage free) but the LTV would be much lower.

You can not port a mortgage product to a property already owned, whether its currently owned outright (and you wish to effect an equity release remortgage) or via an existing mortgage (which you wish to replace with a NW mge and ported tracker product you currently hold).

This is because porting only relates to a new purchase (at the lenders discrection), not the remortgage of a property already owned - and even then only the product not the underlying borrowing is transferred - which means the new mge would still be subject to full underwriting and status checks.

Frances63 wrote: »

More like 30% than 75% would still be owned outright. However this is about the position I was in when I first took the loan 13 years ago, so perhaps they will allow me to move the mortgage to the flat & pay off the house I'm considering renting. That way there will be no need for a BTL at all and possibly I will still be able to claim tax relief on the interest on the residential mortgage instead if I can prove I've had to do this to enable me to let? (ViolaLass helpfully mentioned this, post #20).

IMHO, you would be foolish not to have a BTL mge from a tax point of view, given that the mge interest is tax deductable from gross rental receipts - tax breaks which a residential mge does not enjoy.

But given that you can't port a mge product to a property already owned, the q's a bit academic really.

The other option if getting the BTL rayrate down is driving your decisions, is to remortgage your unencumbered flat (which would attract straight residential rates, and subject to the lenders acceptance of reason, and your status and income meeting criteria), and use the released capital to either fully or partially repay the os mge on the let property. This will mean that the overall chargeable interest will decrease, and your net yield will increase, along with the associated income tax liability.

The reason why you will be able to offset the associated mge interest from this exercise, is that it is classed by HMRC as capital injection, and therefore a permitted deduction. Take note however that there must be a clear audit trail between the 2, and the amt and element of residential mge interest being offset must have been directly and wholly invested into the business (ie in this case repaying the os mge on the let unit).

Your accountant will guide, whom as a first time landlord, I would suggest should be your next move (associated fees in respect of BTL advice etc, are also a permitted deduction)

Hope this helps

Holly xx

holly_hobby

Tykva wrote: »

Hello everyone,


Im thinking of moving to a bigger place and of course need a mortgage as well. So from your first post in this thread do I understand correct that the bigger deposit the lower interest rate can I expect?

Yes typically the lower the LTV (and risk exposure for the lender), the more attractive the rates available - although any prev or current blips in your credit history may well affect your suitability as a whole.

Your whole of market mortgage broker will evaluate your requirements and situation, and advise accordingly from current available deals - take a copy of your current credit ref reports with you.

Hope this helps

Holly

kingstreet

Tykva wrote: »

My brother in law also has a below 1% tracker interest rate on his mortgage

Such products have long since disappeared from the market as the BoE base rate has remained so low for so long.

Now, a 60% loan to value will see a rate of about BoE + 1% as a minimum, with higher premiums accompanying higher LTVs.

Frances63

I'm a 20% tax payer, so the tax deductable mortgage interest is not such a big deal for me.

For $ read 'pounds'. I have no pound sign key on my tablet. Apologies.

So at my current rate I pay 1.25% mortgage interest (base rate +0.75%) say $125 per month for simplicities sake
A 2% loading for BTL deal means 3.25% so now $325 per month interest (an additional $200)

If I earn $800 per month rental, less say $100 per month agents fees (?) = $700 per month earnt.

Less $325 per month mortgage interest = $375 per month earnt

Out of which I must pay tax at 20%.= $75.00 per month (that's assuming the agents fees are tax deductable) . So now I'm earning $300 per month.

Have I missed anything? Or made incorrect calculations?

(The tax deduction on the mortgage interest of $325 per month, saves me $65 in tax per month, is that correct?)

Out of that $300 I have to fund living in the flat in the sticks. Which would mean either another mortgage or the loss of interest that I would've earnt on the capital used to buy it outright.

It barely breaks even. Especially as I would have to buy and run a car to live in the remote flat, whereas currently in the town house there is no need for private transport.

Dave_Ham

I do not even know why you are considering this, just seems barmy to me.

Have not got time to work through the numbers, my accountant would work them quicker and more accurately than me.

Fair play for re-looking at the decision with fresh eyes and moving on and planning, rather than bemoaning the lender, the decision and life in general.

I wish you well

holly_hobby

Frances63 wrote: »

It barely breaks even. Especially as I would have to buy and run a car to live in the remote flat, whereas currently in the town house there is no need for private transport.

Then as the lovely Dave says, you've really answered your own question.

I thought that you'd already worked out that the net yield figs were very healthy, for you to be considering this, sadly it appears they're not too great, and given the risks re tenants, funding for periods of unoccupany, etc, etc altogether it would suggest to me that this really presents is too much risk for too little return.

Holly x