If we leave London is BTL worth the hassle?

smfdurham

Hi!

We may be leaving London within the next 3 years. If we do, we have the option of hopefully paying off the mortgage and having around £60k in savings, or having £60k left on the mortgage and £120k in savings. We'd use this to put down as a deposit on a house up north.

We're worried about London property prices if we ever need to come back so it would be sensible to keep the flat and let it out if we can. Would it be any more difficult to rent out a flat with a mortgage? Is there an advantage to owning out right?

Appreciate the advice

Thanks

Simon

princeofpounds

Well no-one here has a crystal ball on prices, but if you think you may want to come back at some stage then it makes sense to keep it if it's not going to affect your lifestyle too much elsewhere. You match your asset (london housing) to your liability (the risk you need to 'consume' london housing).

smfdurham

thanks, yeah I think we can do it without too much lifestyle impact (although it will of course have some impact!)

Do you think we're best off being mortgage free or a smallish mortgage and less savings?

AlexMac

As a small-scale amateur landlord in London (with 16-17 years experience, of one flat, and a recent second little BTL) I'd say it's worth it and not too much hassle, tax-efficient, and once you do your homework, easy to do.

Masses of advice for wannabe LLs here on this forum (I hope one of the experts will give you a link). The main things are
- is your property in an area of rental demand with a good ratio of value-to-rental income? I get 5-7% gross return p.a. on asset value before factoring in costs- all of which (except the capital repayment element of the mortgage) are tax deductible. Obviously income of ten grand a year for a flat worth £175K is better than eight grand a year on a house worth £200k
- can you distance yourself emotionally from the property - it's no longer your 'nest' and you mustn't stress that the place might be trashed or neglected; everything can be fixed for a price... but
- are you businesslike enough to reference-check and select tenants (or get an EA to ), meet your legal obligations and treat tenants right? I've been lucky, even though I self-manage, but then, I treat my occupants well; anything that breaks or wears out (beds, fridges, boilers, leaks etc) gets fixed or replaced immediately
- can your cash-flow cope with voids, bad tenants (cross fingers) and the off £2k for a new boiler?

In my case, the answer was yes all round, and frankly, it's been an income gold-mine, while retaining London capital appreciation!

So go for it

AlexMac

smfdurham wrote: »

thanks, yeah I think we can do it without too much lifestyle impact (although it will of course have some impact!)

Do you think we're best off being mortgage free or a smallish mortgage and less savings?

Just seen this supplementary...
If the mortgage refers to the BTL, and noting that you'll need lenders' assent to let which may bump up the rate, in my view, it's worth having a mortgage as you'll get tax relief on the interest element of the rpayments, this reducing what you pay. Registering for and completing tax returns online is an easy DIY task- you don't need an accountant (unless you already use one)

princeofpounds

Do you think we're best off being mortgage free or a smallish mortgage and less savings?

It really all depends on house prices actually, so I can't give you a straight answer. If house prices go up by more than the cost of the mortgage then it makes sense to stay mortgaged and exposed to slightly more property assets. If they don't, it doesn't.

We are pretty used to house price inflation being greater than the cost of debt over the last 20 years, but over the very very long term they should not be permanently different. In the short term of your and my working lives, who knows? We can just speculate.

There is of course often an extra advantage to paying off a mortgage if you have low LTV, as you can gain a lot from the fact it allows you to finance the whole thing more cheaply, for example if you move from 90% LTV to 60% LTV.

tom612

I have a few BTL but my oppion of London its different world and trying to get back in after may be difficult if prices carry on

cloo

I think if you have a London property and may want to return, you should keep it as it's kind of 'use it or lose it' with a foothold in London property.

Re how much of a hassle it is can depend a lot on tenants. I had a good experience for 7 years with family tenants who stayed put and maintained the house well. Funnily enough I wanted to rent to young sharers originally as I was worried about kids, but if I'd done that, I'd have gone through 3 or 4 sets of tenants in that time and I'm sure the place would have taken much more of a battering!

dominoman

smfdurham wrote: »

Hi!
We're worried about London property prices if we ever need to come back so it would be sensible to keep the flat and let it out if we can. Would it be any more difficult to rent out a flat with a mortgage? Is there an advantage to owning out right?
Simon

The opposite. Re-mortgage it to the hilt so you own as little of it as possible. Then use the money you have to put down a deposit on a new place, or just put it in the bank or an investment to earn some interest.

The reason is that all your rental income will be taxed, but you can deduct the mortgage interest payments first.

So let's say you earn 20k from it per year (not unlikely in London). You will pay 8k in tax if you are a 40% tax payer.

On the other hand if you have a 75% mortgage on it which is costing you 1500 a month in interest you will pay tax only on the remaining income. So your tax would drop to 40% of 2k, which means you end up with an extra 7000 per year in your pocket!

You'd be crazy not to do extract the max mortgage you can. You're throwing away thousands a year in extra tax if you pay off a mortgage on a property that is let out.

dominoman

AlexMac wrote: »

Registering for and completing tax returns online is an easy DIY task- you don't need an accountant (unless you already use one)

And in fact is mandatory if you are letting out your house - even if there is no tax to pay.

somethingcorporate

dominoman wrote: »

The opposite. Re-mortgage it to the hilt so you own as little of it as possible. Then use the money you have to put down a deposit on a new place, or just put it in the bank or an investment to earn some interest.

The reason is that all your rental income will be taxed, but you can deduct the mortgage interest payments first.

So let's say you earn 20k from it per year (not unlikely in London). You will pay 8k in tax if you are a 40% tax payer.

On the other hand if you have a 75% mortgage on it which is costing you 1500 a month in interest you will pay tax only on the remaining income. So your tax would drop to 40% of 2k, which means you end up with an extra 7000 per year in your pocket!

You'd be crazy not to do extract the max mortgage you can. You're throwing away thousands a year in extra tax if you pay off a mortgage on a property that is let out.

Except now you have a mortgage to satisfy so hardly the entire tax difference better off.