Advice wanted on poor BTL investments

BudgetBoy

Hi All

I would appreciate some advice please. I am an amateur BTL landlord who regrettably bought 2 x properties back in 2005/6 that are now in negative equity to varying degrees. I’m sorry I ever bought them to be honest. I know I should have done more research and not been seduced by “easy profits” promoted by Sarah Beeney and the glut of property programmes on telly at the time! The purpose of this post is not looking for sympathy and not really looking to be told I’m an idiot / serves me right etc. I would just like to see what people would advise they would do given the situation I lay out below…..

My main mistake was buying a 2 bed apartment off plan in a development that is literally full of BTL properties now. I paid £125K before the crash and would be lucky to get 85K now. Rental is nowhere near what was quoted at the time – I am able to achieve £475 versus the £550 that was “predicted” by the advisor. Monthly management fees for communal areas are £70 per month.

My second property is a 2 bed house in a nice street close to me. Paid £105K for this and could probably sell for 90K so not so much of a hit. This rents for £475 as well. There are no communal charges, and I manage both properties myself so no agent’s fees.

Flat has a BTL mortgage of £86K interest only @5.99% (lenders variable) with monthly payments of £432. Loan to value is essentially 100% so I am unable to remortgage to a better deal. Add the £70 per month communal fee and this is running at a small loss each month. I feel like I have thrown away £45K on this L

House has BTL mortgage of £80K interest only on a better rate and costs £316 per month so there is a little profit from the £475 rent. Knock off the annual insurance and corgi gas check and it’s not much though.

So that is my 2 “investment” properties!!

The properties are jointly owned. I am a 40% taxpayer (just) and my partner is 20%.
Our own home is worth approximately £150K and is fully paid off – no mortgage at all. We have no other debts – cars are owned outright and monthly credit card is paid in full each month. I don’t earn a lot but we live within our means and are careful with what we spend.

I have 60K in savings. 30K in a cash ISA and 30K in share funds within an ISA. These don’t make anywhere near as much as the interest I am paying out on the BTL’s.

I hope I have provided enough detail to generate a response. What would you do in my shoes? I had considered paying down the BTL mortgages using my saving so more profit is generated each month which would in part make me feel a little better, but is this just throwing more money at the problem? I could potentially see myself keeping the house but selling the flat if prices eventually rose to the point of getting £110K back (and taking the smaller loss on the chin). I could do nothing and bumble along waiting for house prices to rise but could be in for a long wait.


Any constructive advice or thoughts would be gratefully received.
Thanks

MisterB1959

have you considered letting your own home out and moving into one of the BTL's, not perfect but it might get you through this mess a little easier. or mortgaging your own home and paying off one of the BTL's to reduce outgoings, though of course not increasing revenue.


the ongoing monthly service charge is why many people have lost money, the building will eventually have been paid for by the leaseholders at least twice over while the value of your investment is unlikely to rise by the same amount, but in fairness that's exactly what renters do and we as landlords take the profits. I would be offloading your flat as soon as you get the opportunity to do so at a price that's attractive to you

mchale

Personally I'd reduce my debt's by paying off as much as I could on the outstanding mort's, as you say they are costing you more money than your saving's are making, your a bit unlucky as you bought at the height of the market, but be assured price's are increasing.

slopemaster

If it was me I would pay £50 000 off the most expensive mortgage, and keep the other £10 000 for emergencies.

ViolaLass

On top of using some savings to pay those mortgages down (the interest rate on them will be higher than your savings so keeping the savings is costing you), I would be tempted to try to get a residential mortgage, provided you could get a lower rate than your BTL, which should be easy, and use that money to pay a chunk/all of the BTL mortgage off. You would need to allow for paying tax on your new-found BTL profit but it's still possible for it to end up cheaper overall.

kinger101

Hi

It's not simply a matter of paying stuff down. You are going to have to remortgage.

Currently, your property assets are valued at £325,000 and you have debt on these of £166,000. The killer here is the 6% and 4.7% (estimated from repayments) interest rates. I think you need to sit down with some spreadsheets and find out how best to divide the debts between the three properties. I'd also use most of the cash ISA (rubbish interest) but leave the S&S ISA invested (for diversification). Just leave some rainy day cash as suggested.

If you get 60% mortagages, you'll probably be looking at possibly 2% on a 2-3 yr fix for BTL, and 1.5 % on residential. Keep BTL interest only, and repay (and overpay) residential. It might take some time to work out the optimum distribution, because you are taxed once you do get rental profits (though you might have losses to carry forward).

As a quick indication, you currently pay £743 in interest (though this should be reduced by marginal rates).

Lets assume 60% BTL mortgages at 2 %

£51,600 = £86 pcm
£48,000 = £80 pcm

The remaining £66,400 of debt on residential 25 yr (though you could reduce further with Cash ISA

£66,400 = £266 pcm (though only £83 of this is interest at first).

That's a significant reduction in the amount of interest you're paying.

The downside is you may need to cough up about £4-5K in fees, so it might be the second year before it reaches payback time; which is why a two year fix isn't really good enough.

You might want to seen an accountant and mortgage broker to get the best arrangements.

Can anyone with a mortgage or accountancy background chip in and let me know if what I've outlined seems reasonable?

NB; there are also mortgage and taxation forums on here which might be worth posting on...

dotdash79

The investments weren't bad ones it's just that you haven't worked hard enough to make them work.

Get the BTL down to remortgage them, you have the cash. Don't forget the fee etc can be done against your tax bill to reduce that when you make a profit.

BudgetBoy

A big thank you to all people who have taken the time to post - certainly some good food for thought there.


Cheers