Landlords - what type(s) of mortgages you have and why?

MsWow

Hi everyone,

I'm just about to apply for my first BTL mortgage and I was curious what products other landlords go for and why.

I want to choose a repayment mortgage and to get a 5 years fixed mortgage as we might never get these good rates in 2 or so years.

Also do you all go through brokers or apply directly to the lender? We would like to borrow from Virgin Money. Any thoughts on that?

Thank you

Thrugelmir

Why did you choose a repayment mortgage?

amnblog

Landlords rarely opt for repayment mortgages.

gagahouse

MsWow wrote: »

Hi everyone,

I'm just about to apply for my first BTL mortgage and I was curious what products other landlords go for and why.

I want to choose a repayment mortgage and to get a 5 years fixed mortgage as we might never get these good rates in 2 or so years.

Also do you all go through brokers or apply directly to the lender? We would like to borrow from Virgin Money. Any thoughts on that?

Thank you

I went the same route, repayment and 5 yr fixed.

It depends on your objectives and appetite for risk. I wanted the rent to pay for the asset in order to have at least one property as a pension vehicle at the end of the term. I chose 5 year fix for budgeting purposes, and because I think rates will start to rise during this period, to cap my interest rate risk.

For other's cash flow / income / tax minimization is more important and they hope to make a capital gain at the end of term so prefer IO.

gagahouse

Thrugelmir wrote: »

Why did you choose a repayment mortgage?

Why do you ask? Is there a problem with repayment other than you pay tax on the capital element?

Let_Us_See

You don't pay tax on the capital element of the mortgage payment, but you can offset the paid interest as a cost against any profit to minimise tax liability.

The vast majority of professional landlords select the interest only option as this means the properties should be self-financing with rental income covering monthly mortgage payment. This is unlikely with a repayment scheme, but if you have long term spare income to add to rental income, then it should not be a problem.

gagahouse

Let_Us_See wrote: »

You don't pay tax on the capital element of the mortgage payment, but you can offset the paid interest as a cost against any profit to minimise tax liability.

The vast majority of professional landlords select the interest only option as this means the properties should be self-financing with rental income covering monthly mortgage payment. This is unlikely with a repayment scheme, but if you have long term spare income to add to rental income, then it should not be a problem.

Ok, so 2000 pcm rent, 500 int, 500 capital repayment, assume 20% taxpayer

income = 2000- (500 int+ 100 maintenance+ 100 other expenses)= 1300

tax payable 20% of 1300 = 260

how are you not being taxed on the capital element?

uncreative

I have repayment on 3 properties and the sums work out just fine. One of mine for example has 70% LTV 15 year period variable rate. Mortgage including repayment is £348 a month and rent is £650 per month. In 11 years the flats will all be mine and fully paid off. There is sufficient headroom on the repayment basis that when i get a fourth you can get the fifth one funded from the collective surplus - I am about to complete on the 4th with a fifth to follow shortly.

Its all about doing the sums - aim for minimum 10% pretax yield. I don't touch anything lower than that.

MsWow

I'm an accidental landlord and at the moment we have a residential repayment mortgage and that's why we want to get the same type of product.

I sort of understand about the avantage of having an interest only mortgage but because I'm so new to all this, I will stick to repayment mortgage and hopefully once I will feel more confident, I will look into making my investment really profitable.

Let Us See Surely the capital attracts taxes.

uncreative:j You are fab. Which part of the country you live. I live in South were house prices are so high that profits are not that good even with a 70% LTV. Which mortgage providers do you use? What products do you choose? Are you not scared of a possible rise in BoE rates if you have variable mortgages on some of your properties?

MsWow

gagahouse Who is your lender?

ACG

Rather than going repayment, why not put the extra into an ISA?
Might be worth a chat with an accountant to look at the most tax efficient ways of doing this.
(This is from my days of when I used to be a landlord, im not one anymore but intend to get back into it again at some point).

As far as apply direct or via a broker, you can do either but I would say you are reducing your options by a significant amount if you do not go via a broker. If the broker charges a fee, thats something else you can put down on your books as an expense to reduce your tax bill.

Being a landlord is a business, do it right and get professional advice. You do not have the same protection you would have as a consumer.