Going Interest Only Using capital repayment for BTL

Simon22

Hi Folks, new here so hello everybody :cool:

My question is this :

I'm currently with Virgin One. I have a facility of £245,00 on a £320,000 house @ 7.05% costing me £1,740 pm.

A big part of of me is thinking I should consider moving to an interest only mortgage , reducing my repayments to around £1440.00 (With Virgin)

The reasoning being I could use that additional money to fund a couple of Buy To Lets also on interest only with another lender.

I would then work on the basis that in 20 years or so the two additional properties will have increased in value to such a degree they will easily pay off the capital on the main house and leave a considerable lump available for that villa by the golf course ..

However, Virgin One tell me this morning that they don't allow a property portfolio to be used in this way and they won't allow me to move to an interest only mortgage on that basis.

Is this a hurdle I would face with any lender? Would I be able to go interest only on my main home in order to free up funds to create a property portfolio and would other lenders look on that more kindly?

If so I may well leave Virgin, get a cheaper rate , save on the monthly payments AND allow myself to start creating a very small property portfolio with the cash saved on the rate (virgin is pricey) and the funds now made available from moving from capital and interest to interest only.

In short, do all lenders make it awkward to do interest only ?

dunstonh

I would then work on the basis that in 20 years or so the two additional properties will have increased in value to such a degree they will easily pay off the capital on the main house and leave a considerable lump available for that villa by the golf course ..

And the 40% capital gains tax you have to pay as well when you do that.

Is this a hurdle I would face with any lender? Would I be able to go interest only on my main home in order to free up funds to create a property portfolio and would other lenders look on that more kindly?

Some will have no problem with it. Although with buy to lets no longer looking very attractive and lenders tightening up on lending criteria, they would want to make sure you can afford it.

Simon22

dunstonh wrote: »

Some will have no problem with it. Although with buy to lets no longer looking very attractive and lenders tightening up on lending criteria, they would want to make sure you can afford it.

There's adequate income coming in to show affordability yes, but I hear you re BTL not really looking that attractive now.

Where I live, it there is no way in hell you could break even on a BTL interest only , you would have to top up the mortgage payments yourself, which is what I would use the freed up funds for from swopping to an interest only.

Long term looking historically, it still seems on paper to make sense , I will have 3 properties appreciating in value over a 20 yr period, even in the instance of a price crash long term should be fine.

I also don't really buy into the price crash , I've had financial advisors tell me there's going to be a price crash for the last decade, infact I didn't invest in property 7 yrs ago due to that wonderful advice and lost out on a small fortune which two friends capitlised on big time.

Supply and demand if nothing else will drive the market, to many people not enough accomodation and that equation seems to be getting worse. It's not my primary fear right now so all in all the plan seems valid .

Thanks for the confirmation re "no problem" on moving to interest only with other lenders. And in addition I'm pretty sure I can get a better deal with another lender anyway.

dunstonh

I also don't really buy into the price crash

Property shares, REITS, property companies are down around 15-20% this year. Commercial property funds are suffering near record outflows. Price of flats has fallen (in general) and they tend to the the things that hit first. Repossessions are up and interest rates are still likely to rise.

All the indicators are there that the property price growth boom is coming to and end. Whether it goes as far as a crash no-one can tell. It could go up, albeit slowly. It could remain level for a decade (and go down in real terms or just maintain real terms value) or it could go down. Nobody can tell you. All you can do is look at the warning signs and decide if it is good value or not.

It may still be possible to get value somewhere if you know where to look or you can buy run down cheap and do it up. However, its a lot harder now.

All the landlords I know have been selling for the last 2 years and either buying abroad or calling it a day. Cheap lending is coming to an end, yields have never been lower and there has been a long run of growth.

Other lenders will either want you to do it on buy to let basis or they will let you do interest only on your own providing you can satisfy the ability to repay it at the end. The FSA has been putting pressure on them to show that they are not lending interest only as a way for people to borrow money who cannot afford capital and repayment. So, expect to be asked a few questions on affordability and ability to repay the mortgage.

EdInvestor

I'd have thought the timing wasn't great as interest rates are still going up.How high would they have to go before you would find it a tight squeeze to fund your existing mortgage and would need the flexibility to switch to I/O to reduce outgoings?

You'd be wise to do a very thorough investigation into the BTL project particularly focussing on real net yields, level of tenant demand in the area plus competition from other people with the same idea.The BTL market is very definitely not what it was.

Having said that there may well be a shakeout over the next year or two as those who have miscalculated get overwhelmed and forced out of the market (both O/O and BTL).There may well be bargain properties available and less competition as the amateurs depart.If rents rise ( due to less competition) while mortgage costs reduce after interest rates peak, then the idea looks a lot more attractive - and the potential pressure on the PPR mortgage would also be much reduced.

I should leave it for a year and in the meantime thoroughly study the letting market in your area.Steer clear of people offering you package BTL deals, the market is now infested with shysters because there are so many amateurs stepping up to get fleeced.

Stay local, look, listen and learn for the time being is my advice.BTL is not going to go away now, but as with any investment, if you're going to do it, it's worth spending some time to get it right.

Re the BTL market, it's a different asset class from commercial property and not correlated, so no comparison there. CGT is also not a worry, its effects are usually quite limited as there are many reliefs.

Simon22

dunstonh wrote: »

Property shares, REITS, property companies are down around 15-20% this year. Commercial property funds are suffering near record outflows. Price of flats has fallen (in general) and they tend to the the things that hit first. Repossessions are up and interest rates are still likely to rise.

All the indicators are there that the property price growth boom is coming to and end. Whether it goes as far as a crash no-one can tell. It could go up, albeit slowly. It could remain level for a decade (and go down in real terms or just maintain real terms value) or it could go down. Nobody can tell you. All you can do is look at the warning signs and decide if it is good value or not.

The rental market where I am is incredibly strong with letting agents fighting for the property , a builder friend of mine , now with a 21 strong portfolio can't get them done up quick enough for the queue of people his wife has on their lists. Renting them properties won't be a problem, finding the financially viable ones is now the real issue as BTL has gone to poop in a handbag around are area interms of it being viable on a short term basis, ie under 5 yrs.

It may still be possible to get value somewhere if you know where to look or you can buy run down cheap and do it up. However, its a lot harder now.

All the landlords I know have been selling for the last 2 years and either buying abroad or calling it a day. Cheap lending is coming to an end, yields have never been lower and there has been a long run of growth.

Other lenders will either want you to do it on buy to let basis or they will let you do interest only on your own providing you can satisfy the ability to repay it at the end. The FSA has been putting pressure on them to show that they are not lending interest only as a way for people to borrow money who cannot afford capital and repayment. So, expect to be asked a few questions on affordability and ability to repay the mortgage.

Thanks for the info, re affordability that should be fine. I think all the indicators have been saying the price boom is over for the last five years if all the experts are to be believed. It's clear the days of insane growth are toast, I agree and if your in it for a 5 yr gig forget it but I'm thinking really more of a 20-25 yr gig, over which I suspect nothing short of a nuclear war is going to have any real impact on the reality that in 25 yrs that house will at a minimum of quadrupled in value and more likely be worth 10 x it's original value.

As you say wouldn't surprise me now to see a complete flat line, although the growth in some parts of London is stil silly, friends houses are rather posh areas are still going for silly money, but overall a slow down is fine by me, I'm not in it for the short term at all, short term BTL is a poor investment right now I agree.

Thanks again for the tips, most appreciated.

Conrad

Forgot to say my other key target after researching thousands of developments worldwide over a long period are the Government mega resorts known as PLAN AZURE in Morocco.

Saidia is the spearhead resort - I dont have time to go over why hear but beleive me no other resort in the Med comes anywhere even close and the values are 4 x cheaper than comparible in Spain 60km away.

You need to recognise that the Moroccans are targeting the high end only - this is a world away from the Turkish / Bulgarian touristic market and will be the trend place to be seen in 3 years time.

I bought here where the Meds largest marina is being built (just 1 of dozens of reasons I bought in this development where nearly 100 Premiership footballers have also bought - actually bought not just fronted a marketing campaign - the sports facilities will be unrivalled)

http://lejardindefleur.com

70% mortgages available

Simon22

Conrad wrote: »

Forgot to say my other key target after researching thousands of developments worldwide over a long period are the Government mega resorts known as PLAN AZURE in Morocco.

Saidia is the spearhead resort - I dont have time to go over why hear but beleive me no other resort in the Med comes anywhere even close and the values are 4 x cheaper than comparible in Spain 60km away.

You need to recognise that the Moroccans are targeting the high end only - this is a world away from the Turkish / Bulgarian touristic market and will be the trend place to be seen in 3 years time.

I bought here where the Meds largest marina is being built (just 1 of dozens of reasons I bought in this development where nearly 100 Premiership footballers have also bought - actually bought not just fronted a marketing campaign - the sports facilities will be unrivalled)

http://lejardindefleur.com

70% mortgages available

Thanks Conrad , will take a look.

Re Virgin, they are actually quite adamant they won't allow I/O unless you can show what your going to use to repay the capital. I don't seem to have free will with them...

Hence it looks like I will simply shift the mortgage, which I should have done a while back anyway as I can get a vastly better deal and drop it over £100 a month anyway.

Simon22

Conrad wrote: »

Simon

You should be able to switch to IO with Virgin. Just say you need to cut your outgoings as you have been investing abroad or something - Im sure its your Human Right to insist on whatever repayment style you wish - how dare they imply otherwise.

I built a property portfolio but now investing in cheaper markets.

Berlin has the magic combination of:

1) Safety (unlike say Bulgaria or Turkey)

2) Rent year round (unlike touristc property)

3) Very cheap due to crash and after effects of communism

http://www.berlinrepos.com

I like the 10 year state guaranteed apartments starting from £24000. Fully managed - hassle free.

I think prices will quadruple in the next 10 years - the boom started last year.

Dozens of UK funds investing including Standard Life.

Remember you will be getting income and not having a mortgage in Germany so the income role - up will be more positive that a UK B2L with a B2L mortgage upon it.

I take it your not bothering with mortgages on these cheapos in Berlin , you already have available cash ?