Best way forward question buy to let mortgage

chevalier

Ok so we have moved abroad and rented out what was our family home. It is on a repayment buy to let mortgage and this is being covered by the rent.

I have been talking to a mortgage advisor and he was wondering why we were still on a repayment, when going interest only would mean alot more money coming to us each month rather than going to the mortgage company. At the moment we get no money from the rental, just have the mortgage and maintenance covered.

So first question would this be a good idea.
Second question as we don't live in the country now, could we even change our mortgage to interest only due to the new rules that have just come in?

Next issue is that we have alot of equity in the property, circa about 200k. The advisor was suggesting that we could draw down some of this to use a deposits on further buy to let properties, in order to generate some income, that eventually would fund a deposit in our foreign home country.

Is this even possible. There is an area that we know well, so we could buy a house or even two with some confidence.

I understand about having to have a bl00dy good rental manager to make this work etc. I am more interested in the mechanics of the change in mortgage possibility, and the drawing down possibility.

We are in our late 40s/early 50s and really want to generate some money, conversely we don't want to mess up the one safe investment we currently have (our current house).

Thanks in advance and be gentle
chev

chevalier

Bumping to see if anyone has any opinions

csgohan4

If you went Interest only, how do you intend to pay off the mortgage???

Maybe increase the rent so you get a bit more.

IMHO BTL in the long term provide more equity in the house generally rather through rent due to costs of being a LL.

getmore4less

It really depends what your exit stratagy is.
you need one but it does not have to be set in stone just helps determine whats the next best thing to do.

The advanatge of a repayment
at some point ALL the income becomes yours.
you have no deadline to find the money to pay off the debt.
(one for the brokers how much harder is it to get longterm BTL mortgages as you get older)

If you need/use the income then it may be an option but then you have the issue of how do you pay off the debt.
That may be ok if the plan is to sell before/when the mortgage ends.

Do you really want to leverage and gear up a remote letting business?

Are you planning to come back to the UK that may make a big difference to the stratagy.

Thrugelmir

getmore4less wrote: »

Are you planning to come back to the UK that may make a big difference to the stratagy.

This is the starting point.

As for growing the property rental empire. Managing it from afar may be more trouble than it's worth. Also releasing equity may not be as straightforward as it appears. Though much depends on your employment circumstances.

pathtofreedom

How will the tax side work? From what I understand having more interest is good for a btl business as you can count that as an expense. They are changing some of the rules for that though in the uk on the 1st of April. So how would the taxes work for you? Do you pay uk tax as well as tax where you're moving too? Or where you are could you claim that interest back as a business expense?

If you can say which country you're in, and how your tax affairs work, someone with knowledge of that place might be able to help figure this out. You're probably best off getting business and tax planning advice though to see if having more interest only and or a bigger mortgage makes the business plan work better or not.

tlc678910

In order to make a decision that works for you, rather than being overly swayed by the advice of others - including your broker, you need to put some thought into whether you are looking for investment or income at the moment . With your repayment mortgage you are currently investing in the property - nothing to stop you cashing in later. You describe changing your mortgage to interest only as getting money rather than giving it all to the mortgage company but you know that any money paid on top of your interest repays the equity and reduces what you owe - it is invested for you and as that equity increases more of each payment goes into equity and less and less is lost to interest.

Yes you are responsible for tax on income but say your rent was £1000 I would rather pay 20 or 40% tax and receive £800-£600 after tax than pay the lot in mortgage interest!

If you decide to go onto interest only and take the excess rental income you have obviously switched from investing to Income (depending on what you do with the money e.g. Save or spend of course. Do you need to boost your income?) You will still hope to benefit from rising house prices.

If you decide to go interest only/draw out equity and buy more properties. You are back to investing again (there is unlikely to be excess income as the properties will be on a higher proportion of mortgage).

However your investment is now much more risky - do you have enough excess personal income if one property is vacant, one has a tenant not paying their rent and one needs a new boiler? Do you have enough excess income to pay your tax bills if your combined rent makes you a higher rate tax payer and mortgage interest can only be deducted at basic rate? Or if the government decides to go a step further in the coming years and make all mortgage interest non deductable for tax purposes? Are you able/willing to subsidise the lettings if needs be in order to effectively gamble on house prices rising (don't forget on interest only you will not be paying off the equity).

Before you investigate what is possible you need to give serious thought to what is desirable for you, your income, time scale and your attitude to risk.

Good luck
Tlc