BTL v Savings looking long term for child

Pipjo

I have 25K saved. It is in Santander 123. So earning £55 ish a month with bills cash back and fee.

If I bought a house with £25K deposit on BTL I would pay £470 mortgage (repayment) and get £600 month rent. I would also have 15% fees for estate agents to take it over completely and insurance etc. These houses have also stayed around the same price last 10 yrs so not even sure they will go up in value?

So would keeping money in Santander be better? The money is for my son when an adult to go to uni or deposit for own place in around 10 years. So looking at long term type saving or investment. Have 2 kids top saving accounts 6/4 interest pay max every month into them.


Please can I have some help wise words on best way forward please?

jimjames

How old is your son? It's far less effort to invest the money rather than a BTL and long term investments should beat cash savings accounts.

We use Aberdeen and F&C for our kids but other companies do similar plans for their investment trusts.

http://www.invtrusts.co.uk/en/investmenttrusts/how-to-invest/investment-plan-for-children

bigadaj

Buy to let is a business and you need to consider it as such.

Can you deal with void periods, tenants that don't pay or even trash the place, increases in interest rates etc

Many people would consider you should look at investments fro your money, typically funds, given your fairly long term outlook for the money, have a read through the dudes in the main site and this forum and also monevator website for some basic background.

Once you have an idea about what you might want then come back and people here will explain and question any proposals you may have.

MoneyEM

Do you already own a property? If you do, you will also need to consider the increased taxes to stamp duty on a second property that come into effect in April.

Also, you say you have 25k in Santander earning £55 a month? Is £15 - £17 of that cashback? I'm just curious because I have 20k+ in mine and only receive £38 - £40 a month after tax...

Pipjo

What is F&C? Never heard of these investment trusts? Do they carry risks being stocks and shares? How much interest do a 10 year plan pay? would 3% Child ISA be better?

jimjames

MoneyEM wrote: »

Also, you say you have 25k in Santander earning £55 a month? Is £15 - £17 of that cashback? I'm just curious because I have 20k+ in mine and only receive £38 - £40 a month after tax...

Good point there. If it's all in the 123 then £5000 is getting zero interest as the limit is £20k.

Pipjo

Thanks I will look at monevator, never heard of it? Yes house is empty so sale could be before April?
Ahh just checked I have 10.05 in tax deducted so £47 month with bills cash back.

Thrugelmir

Pipjo wrote: »

If I bought a house with £25K deposit on BTL I would pay £470 mortgage (repayment) and get £600 month rent. I would also have 15% fees for estate agents to take it over completely and insurance etc.

What about maintenance costs?

Profit is taxable. So is the capital gain in certain circumstances.

Are you prepared to lose money?

MoneyEM

Pipjo wrote: »

Thanks I will look at monevator, never heard of it? Yes house is empty so sale could be before April?
Ahh just checked I have 10.05 in tax deducted so £47 month with bills cash back.

You probably have a week or two to get the house buying process started. Even with no chain it could still take a few months and you need to complete by April. Don't forget you will need surveys, and to speak to the mortgage lender...

I am currently househunting as a FTB, and having spoke to lots of EAs they all say investors are scrambling around to get houses now while they still can, because it will be too late to complete on anything by mid feb.

Also, have you checked that you will be able to get a repayment mortgage on a BTL? I went in for some mortgage advice and was told that you could only get interest only mortgages for a BTL. I could be wrong on that one though...

Pipjo

Thanks Money I calculated mortgage on repayment rate doh! Yes it is now or never...but stamp duty comes off tax?

bowlhead99

Pipjo wrote: »

Yes it is now or never...but stamp duty comes off tax?

If you buy a house for £100k after 6 April you will pay £3k of stamp duty taking the total cost to £103k.

If you then sell the house for £120k in ten years time, you can include the stamp duty in your costs when calculating your gain on disposal, so you would say £120k - £103k is £17k profit (instead of £120k - £100k is £20k profit), and have less tax to pay on the gain because the gain is smaller.

So in that sense, part of the stamp duty 'comes off tax' because if you had not paid stamp duty you would have made a bigger profit on disposal and therefore paid more tax.

But paying stamp duty does not affect the annual income tax you owe on the profits of your new property rental business. It is not an operating expense, just a one off capital cost which gets considered when you sell. The profits of that business that you have to pay tax on annually are your rental income less your expenses like agents fees and insurance and mortgage interest and wear and tear. If you are a high rate taxpayer there is a bit of a quirk that you can't claim the full amount of mortgage interest in calculating your profit, but assuming that with this new load of business profits you'll still be a basic rate taxpayer, it is relatively straightforward.

Of course, as others suggested, if you spend the money on investment funds or investment trusts inside S&S ISAs (you can put £15k in this tax year and the other £10k next tax year), you will be able to make income and gains completely tax free and have the investment portfolio grow over time. That way you would not have the risk that your eggs are all in one basket in a single residential property which could fall in value to wipe out your equity, or could be trashed by tenants, or could be empty for months at a time, etc etc.

If you have never been a professional landlord before it seems quite bizarre to say "it's now or never" when the only thing that changes in April is a new stamp duty of a few thousand pounds on the £100k or less that you're talking about and is tax deductible in a decade's time. Think carefully and do your research on how it will all work. I assume you're only going to buy a house worth about £100k at the very most, because you only have £25k which has to cover all your purchase fees and deposit and presumably leave a repairs and maintenance fund, and you won't be able to borrow more than about 75% of the house's value on a buy-to-let basis.

If BTL investors are scrambling now to put their offers in on houses before April to avoid the new stamp duty, you might find that actually the headline price of the houses comes down a bit in April because there is no longer so much demand, because of the additional closing costs that group of buyers would face after April.