Mortgage to Buy To Let - Prep

toonit

Thanks guys this is really helpful. This is why i'm asking the question 18 months in advance.

Looks like I have got some savings to do and perhaps my hope of a move in 18 months is too hopeful for now. Had no idea stamp duty is more for the 2nd home..

The property we are in is in quite a sort after location. Property prices look set to rise and the rental market is even better. £650 - £700 pm

Would only be an ideal to move in 18 months. Based on not being able to move any money out of the property I think we will just wait that little bit longer and get some savings in the bank..

toonit

Is it still considered a good financial move to keep hold of your property or is it best to take the money and run ??

pjcox2005

toonit wrote: »

Is it still considered a good financial move to keep hold of your property or is it best to take the money and run ??

I don't think there is a clear answer here, it's certainly less advantageous than it used to be with the increased stamp duty from April, and the phasing out on interest relief (edited to state this is still in discussion phase and not yet enacted by law).


However, discussion ranges from a mass exit of property owners to a surge in demand by landlords pre-stamp duty rules. Effectively you need to work out your own income, costs and tax position and consider whether the time, investment and risk in becoming a landlord is worth it.

toonit

so the major fall back to owning 2 homes is the one off stamp duty amount that would be more due to owning 2 homes.

Thrugelmir

toonit wrote: »

Based on not being able to move any money out of the property I think we will just wait that little bit longer and get some savings in the bank..

Alternatively maybe worth overpaying the mortgage depending on the interest rates you are paying and receiving.

As for withdrawing equity to fund a purchase. You face two issues. A lender releasing equity for the purpose of a deposit on a second property, and a lender accepting what is in effect borrowed money to fund a deposit.

Don't overlook the fact that a better LTV on your current property will increase the options and lower the interest you'll pay on your current mortgage. A residential property is far more likely to produce a better return in this scenario than a BTL. A BTL can always come later when you've more money.

Thrugelmir

toonit wrote: »

so the major fall back to owning 2 homes is the one off stamp duty amount that would be more due to owning 2 homes.

No, you've 2 properties with a large amount of debt. Leveraging is a double edged sword. Great when market is in your favour.

On the negative side you are dependent on receiving an income from the BTL, (property empty, tenant defaults etc etc). You lose your job or your household income significantly drops. House prices drop in value for a period. Interest rates rise. Your partner has triplets.

If it was that easy to make money. Everybody would have bought a BTL 30 years ago.

pjcox2005

toonit wrote: »

so the major fall back to owning 2 homes is the one off stamp duty amount that would be more due to owning 2 homes.

Yes, and potentially for high earners you could lose the relief on the interest element of your mortgage.


So say you had rent £650 per month and interest of £400 per month then currently you'd be tax on the £250 profit (ignoring allowable expenses etc). So 40% on £250 being £100, leaving £150 profit over the interest.


On a very simple basis, by 2020, a high earner wouldn't get the interest relief so taxed on £650 at 40% being £260. Once you taken into account the interest expense and tax you'd make a loss of £10.