BTL, one with lower LTV or three with 75% LTV?

brexit

Hello everyone,

Planning our medium to long term goal for property investment. We live in a rented accommodation and currently own a 3 bed house which on consent to let. The house value is around £350K and remaining mortgage is £129K.

Thinking to remortgage the house next year as a BTL and take out additional £250K, if allowed by bank, to buy 2 more properties with 75% LTV around £400K each.

Our rented accommodation cost £600/month (discounted from parents) + council tax + utilities.

Rent from the house we own £1300/month
2 additional properties rental income will be £2800+/month

Total rental income from 3 properties will be £4100+/month
3 properties interest only mortgage will be £1800+/month

Profit will be £1300+/month after all cost, maintenance and tax.

About us, full time working, salary £29K/year. OH not working because of health condition. 2 primary school aged kids.

We are aware of landlord's responsibilities, additional stamp duty and forthcoming tax changes for BTL. As OH not working, it will be a bit beneficial on tax purpose.

Before we see a mortgage broker next year, we would like to get an idea from experienced forum member. Some questions are,

It is possible to remortgage the only residential property to BTL while renting?
If so, will the above mortgage scenario achievable?
What are the pros and cons of having one BTL property with 37% LTV rather than three properties with 75%LTV?

Thank you all.

Thrugelmir

Lenders may require you to own a residential property as an offer condition.

The house value is around £350K and remaining mortgage is £129K.

Thinking to remortgage the house next year as a BTL and take out additional £250K, if allowed by bank, to buy 2 more properties with 75% LTV around £400K each.

With only £211k of equity available in your existing property. How do you propose withdrawing £250k?

3 properties interest only mortgage will be £1800+/month

If the properties are either empty or the tenants do not pay the rent. How will you cover the costs on an income of £29K/year.

Profit will be £1300+/month after all cost, maintenance and tax.

What if interest rates were to rise? With £850k of debt, that's £8.5k per annum for every 1% rise in interest rates. Or £708 per month.

Lenders will use a higher such as 6% to assess affordability.

Rent from the house we own £1300/month

What's the current net profit?

Our rented accommodation cost £600/month (discounted from parents)

Hope your parents are declaring the income to the HMRC.

kinger101

How do you propose to have 75% mortgages on £1.15M worth of property with only £211K of equity. Perhaps considerably less given each £400K property will attract £22K in SDLT, about £1.5K in mortgage fees, and easily another £1.5K in legals and surveys.

brexit

Thanks thrugelmir and kinger101.
I think my calculation/understanding was wrong.

Current equity is £221K, I believe. So have to find out rest of the money or lower priced houses.
Current profit around £700/month, self maintained.
There will be proper insurance in place in case tenant don't pay rent.
No idea of parents tax circumstances as they live overseas.

brexit

That means, house valued £350K and the equity of £221K, we can take out around £133K additional loan to start a new BTL?

SavingSteve

Yes, subject to that borrowing still meeting the 125 (or 145%) interest (@6%) to rent ratio.

You'll need to do the maths. I'd suggest engaging a broker who can lay out all the costs for you. Remember switching your residential mortgage with consent to let to a BTL will likely change the interest rate dramatically.

ACG

Have you based the tax due on todays figures or the changes that were published in a previous budget?

You will soon be paying tax on the income of a BTL rather than the profit.

csgohan4

I think OP your getting confused. You cannot borrow what you cannot afford.


You need to speak to a broker what you can realistically achieve, not what you think you can afford.

Caz3121

brexit wrote: »

to buy 2 more properties with 75% LTV around £400K each.

have you factored in the £22k stamp duty for each property?
If you can get £133k out of your own property, you would still need to find another £110k+ elsewhere (£100k deposit x 2 + £22k x 2 Stamp duty less £133k + additional fees)

SavingSteve

ACG wrote: »

Have you based the tax due on todays figures or the changes that were published in a previous budget?

You will soon be paying tax on the income of a BTL rather than the profit.

Is this strictly true? I thought the only change was to limit the tax relief on interest payments to max 20%?

ACG

My understanding is that in the future it will be taxed on income minus tax relief. Where as at the moment it is Income minus interest minus tax relief and then tax.

Lets not forget the changes to "wear and tear" deductions also.

Typically interest is going to be the biggest expense on highly geared properties.

It probably would not matter too much in this instance with good tax advice, but in theory it could potentially put the higher earner in the higher tax threshold.

I suppose really the point of my post was to ensure they speak to an accountant/tax advisor and get professional advice before committing to one or the other. I do not know the full ins and outs, I am not allowed to advise on it but it will have an impact on the profit.

Historically I would have said get multiple BTLs, spread the risk in case there are void periods/bad tenants etc but I am not so sure I would be looking at it that way anymore.