New taxes on BTLs - hill of beans?

PeterPanic

nubbins wrote: »

So a 175k mortgage on a 250k purchase price
£1000 a month rent
35k salary

I think you will find she will pay approx £1500 tax per annum increasing to £2000 in 2020/21

download the spreadsheet below and input the figures.

Remember its only the interest part of the mortgage which is claimable i.e approx £300 on this size mortgage

Except they will not lend that amount of money on a BTL mortgage with those figures. It isn't the tax rules that are stopping people going into BTL it is the additional stamp duty and lending rules.

Basically the monthly rent has to cover 145% of the mortgage payment assuming the interest rates were 5.5%

So on a £250K property with a £1k a month rental they will only lend £150,470, your friend will need to have a £100k deposit to be able to borrow that amount. Stamp duty on that property as a second property will be £10k. So she will in reality need around £115k when stamp duty and fees are taken into account.

Crashy_Time

PeterPanic wrote: »

Except they will not lend that amount of money on a BTL mortgage with those figures. It isn't the tax rules that are stopping people going into BTL it is the additional stamp duty and lending rules.

Basically the monthly rent has to cover 145% of the mortgage payment assuming the interest rates were 5.5%

So on a £250K property with a £1k a month rental they will only lend £150,470, your friend will need to have a £100k deposit to be able to borrow that amount. Stamp duty on that property as a second property will be £10k. So she will in reality need around £115k when stamp duty and fees are taken into account.

Nice. :money:

getmore4less

If the £4800 mortgage interest is just the £175k thats 2.75% on 70% BTL

is that some kind of fixed or discount rate?

The interest on the other £75k that will also be allowable.

£12k rent on £250k gross yield 4.8% a bit tight

with costs probably under 4.5%

Cashflow on this place will be low, that's if things go well, probably looking at 5 years just to cover buy/sell transaction costs.


When you factor most(al) of the money is borrowed the actual investment will be quite low giving good ROI(even on sunk costs this will be in excess of 20%) but on low numbers this can be wiped out quickly with just one months rent not turning up.

once you factor in the time to run letting business, the hourly rate will be lousy.

AnotherJoe

jdw2000 wrote: »

Figures used:

£12,000 rental income
£6,000 costs (£4,800 mortgage payments and £1,200 costs)
Landlady is basic-rate tax payer <---It appears not any more?

Presumably those are "running" costs and dont include
Stamp Duty c £7,500
Misc buying and setup costs c £2,500
Tax even at BR £1,200/pa making net income £5k
Additional interest on the £75k residential mortgage (doesn't seem to be factored in?) c £1,500

So it will take around 2.5 years with a perfect tenant and no voids to break even.

getmore4less

AnotherJoe wrote: »

Presumably those are "running" costs and dont include
Stamp Duty [STRIKE]c £7,500[/STRIKE] C. £10k

there is still the regular SDLT.

AnotherJoe

getmore4less wrote: »

there is still the regular SDLT.

DIdn't know that, thanks.

So 3 years to break even then.

Crashy_Time

getmore4less wrote: »

If the £4800 mortgage interest is just the £175k thats 2.75% on 70% BTL

is that some kind of fixed or discount rate?

The interest on the other £75k that will also be allowable.

£12k rent on £250k gross yield 4.8% a bit tight

with costs probably under 4.5%

Cashflow on this place will be low, that's if things go well, probably looking at 5 years just to cover buy/sell transaction costs.


When you factor most(al) of the money is borrowed the actual investment will be quite low giving good ROI(even on sunk costs this will be in excess of 20%) but on low numbers this can be wiped out quickly with just one months rent not turning up.

once you factor in the time to run letting business, the hourly rate will be lousy.

So pointless buying (borrowing to buy) this BTL then....was the OP a wind up?

AnotherJoe

Crashy_Time wrote: »

So pointless buying (borrowing to buy) this BTL then....was the OP a wind up?

Crashy, you of all people should be very aware that many people go into BTL with their finances calculated on the back of an envelope - mortgage x, rent >x, therefore they are in profit. Never mind costs tax risk etc etc

jdw2000

getmore4less wrote: »

If the £4800 mortgage interest is just the £175k thats 2.75% on 70% BTL

is that some kind of fixed or discount rate?

The interest on the other £75k that will also be allowable.

£12k rent on £250k gross yield 4.8% a bit tight

with costs probably under 4.5%

Cashflow on this place will be low, that's if things go well, probably looking at 5 years just to cover buy/sell transaction costs.


When you factor most(al) of the money is borrowed the actual investment will be quite low giving good ROI(even on sunk costs this will be in excess of 20%) but on low numbers this can be wiped out quickly with just one months rent not turning up.

once you factor in the time to run letting business, the hourly rate will be lousy.

Those number are broadly correct.

Apparently the interest-only mortgage actually costs about £350 pm, not £400. It's 2.29% or around that figure. But I don't suppose that changes the bigger picture greatly.

jdw2000

5 years to break even?

But that doesn't factor in the primary reason for the BTL: capital appreciation.