Buy to let mortgage or residential mortgage for second property?

californiagirl

Husband and I have just paid off the mortgage on our 3 bed house worth £310k. We are in our early 30s and although we love the idea of being mortgage-free, we can't help but think we should still have one whilst interest rates are so low. We have no pension set up, so are considering doing a buy-to-let.

Should we draw a deposit on our house and use that to purchase a second house with a buy-to-let mortgage on that? Or borrow the whole value on our own property as a residential mortgage and use that to buy the second home?

Thanks.

foxy-stoat

You will have to speak to a broker to see all your options, they may not lend 100% of the value of the second property. The HMRC are phasing out tax relief on the interest payments over the next 3 years so having a 75% LTV BTL interest only mortgage wont be as tax efficient as it used to be, but you probably already knew that anyway.


But to answer your question, your probably better off borrowing 25% of the second property value on a residential mortgage and a BTL mortgage on the other 75% as its quite hard to get a BTL without a residential mortgage.


Best research being a landlord and crunch all the numbers.


Good lucks

Thrugelmir

californiagirl wrote: »

We have no pension set up, so are considering doing a buy-to-let.

Any particular reason for not having a pension scheme each already?

AnotherJoe

californiagirl wrote: »

Husband and I have just paid off the mortgage on our 3 bed house worth £310k. We are in our early 30s and although we love the idea of being mortgage-free, we can't help but think we should still have one whilst interest rates are so low. We have no pension set up, so are considering doing a buy-to-let.

You make that lack of pension sound like an accident and if you did have one you then wouldn't get a BTL !

Why have you discounted a pension and its tax breaks which you won't get on a BTL (very much the opposite )

californiagirl

I know, I know, slapped wrist for not getting a pension in place. I have a deferred final salary pension from my council days that will pay out £200pm, but we haven't set up pensions for our self-employed selves yet. Husband is due to have one start soon via his company, but I have much lesser earnings at the moment as am mainly looking after kids. We have always put our money into property since buying our first house together at aged 20. I know that our current situation is partly down to the luck of a rising market, but we have gutted/renovated our two previous homes and built our current one, so it's been hard grafting too. Now we have paid off the mortgage, our thoughts are now turning to investing for our retirement.

Do you think we would be much better off putting our money away in a pension before thinking about BTL then? We both have a strange mistrust of pension schemes, whereas we feel like we understand property. I know all eggs in one basket and all that, but I'm always hearing tales of people getting screwed over by pension schemes and it doesn't fill one with much confidence.

AnotherJoe

californiagirl wrote: »

I know, I know, slapped wrist for not getting a pension in place. I have a deferred final salary pension from my council days that will pay out £200pm,

Of No consequence then

We have always put our money into property since buying our first house together at aged 20. I know that our current situation is partly down to the luck of a rising market, but we have gutted/renovated our two previous homes and built our current one, so it's been hard grafting too.

good for you but unfortunately hard work isn't really relevant. Your gains have also all been tax free and without troublesome tax laws, tenants and the like. Indeed, just like investments in a pension (or an ISA) but without the hard work.

Now we have paid off the mortgage, our thoughts are now turning to investing for our retirement.

Do you think we would be much better off putting our money away in a pension before thinking about BTL then? We both have a strange mistrust of pension schemes, whereas we feel like we understand property.

So do you understand that if you put £150 in a pension it might cost you anywhere from £75 to £100? And £150 in property would have cost you maybe £250 (because to put that £150 in you likely had to earn £250)?

So a pension is returning about 2x - 3x your stake compared to property. Then after that its a race between investment returns without tax and house price returns with tax.

I know all eggs in one basket and all that,

And yet you think that's still safer than (say) owninga part of a thousand worldwide companies ? You are instead contemplating taking one huge bet on house price inflation and the UK economy in the face of Brexit and government discouragement of landlords? . Very gutsy. I'm not that brave

but I'm always hearing tales of people getting screwed over by pension schemes and it doesn't fill one with much confidence.

"Always" ? Can you give an example of that ?