Going buy to let: "So Sir, what's your strategy for paying back the capital?"

Atomix

AnotherJoe wrote: »

"Sell it".

It seems highly unlikely it wont be worth at least as much as now, so by definition you can clear the mortgage, you dont even need a rise in value.

pph wrote: »

It's appreciated 70% in value since Aug 2012.. but with Trump / Brexit / Goodness knows what... hence I am being conservative with the 3% thing.

If we sold it tomorrow we'd easily pay back the principal of the loan.

https://www.moneyadviceservice.org.uk/en/articles/ways-of-repaying-an-interest-only-mortgage

The bank cannot accept speculative prices going up / inflation or any other crystal ball method.
You will need a credible plan, or you may be unable to re-mortgage when your term ends...
my advice would be to sell, not pay any cgt, and use the money on the next property.

Thrugelmir

pph wrote: »

....your conclusion being....?

(P.S. Notting Hill was peanuts 20 years ago and now is unaffordable.. but people somehow manage to afford it)

Forecasting that far ahead is pure speculation and is of no value.

(PS. I left my patch in Surrey over 30 years ago as property prices were unaffordable. People have continued to purchase property though in Surrey. What's new? )

pph

Atomix wrote: »

https://www.moneyadviceservice.org.uk/en/articles/ways-of-repaying-an-interest-only-mortgage

The bank cannot accept speculative prices going up / inflation or any other crystal ball method.
You will need a credible plan, or you may be unable to re-mortgage when your term ends...
my advice would be to sell, not pay any cgt, and use the money on the next property.

Very useful, thanks. I guess my retort to the evil mortgage overlords would be that even if the property value fee by 70% in 20 years, we'd have the money to pay back the debt... but probably of more value...

pph wrote: »

2) I have calculated the value of my own pension in 20 years (just adding mine and my employer's contribution, no growth) - my g/f hasn't got a pension. The total value of all my pension in 20 years from now will be pretty much bang on the amount of of loan we owe the bank. I am 38 now so in 20 years under changes in pension law I should be able to start taking it out and pay back the bank what's owed to them (even if I need to do it over 5 years), then sell the house and keep all the proceedings (or carry on renting it out and that will be my pension).

Howzat?

Thrugelmir

pph wrote: »

Me and my significant other are moving to another city, leaving where we own on an interest only mortgage and using the margin between our new mortgage payment (much lower than out current capital repayment residential mortgage) to offset the cost of renting in a new place in the town we are moving to.

Don't you want to buy a property where you move to?

pph

Thrugelmir wrote: »

Don't you want to buy a property where you move to?

We'd have to sell the place in London:

a) I believe that if there's one place in the UK property prices are going to be maintained / stay rising is London
b) For personal reasons, we want out of London ASAP and don't want a 6-9 month transaction
c) It's a buyers market now... maybe in the next cycle when the economy picks up and there's more demand we'll think about it
d) My job starts 1st June


Overall, no-one's got a crystal ball but we bought in an "up and coming area". Since then there has been a massive injection of cash to promote regeneration, they have pedestrianised the high street, crime has fallen, there's an HS2 station being planned for nearby.....

So looking at it as an investment, we see London as the best bet. Plus rental charge we can get minus interest only mortgage payment amount = very appealing offset on the cost of the rental place in the destination town.

Cakeguts

Can you afford to pay the rent in the new town and the mortgage on the London property if you don't get any rent. As you haven't bought your London property as a buy to let it might not let as well as you think it will.

Thrugelmir

pph wrote: »

Plus rental charge we can get minus interest only mortgage payment amount = very appealing offset on the cost of the rental place in the destination town.

Don't overlook the impact of tax on your calculations. Start of new regime from 6th April that is going to get more penal over the following years. Nor make allowance for the maintenance and upkeep of the property. Over 20 years that will mount. Hopefully your tenants won't be from hell either. If you are unlucky enough to meet one.

Typhoon2000

As mentioned before, sale of property is a perfectly valid answer for a BTL and you do not need to qualify anything or justify what you think the property will be worth in 20yrs at all. Banks are not interested.

After all saying you will still be employed in 20yrs is as much 'Crystal balling/ pure speculation' as saying house prices will higher than they are today ( and banks know which one of those two is more likely anyway).

Mutton_Geoff

pph wrote: »

We have checked with the bank and it's fine to transfer the residential mortgage into a buy to let.

We are going for our meeting with the bank to make the mortgage application to switch to a buy to let

Beware that most BTL mortgages have a higher interest rate than residential mortgages yet many lenders will grant you "permission to let" and leave you on your current loan. Naturally the bank will want to switch you to a higher interest rate but I would ask them first (perhaps by a separate anonymous call) whether they have a policy of issuing "permission to let". Woolwich/Barclays certainly have and a few years back they granted this for a small admin fee of less than £50.

Thrugelmir

Mutton_Geoff wrote: »

they have a policy of issuing "permission to let". Woolwich/Barclays certainly have and a few years back they granted this for a small admin fee of less than £50.

Consent to Let is normally determined on a case by case basis. Some lenders only view this as being a temporary arrangement.