Help with re-mortgaging and BTL calculations

Skag

saajan_12 wrote: »

Your tax calcs are wrong: you only get tax relief on the interest portion of mortgage payments, not the capital repayment part (the remortgage looks like a repayment mortgage?). Also over the next 4 years the tax relief on mortgage interest will be gradually reduced from 40% to 20%.

Also you seem to be looking at it from a cash flow point of view.. don’t forget you are paying off a significant portion of the mortgage so the payments are not all lost.

Here are some rough numbers assuming 20% tax relief on the mortgage interest (it’s slightly more now, but I’m assuming this is offset by the initial stamp duty / solicitors costs).

Total rent: 3600
Net total rent: (100% - 40) * 3600 = 2160
Total mortgage interest: 4% * 200k + 4% * 150k per year = 1167 per month
Net mortgage interest (after tax): (100% - 20%) * 1167 = 933
Capital repaid on repayment mortgage = 1500 – (4% * 200k / 12) = 833

Overall ‘P&L’ = 2160 - 933 = 1227
Capital repaid = 833

So you end up with 1227 – 833 = 394 in your account but the 833 isn’t ‘lost’, it just becomes equity in your existing property.

Currently you are getting 1800 in your account without mortgage costs which is higher than the 1227 ‘profit’ if you had two properties.

Thanks for this.
However using this calculator http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator
some figures differ. For example the 4% on the 150k (interest only) is 500.
The capital repayment on the 200k starts from 1479 and gradually goes down.
1479 + 500 = 1979 - 20% = 1583.20 net interest to be paid every month.
Also, I'm calculating repayments on the re-mortgage (raising equity from existing property).
The interest payments are for the 2nd property.

saajan_12

Not really sure what you're talking about..

Skag wrote: »

Thanks for this.
However using this calculator http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator
some figures differ. For example the 4% on the 150k (interest only) is 500. - ok. I'm talking about the total interest on both mortgages.. not need to treat them separately.

The capital repayment on the 200k starts from 1479 and gradually goes down.
1479 + 500 = 1979 - 20% = 1583.20 net interest to be paid every month.the 1479 includes interest and capital repayments. only the interest portion gets the 20% tax relief.
The rest is capital repayment which you can't get relief on because it is not a 'cost'. It just moves from your bank account to equity in the property.
Also, I'm calculating repayments on the re-mortgage (raising equity from existing property).
The interest payments are for the 2nd property.

gingercordial

Skag wrote: »

Because I want to assess the viability of this plan before incurring extra costs. And by the look of it, it's not even viable before the extra costs.
In other words, I don't think it's worth going to "details" if the basis is not worth it.

Since SDLT is very easy to work out with HMRC's handy tool (https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro) you might as well factor that in. It only takes 30 seconds to generate an answer.

Assuming a £350,000 purchase price and this being an additional property, SDLT is £18,000.

That will wipe out any profit from a new BTL for a considerable period under either of your scenarios.

AdrianC

Just look at the ballpark cost of borrowing to see why this isn't really going to work, except for the capital-growth long game.

£1800/mo on £350k property is 6.1% yield. Sounds high to me, but we'll assume it's right.
Take 40% tax off that, and you're looking at 3.7% yield.
What's the interest rate on the £350k you're looking to borrow...?

And that's before you consider all the other costs, especially the £18k SDLT - which will wipe out your first 18 months of post-tax rental income, on its own.

Crashy_Time

nubbins wrote: »

Crashy_Time wrote: »

We all know about your opinion.. it doesn't count for much

Government and a large chunk of the public have come round to the same opinion, it count`s for that much

Skag

AdrianC wrote: »

Just look at the ballpark cost of borrowing to see why this isn't really going to work, except for the capital-growth long game.

£1800/mo on £350k property is 6.1% yield. Sounds high to me, but we'll assume it's right.
Take 40% tax off that, and you're looking at 3.7% yield.
What's the interest rate on the £350k you're looking to borrow...?

And that's before you consider all the other costs, especially the £18k SDLT - which will wipe out your first 18 months of post-tax rental income, on its own.

So we all end up in the same conclusion: that's not a viable plan. I wonder all these articles talking about "funding your BTL empire by raising capital on existing property", they got it wrong? :huh:

Cliveman_Pieman

Skag wrote: »

So we all end up in the same conclusion: that's not a viable plan. I wonder all these articles talking about "funding your BTL empire by raising capital on existing property", they got it wrong? :huh:

What is the publication date of said articles?

LadyGMadameToThee

Buy To Lets are fuedal, immoral and creating disunity and unrest amongst the population. Be ashamed - be very ashamed.

Pixie5740

Skag wrote: »

So we all end up in the same conclusion: that's not a viable plan. I wonder all these articles talking about "funding your BTL empire by raising capital on existing property", they got it wrong? :huh:

Indeed, can you cite some sources please?

Thrugelmir

Skag wrote: »

So we all end up in the same conclusion: that's not a viable plan. I wonder all these articles talking about "funding your BTL empire by raising capital on existing property", they got it wrong? :huh:

That was an era when rapidly rising prices made it possible. Normalisation of interest rates is going to come as a major shock to people in the future as well.