Buy to let property: interest only or repayment mortgage.

Rising

Hi all.
Thank you in advance.
I am thinking to jump in property market.
1. Buy to let one bed flat. Price £214,000
2. 75% LTV repayment mortgage at 1.94%
However if I choose repayment mortgage than profit will be nil, due to rental income and costs are showing same figures.
Could anyone tell me please if I choose interest only mortgage in today's money market, will it be right move?:eek::eek:
What are the pros and cons for each options?
Thanks again. Regards

ViolaLass

The profit will not be nil, it'll be paying off the mortgage.

glosoli

I am not an expert in tax matters or anything so those aside, but you could take it out on an interest only basis, and set your repayments to what they would be as if the mortgage was capital and interest, thus giving you the flexibility to reduce the repayments again should you hit periods of rental voids, maintenance costs, etc.

Thrugelmir

Rising wrote: »

However if I choose repayment mortgage than profit will be nil, due to rental income and costs are showing same figures.

Suggest you consult an accountant and obtain a better understanding. Capital repayments are not tax deductible. Interest is however. If the mortgage (repayment) = rent. Then you'll have a negative cashflow to contend with. As the HMRC will still be expecting you to remit your tax on time.

NewLlrd

Most mortgage lenders require the rent you charge to be at least 125% of your mortgage payment to allow for increases in interest rates.

As others have said, don't think of it as profit, think if it as your mortgage being paid for x years.

If you've never done this before, please make sure you do full checks/references om them - this will reduce the chance of a scummy non-paying tenant (although not guaranteed- I did them and still ended up with non-paying, house destroying tenants).

csgohan4

bare in mind interest tax deductible is being reduced significantly


Also are you aware o the tax and legal implication, the cost of eviction and potential no income or void periods??


Are you sure you want to be a LL, it isn't all about the £££

ViolaLass

Having guessed at the figures you've got in mind for costs/tax etc, I don't think this is a good move. The return is 3-5%, which isn't much.

dimbo61

" jump into property market "
Make sure you know what your doing.
Fees, legals, survey, management costs if buying a flat.
One bed flat ! One tenant

owitemisermusa

Current govt tax-allowable expense policy is putting the squeeze on buy-to-lets.


Heed the advice that's been proffered so far...


If you must jump in, do so with eyes wide open.

kingstreet

NewLlrd wrote: »

Most mortgage lenders require the rent you charge to be at least 125% of your mortgage payment to allow for increases in interest rates

Under the new PRA rules, it's now mostly 145%/5.5% and it's mortgage interest, rather than mortgage payment. So if someone is on repayment, they don't have to have a higher rent.