Trying to Help my sister...

cmazza

My advice would be to sort out her love life before worrying about the finances.Sorry but I don't think she should be thinking about buying a house with her new BF. IMHO she should sell up with H2B split the profits then buy a place in her own name solely. Called me old fashioned but it's just the way I see it.

fairy_lights

If my brother felt so compelled to give me unsolicited financial advice that he posted on an internet forum to get strangers to back him up, he'd be getting a second hand Chocolate Orange for Christmas for sure.

wesleyad

I would say just run the numbers and if it makes sense then its fine. On the face of it it doesn't look great.

How much remaining mortgage is there to be on the first property? It's going to go onto a BTL mortgage so I would assume 75% LTV, so a mortgage of 340k. Looking at a realistic 2% minimum on that is 6800 a year. She aims to rent at 1800, she is in the highest tax band which means she cannot claim any interest deductions, so she is paying 900 tax and NI on that. Letting agents (which I assume she will use as a novice) are going to be another 150-200 on that. Any voids and shes making a loss.

Add to that stamp duty on the second property is going to be £20,800. So that's a years rent down the drain (not including any letting fees, etc).

All in all it looks like a terrible idea, and if I were you I'd just go over the numbers carefully and point this out.

00ec25

wesleyad wrote: »

, so a mortgage of 340k. Looking at a realistic 2% minimum on that is 6800 a year. She aims to rent at 1800, she is in the highest tax band which means she cannot claim any interest deductions, so she is paying 900 tax and NI on that. Letting agents (which I assume she will use as a novice) are going to be another 150-200 on that. Any voids and shes making a loss.
.

a higher rate taxpayer still gets tax relief on interest, but it is capped at 20%. The impact of the new rules is to increase their overall taxable income figure but even so she will still be in the higher rate tax band, not the additonal rate band

you do not pay NI on rental income

have a read of the rules:
https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

mini8334

Bossypants wrote: »

Serious question, but has your sister actually asked you for your advice?

Yes, but wanted to hear from people with more informed views and experience.

Asides from the odd “it’s none of your business” there has been some valuable points and considerations. Thanks.

mini8334

fairy_lights wrote: »

If my brother felt so compelled to give me unsolicited financial advice that he posted on an internet forum to get strangers to back him up, he'd be getting a second hand Chocolate Orange for Christmas for sure.

Understood.

ThePants999

ProDave wrote: »

Someone who has just realised £100K of shares, and earns £110K per year does not fit my understanding of "not financially savy"

Really confused by this viewpoint, especially since multiple people seem to share it. This is like saying that an elderly person can't possibly need a doctor, as their age is proof of their expertise in sustaining life. No. Having money, and knowing how to manage it, are two entirely different and separate things. There are two minor relationships between them:
- if you manage money well, you're more likely to wind up having lots of it than if you don't
- if you have a lot of money, it's less important to manage it well, i.e. you can absorb more financial mistakes before being seriously affected by them.
But that's it. It's perfectly possible to be good at something with significant earning potential, and thereby be well paid, without having a clue what to do with that pay.

mini8334

aneary wrote: »

How does she have so much debt when she earns so much or is this a new employment?

This is my worry. She does live outside her means even though she earns. She asked me to look at her outgoing and help her clear her debt last year. She just sends ...


She rang me the other day to ask if she would have to pay tax in a rental income... An example of her financial sense.


I have explained my worry about IR Rates, dormant rental property, letting fees, insurance and a potential dip in property prices post-Brexit.


In her view she believes in "mortgage to the max" like our parents did as their house was bought for 115K 18yrs ago and now worth 5x that.


Yes - she will do what she wants and I am not trying to stop her. I am just making sure she is aware of the risks; that I perceive as high.