Borrow against BTL to refurbish main residence

sarahb100

Hello friendly helpful people,

I have posted a couple of times here having found the forum when I was struggling with worry over the size of the South coast mortgage I took out in April 2018. At the time this was £338.5K, I also had unsecured debt then of around £25K. I have had no life and worked way more hours then is sensible since then and have reduced these figures. I am single so this is all on me and my salary and no one to talk the decision through with!!

My main residence needs renovation and would really benefit from an extension for which I thought I would give it ago in regards applying. Somewhat to my surprise this has been granted. So I have now not only been saving to reduce down the mortgage but also for the funds to renovation and add the extension.

I have found out this month that I may be able to take £38K out of one (of my two) BTL properties. I would still have considerable mortgages against both. This would be a big boost to my renovation pot in fact it would complete it. Part of me thinks this is cheating and the other part thinks I can only keep working the hours I have been for so long before collapsing in an exhausted heap.

I know I spend too much in various areas, I tend to justify this by saying its because I work so much I have no time to plan but this is a bit of an excuse.

So I guess my somewhat rambling question is do I increase my BTL mortgage to renovate my main residence or should I suck it up work another year of 60-70 hours while living in less than idea circumstances.

Any opinions gratefully received.

Lomcevak

Does it need renovation and an extension, or would it be nice to have?

My worry is that you're massively exposed to the housing market - somewhere less than £338k main residence (you don't say how much you've reduced it), plus two BTLs with 'considerable mortgages' (one of which you're considering increasing), and it's not clear if you still have unsecured debt too. How much does it all add up to? And how does that align with your salary?

Leverage is great when prices are going up, but can very rapidly swing against you. It already sounds like you are run ragged with long hours at work, and you don't want to be struggling to stay afloat with three oppressive mortgages and a slumping market. There's very considerable uncertainty even before Brexit hits - the economy is already flat, and who knows what happens next - so I personally wouldn't consider increasing leverage in this climate.

So I'd look at the "I know I spend too much in various areas" issue - I used to be like that, but i'm a die-hard budget person these days. That'll then help with the plan forward with the mortgages and renovations. I'd only borrow more if repairs and renovations are really essential.

L.


edit: our place has 'needed' some renovations for the last ten years or so, but they're not urgent and haven't affected our enjoyment of the house. At some point we'll get round to them

sarahb100

Thanks,
A lot of that is also my worry. For a bit of context.
Main residence value £450K owe £260K now
BTL 1 value £280K owe £158K
BTL 2 value £295K owe £174K
All valuations recent, as in discussion with local agents and looking on Zoopla
Present savings £50K
No unsecured debt, paid it all off whilst on a mission to reduce the mortgage.
Monthly take home excluding BTL income around £8K - BUT this is working a lot.

My main residence needs renovating, for instance at least one room is not useable, the bathroom is falling apart and it has sash windows that need work. The extension is the want though I suppose!

The overspending tends to be on things like groceries which I justify by saying well I am always working I don't have time to cook / plan!

Appreciate the advice. I suspect I need a reality check!!

AnotherJoe

Have you looked at the maths for selling a BTL.

sarahb100

Yes I looked at that as my fixed term is expiring and would have no early repayment charge. However at present I pay £306 interest only mortgage and the rent is £950. I renovated the property in 2017 so whilst there are maintenance charges and insurance charges even with the tax implications there is still a profit.

With the increased borrowing I would pay £360 a month.

Taking out the money I would have £80K of equity left in that property. Its 30mins North of London and so far value has gone up but I completely understand the market volatility concern.

The original plan was to keep long term. Once I have renovated my main residence I would focus on paying back down the BTL mortgage.

Durban

How long have the current tenants been in situ and are they likely to stay? And how likely is it that if they go that you will be able to get in other good quality tenants?

BTL rates are very good at the moment and you could fix a good rate for 5 years.

You'll still have £80,000 equity in one and £121,000 in the other. That's still £200, 000 equity. I can see house prices stagnating for a few years but not crashing to that extent. You also have an excellent monthly income.

If you are keeping the property long term , say the next 10 years , you should make the extension money in capital growth. Should do , but not guaranteed. The rent payments can cover the cost of the extension, the extra £54 pm.

How old are you and have you got good pension provision?

What are your goals for the BTL's? If you have a good pension provision , plus the BTL's , then I would say go for it and use the money in the BTL. However , if those 2 BTL's are your only pension provision , then I would not be taking any money out of them at all.

Another thing, I'm guessing that you are a higher rate taxpayer?
If that is the case , then BTL is nowhere near as profitable for you anymore , if at all. If that were the case , I would consider selling.

Edit - I have just seen that you have £50,000 in savings, will you be putting that to the renovation as well or will you still have that kept aside?

sarahb100

Thanks for the detailed reply. My BTLs are 30mins by train North of London so I think (hope they won't go down a lot in the longer term anyway. My main residence is South coast and will likley in the short term be a bit more prone to ups and downs (particularly downs!).

Tenants are reliable and have been there for 4 years and 3 years.

I plan to keep the residential long term, it cost too much to move in to move again! I have been trying to get an idea about added value from the extension and there are one or two comparibales with a similar extension that sold recently for £530-550K but its a niche market so a bit hard to judge.

I'm 39 with a goodish pension. I work more than one job but have an NHS pension which I have had for 16 years. But I would like to supplement this which in part is the BTL plan though once the renovation of my main residence is done I will pay more actively into ISA / private pensions.

I am a higher and sometimes additional rate tax payer so you are quite right it is not as profitable but its not at a loss at the moment!! But I have been working a lot of hours in the last couple of years to get to this position and this is not sustainable every year. On a more sustainable working week monthly take home would be around 6K (ironically working less, dropping a tax bracket might actually be sensible!).

When I found this website I couldn't believe how much I was spending a month. I have improved it but there is still room to move. I know I am lucky and earn a good salary but I think I would be happier working less!

The target for the renovation pot is 90K (though I hope to spend less than this) so yes savings headed that way. Its a big extension in an expensive area :-(. What I don't want to do is start the project without a definate funding plan and I might have this all wrong but I don't want to take out a loan to do this. I know the whole don't borrow against property if it can be helped but its a BTL and I kind of view it a bit differently!

Thanks again for the opinions. Think I mentioned, am single with no family (or expectation of inheritance) and have always made my own financial decisions even from saving my first 10K to buy my first property. Many thanks fo the feedback.

Lomcevak

You'll still have £80,000 equity in one and £121,000 in the other. That's still £200, 000 equity. I can see house prices stagnating for a few years but not crashing to that extent. You also have an excellent monthly income.

I agree - my worry was liquidity rather than solvency, the worst case is becoming a forced seller in a housing market slump. But it's a high income and provided it's secure (guessing from the NHS element that it is) then the income level should be enough to sustain things through thick and thin (edit: especially with the £50k cash savings).

So I think my suggestion would be to get the hours to a sustainable level first, no sense killing yourself to pay for a house, and then start working to a sustainable budget - which is easier if you're not working crazy hours, I know exactly what you mean about it being all to hard when you are working every hour of the day. It becomes much easier once you're not stressed out and exhausted. Do the renovations, but maybe hold off on the extension unless you're really saving a significant amount by bundling them together.

Apart from that, a fair bit is down to risk appetite. I wouldn't sleep at night doing what you are doing, but my brother did a very similar thing to you and it has worked out ok for him. We're all different in that respect!

sarahb100

Thanks Lomcevak. Interesting to that you say you wouldn't sleep doing what I am doing!! I had never either thought that my current position was that scary!

I didn't start off with that much equity in the BTL and I just figured if they drop from where they are thats life! Same with my main home - though I got freaked out when I had a mortgage of £338K+ on it.

I guess we all have different perspectives.

Lomcevak

We do, and mine is not necessarily right

I have a pretty conservative view on housing, because when I was 15 my family lost our house and pretty much everything else as my father's over-indebted, over-mortgaged lifestyle disintegrated in the early-1990s recession. That leaves an lasting impression, so i'm very sensitive to liquidity - too much so, probably, but I'd struggle with the thought of having three large mortgages to pay. But if your income is secure and you've got savings too then you're not going to be a forced seller in a bad market. That's when it really goes awry.

Tropically

If they still cash-flowed after borrowing against the BTLs, taking into account expenses, vacancy and taxes, I probably would borrow against them. Do you run your BTLs like a business? You can always sell a BTL so it's different than mortgaging your own home.