My partner is renting her flat out and her 5 year fix ends in a few months. What would you do?

niugnep

Hello.
My girlfriend and I both have a property each as we had both bought somewhere before we met. I was wondering if I could ask what you would do if you were in our position please? Apologies for all the questions coming your way! We live in my 3 bed house which is currently worth £420k and I have £170k left on the mortgage.  We rent out her 2 bed flat for £850 a month and it is worth £200k. She only has £70k left on her mortgage and her 5 year fix is coming to an end in a few months. She is on a capital repayment mortgage but will need to switch to a BTL mortgage when the 5 year fix ends in a few months.

1. She has £30k of savings. Would you use this to bring the mortgage down?
2. Would you switch to an interest only or capital repayment BTL mortgage?
3. What term would you take? She can save £10k per year.
4. Or would you save to buy another BTL property? She is a 20% tax payer.

Thank you.

csgohan4

30k isn't alot in savings given that amount of mortgage debt. Unless your get higher interest rate in savings accounts, ISA or investments, I would either keep it as an emergency or put some to the mortgage with the highest interest rate. 

Durban

The rental property has a good LTV so not much point in putting the £30K savings to that.  It depends what your plans are for the rental but I would switch to interest only for that as you will get 20% tax credit on the interest and let inflation slowly erode the remaining debt. I would put it on the longest term that you can.  You can always change this later.

csgohan4 said:

30k isn't alot in savings given that amount of mortgage debt. Unless your get higher interest rate in savings accounts, ISA or investments, I would either keep it as an emergency or put some to the mortgage with the highest interest rate. 

csgohan4 said:

30k isn't alot in savings given that amount of mortgage debt. Unless your get higher interest rate in savings accounts, ISA or investments, I would either keep it as an emergency or put some to the mortgage with the highest interest rate. 

csgohan4 said:

30k isn't alot in savings given that amount of mortgage debt. Unless your get higher interest rate in savings accounts, ISA or investments, I would either keep it as an emergency or put some to the mortgage with the highest interest rate. 

I don't think that that is a huge amount of mortgage debt considering the LTV of the properties.

I wouldn't save to buy another BTL.  How about putting that £10,000 pa into her pension and gaining the tax relief depending on her age?

I would keep the £30,000 as an emergency fund in highest interest rate account you can find

Sncjw

What does she do with the profit on the rented house?

If she goes for interest only she would need to have money at the end of the full term to pay the capital back. Would she be tempted to spend that money. I'd rather have captial mortgage as you know it's grtti g paid off. 

csgohan4

as you can see, the responses are varied and none of them wrong

At the end of the day only the OP will know what suits them best. As I said 30 k isn't that much in savings in the grand scheme of things, it wouldn't make much of a dent unless you put it in the 70k mortgage  house. 

Always good practice to have an emergency fund, never know when your tenants can't pay or repair costs come up, eviciton costs are not cheap either. Minimum 6 months for mortgage payments and preferably also living costs. So that 30 k isn't that much with those two mortgages

Socajam

I would keep the mortgage as repayment BTL mortgage, you really don't want an interest only mortgage.
Save the 30K for the emergency fund and life happens fund and add to it.  If the rent covers the mortgage, save the excess.
Make sure to save money for the tax - you don't want to get into problems with the tax man