Advice sought - should i buy a buy to let outright or with a mortgage?

me107

I have not bought a second property before but am considering it as an investment option. I was hoping to canvass opinion/advice as to whether to purchase a buy to let outright or whether it would make sense to get one with a mortgage? By way of background, i would be looking at a purchasing something up to £300k, probably next year (and probably after the stamp duty freeze ends). I would be in the fortunate position of still having substantial cash savings even if i were to purchase a second property in full. I am a higher rate tax payer, and would probably therefore put the property in my wife's name (who currently earns £7k a year part time).

Any views or advice on this gratefully received.

greatcrested

Given the current level of animosity towards LLs on the forum at present it'll be interesting to see what responses you get!

But you could always pop over to landlordzone and/or read the stickie here.

anselld

There is no advantage to having a mortgage unless you have something else to invest the extra cash in which will return more than the net mortgage interest rate.  Also, if the property is entirely in your wife's name she will have few mortgage options with a £7k salary.

dimbo61

The poster is buying with Cash and therefore does not need a mortgage.
However you could buy together as tenants in common so wife has 90/95% share and you have 10/5% if you understand my meaning ?
That way 90/95% of the rental income would go to your wife.
As she has a tax free allowance of £12,500 a year and only earns £7,000 she can use the first £5,500 on rental income 

Salemicus

Leverage
Opportunity cost of money
Tax break
Vs
Interest payments
Overly levered
---
If you have something else useful to do with the money, and you can get a good mortgage rate, and you have healthy access to capital, getting a mortgage is almost certainly better.

Typical buy-to-let mortgages are 75%. Think about it - a portfolio of 4 300k buy-to-lets makes much more sense than one, due to economies of scale and risk mitigation, and you would get a far better return on your capital. 

AdrianC

dimbo61 said:
The poster is buying with Cash and therefore does not need a mortgage.

The OP starts...

me107 said:

I have not bought a second property before but am considering it as an investment option. I was hoping to canvass opinion/advice as to whether to purchase a buy to let outright or whether it would make sense to get one with a mortgage?

The only difference is whether you pay interest on the mortgage or not. How much, post-tax, would the equity you aren't investing be earning elsewhere...?

How does typical mortgage interest affect your likely profit margin, especially bearing in mind the higher-rate income tax treatment of the mortgage interest?
Given that you're likely to be buying post-SDLT holiday, and paying the +3%, what sort of period do you foresee before you even start to break even on the purchase costs, let alone show an actual return?

Salemicus

He says he's putting it in his wife's name, so my understanding is she'll get the full benefit of the mortgage interest credit.

oldbikebloke

as a higher rate taxpayer if you cannot compute the very basic maths of interest payable versus opportunity cost of cash invested then you should pay someone to do the simple sums for you