Is saving 3.9% a year worth it?

DavidT67

Yep, plenty of P2P property lending platforms out there, some thriving, some not so much.  You can also find 'Crowdfunding' fractional Buy to Let platforms.  All rather risky...

solidpro

Hi. Sorry, been away.

There is no overpayment free charge. It's locked in.

I think essentially we have savings we consider 'adventurous' - private pensions and potentially equity-related ISAs which invest in funds that do typically get a higher rate than 4% but "this money" being used to pay off this mortgage isn't part of it. We're trying to keep 33% bricks and mortar = eventual rental income, 33% adventurous which currently tends to be locked into a pension (I'm 41) and 33% fast access (such as NS&I or whatever savings accounts we can scrape together to try and mitigate interest).

One thing I realised is that we're only 25% mortgaged on our primary residence and the interest is a tiny 1.89%, so why I didn't just take another 25% and use that to finance this BTL I'll never know. You live and you learn. It just didn't occur to me.

I think we're minded to do it. Suck up the £6k early repayment charge, save £3-4k over the next 3 years and have the rental income minus 19% CT provide some funds for further investment down the line...

MaxiRobriguez

solidpro said:

Hi. Sorry, been away.

There is no overpayment free charge. It's locked in.

I think essentially we have savings we consider 'adventurous' - private pensions and potentially equity-related ISAs which invest in funds that do typically get a higher rate than 4% but "this money" being used to pay off this mortgage isn't part of it. We're trying to keep 33% bricks and mortar = eventual rental income, 33% adventurous which currently tends to be locked into a pension (I'm 41) and 33% fast access (such as NS&I or whatever savings accounts we can scrape together to try and mitigate interest).

One thing I realised is that we're only 25% mortgaged on our primary residence and the interest is a tiny 1.89%, so why I didn't just take another 25% and use that to finance this BTL I'll never know. You live and you learn. It just didn't occur to me.

I think we're minded to do it. Suck up the £6k early repayment charge, save £3-4k over the next 3 years and have the rental income minus 19% CT provide some funds for further investment down the line...

I think it sort of depends what you want to do with the BTL approach rather than the individual property.

If you're going to buy more properties to add to the BTL portfolio then having a higher LTV isn't a bad thing as you would end up using the increase LTV to buy other properties.

If you don't plan to buy more BTL properties then it makes sense to use savings to reduce the LTV because it's just dead money otherwise as other posters have pointed out, and reducing the d 33% savings rate shouldn't be considered an issue because ultimately you would still be in a position to remortgage the BTL's in he future if you need to free up cash. Even if house prices reduced, you'd still have enough equity to give you what you needed. 

Personally I think your biggest regret might be the plan to carry 33% savings. You're in your early 40's, what are you saving for? If the answer is "nothing" or "retirement" then 33% savings is a weight when you could be pushing more into (tax effecient) investments.

solidpro

Yes 33% in savings is likely a bit high. It tends to reset a bit every 2-3 years when we reinvest in another BTL property. I typically make enough to buy what we're after at 50% LTV every 2-3 years and that 33% cash savings forms part of that - which then goes down to something like the equivalent of a reserve of 6 months outgoings and then gradually builds up again.

This is really the heart of the issue - saving money to buy is also losing to buy (inflation, crappy savings mortgage rates and interest on 'high' 3.9% BTL mortgages). We were saving to buy our dream house which is twice the price of anything else, so the wait has gone from 2-3 years to 4-6 years.

solidpro

So really tomorrow was the day i'd decided whether to pay off the 3.9% and i've decided to go for it and sit tight for a few years to sit out Covid and Brexit. I feel I've 'lost' about £10k in not being more savvy in how I finance property but i'm in no position to complain about anything.