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Should I release equity from buy to let?

Jaguar_Skills
Posts: 557 Forumite


Myself and my OH own a buy to let with circa £140k equity in it. The tenant pays us £1,100 a month and the mortgage repayment is around £750.
Our mortgage is due up in the next few months and we are considering whether it makes sense to pull money from it, or change to interest only mortgage and invest the additional money into our ISA. Our ISA current return is 11% since inception and so it seems to me to make complete sense to put a lot more money into there.
I already contribute a lot to my pension and the ISA was something we thought about as a bit more short term.
Any advice appreciated.
Our mortgage is due up in the next few months and we are considering whether it makes sense to pull money from it, or change to interest only mortgage and invest the additional money into our ISA. Our ISA current return is 11% since inception and so it seems to me to make complete sense to put a lot more money into there.
I already contribute a lot to my pension and the ISA was something we thought about as a bit more short term.
Any advice appreciated.
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Comments
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Although you are no longer able to deduct mortgage interest from the rental income to reduce your tax bill you should now be getting a tax credit based on 20% of your mortgage interest payments so it makes sense to hold debt in the BTL property. Ensure you have a reasonable pot of emergency cash to cover unemployment or rent voids which might happen at the same time as S&S investments are down.I don't have enough information to determine how good a return of '11% since inception' is but over 3 months that's great but over 10 years poor. Anyway assuming it's a S&S ISA and a recent return it's worth remembering that most investments have done very well in recent years helped by the ramping up of asset valuations caused by lowering interest rates. That rate of return is unlikely to be sustainable and given current valuations my medium to long term expectation for a global equities tracker is around 2% above inflation with some bumps along the way.So yes a S&S investment might do better than your mortgage interest rate over the long term but it's not without carrying some risk. Consider holding investment trust(s) in the S&S ISAs as they can provide a smoothed flow of regular dividends to cover mortgage interest payments if ever there was a problem with your main income.0
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Jaguar_Skills said:The tenant pays us £1,100 a month and the mortgage repayment is around £750.0
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Ultimately releasing equity is higher risk than paying off the BTL mortgage. The risk might be worth taking though.
I’m planning to do something similar with my BTL. As long as you leave enough equity in the property to cover any selling costs (estate agent fees, Capital Gains Tax bill, etc...) then I think you should be fine. You may not be planning to sell the property but we never know what the future will bring.
Of course there’s no guarantee that your ISA will grow fast, you’ll probably be better off than leaving the equity in the property though.0
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