BUY TO LET Remortgage Query

tasticz

Hi All,
My mums BTL mortgage product is due for renewal in the next 6 months. When it was first purchased my dads age was a constraint and therefore we did not get a long mortgage term on it. There is around 9 years remaining. However, since my dad has now passed away, the mortgage has been transferred to my mums name and she is under 50, we want to increase the mortgage term.

• It is interest only mortgage, and we understand the number of years does not decrease the interest we have to pay every month/year but we still want to increase the mortgage term to 20 years/25 years during remortgage. Is this something easy to do as she is under 50.

• We also believe we have around 66% LTV. We want to take out as much (if any) as the bank will give us to make it 75% LTV. Is there any implication for taking out money from BTL property? Our plan is to put that money taken out into my mums private pension. Can this cause any tax implications?

Can we approach bank directly or is it better to go to broker for these things?

Any pointers would be helpful.

Thanks in advance.

K_S

@tasticz
- A term of 25 years shouldn't be an issue. 

- if the numbers stack up, or your mum's income is sufficient to make up a shortfall, you may be able to release equity and take it up to 75% LTV

tasticz

K_S said:

@tasticz
- A term of 25 years shouldn't be an issue. 

- if the numbers stack up, or your mum's income is sufficient to make up a shortfall, you may be able to release equity and take it up to 75% LTV

Hi K_S, thank you for responding. Is there any tax implication do you know? or are we free to do what we please with the money we take out by remortgaging

Thanks

dimbo61

If the figures stack up ?
You will need a whole of market Mortgage broker as many BTL mortgage lenders only deal with brokers.
Yes take a longer term upto 70 and consider a 5 year fix as they maybe easier to get ( Lending criteria )
Is mum a higher rate taxpayer ? 
Self assessment accounts and is she using an accountant ? 
Value of property, price paid, Interest rates available for the type of rental.  etc

tasticz

dimbo61 said:

If the figures stack up ?
You will need a whole of market Mortgage broker as many BTL mortgage lenders only deal with brokers.
Yes take a longer term upto 70 and consider a 5 year fix as they maybe easier to get ( Lending criteria )
Is mum a higher rate taxpayer ? 
Self assessment accounts and is she using an accountant ? 
Value of property, price paid, Interest rates available for the type of rental.  etc

Hi @dimbo61

My mum is basic rate tax payer. We don't have dedicated accountant anymore because we have closed my fathers LTD company but yes we do use Accountant to do the self assessment. She has tax calculation page and the tax years page that can be downloaded from HMRC. 

• For 2019/20 - she has main job (25.6k) + dividends from fathers LTD company (not property related) (24k). Total income is just shy of 50k (loss in rental income due to property repairs).
• For 2020/21 - main job approx. (25k) + dividends from fathers LTD company (not property related)  (£14k). carry over rental loss from previous years breaks even with rental income this year. 
• 2021/22 - main job + landlord income

This is just pure speculation from our end but this is how it stands, purchase price 440k. mortgage amount 330k. we believe the property has increased to around 480k - pure speculation. 

Current interest rate is approx. 1.66 and we pay around £456 per month.

If we can take out say 20k during remortgage and the cheapest interest rate including reasonable product fee at the moment is  for 1.69% with Santander/TSB for 2 years or 1.81% for 3 years with Virgin Money 75% LTV.

@1.69 for 350k - monthly cost = £492 - increase of £36 per month
@1.81 for 350k - monthly cost = £527 - increase of £70 per month

If we are able to take that £20k and put it in her private pension pot then it will automatically be £25k (£20k + £5k relief). This is assuming there is no tax we need to pay for taking this money out. 

She has no intention of purchasing another property so I think taking out as much money as possible at reasonable rate here and putting it in her pension pot is a much better option otherwise it is 'dead money' which is just sitting there doing nothing because the LTV isn't 60% to get a better rate.

K_S

@tasticz

tasticz said:

K_S said:

@tasticz
- A term of 25 years shouldn't be an issue. 

- if the numbers stack up, or your mum's income is sufficient to make up a shortfall, you may be able to release equity and take it up to 75% LTV

Hi K_S, thank you for responding. Is there any tax implication do you know? or are we free to do what we please with the money we take out by remortgaging

Thanks

@tasticz Most lenders will ask you to specify what the capital is being raised for. However, being an unregulated BTL remo, a wide variety of reasons are permitted, including 'investment' which I think this will fall into. I can't authoritatively comment on tax implications, but afaik, generally speaking there shouldn't be any tax liabilities arising directly out of raising capital from a BTL and putting it in your pension.

What is the gross monthly rental income on the property? You might struggle to go up to 75% LTV on a <5 year fix due to the stress tests involved.

tasticz

@K_S it is 1850 per month

K_S

tasticz said:

@K_S it is 1850 per month

@tasticz With that rent you *should* potentially be able to go up to 360k/75% on a 5 year fix. You'll probably struggle to get that much out on a 2 year fix.