Feeling trepidation about buying third BTL - should I? ....

keith8170

Hi all,

I wanted to get your opinion/advice on my third BTL purchase which is close to exchange/completion.

I had an offer accepted on a 3 bed terrace house for £340k (list price £350k) back in May, this is roughly what other similar houses go for around the area.

The mortgage rate I got is 2.58% for 5 years so this would provide approx £250-£275 a month after all costs/maintenance allowance/tax. Not particularly high for amount invested, but I'm based in the South where yield isn't as good as other areas in the country.

However the mortgage valuation down valued the house to £330k, during this time I also had a homebuyer survey value the house at £340k so with this in mind, I renegotiated and agreed on £335k (the seller wouldn't accept anything less).

Fast forward to now and with the interest rates ever increasing, I feel cautious about the whole purchase.

Obviously there is no crystal ball, but given the ever increasing interest rates and potential fall in house prices, in 5 years time when I renew the mortgage if mortgage rates are anywhere around 3.5%-5% (or even higher...) then that'll mean my net profit cut in half, if not wiped out. 

Not to mention the risk that I've bought at a high price, although this is slightly offset with the mortgage rate being 2.58%. Also, and just as important, there are immediately costs involved i.e. the EICR report has highlighted numerous issues, new bathroom extractor fan is needed and the window frames and front door need repairing, as well resealing in kitchen/bathroom. On top of that are future costs for a new window in the garage, boiler will need changing in about 3-4 years, as well as possibly having to get the EPC up to a C (currently D).

I should mention, I've purchased in my own name and I'm a higher rate tax payer as I'm only looking to purchase about 4 BTL properties. Then in the long term, I will aim to drop to a lower tax rate payer where I'll be able to take advantage of less tax and therefore a big boost to my monthly income (if mortgages aren't too high of course......)

Given the above, is now still a good time to go ahead with purchases given the climate is quite different from 4-5 months ago? The alternative is to put the money aside in an ISA/savings account and purchase either another BTL or go down the holiday let route if property prices fall and/or if interest rates calm down in the future.

Many thanks for your help!

anselld

You have not mentioned the £2500 windfall in SDLT.

Nothing else has changed except your increasing fear of the unknown in five years time.  Make hay whilst the sun shines (and save some of it for a rainy day)  Cross other bridges when the time comes.

El_Torro

You should put your money to its best use. Is that buying a third BTL? Or investing more in your pension? Or getting what you can into a Stocks & Shares ISA? Or something else? Unfortunately we don't know today what the best investment will be for the future. 

I think that if you're worried about interest rates going to 5% (not particularly high if you look at historical averages) then I would think twice about investing in another BTL. I don't know what other investments you have and your overall financial situation so my opinion isn't particularly informed.

Bear in mind that rental prices are likely to go up as interest rates go up. How much you can increase the rent by in the area you're buying is up to you to consider.

SusieT

I am selling a BTL, it is the right thing for me to do, but in the last 6 months or so rents have gone up a significant amount in that area, so the purchaser will easily be achieving over £100 more a month than I was, and In 5 years time, if the mortgage rates have gone up then it is also likely that the rent will have increased as well if you have in the contract that it can be raised. 
Nobody can tell you what to do, but I do know that when mine recently went on the market there was a lot of interest from landlords and very little from private buyers. Timing wise, they were well aware of the interest rate rises, economic outlook, utility price rises along with the £400 rebate (and the likelyhood of government intervention), so to me they are showing that they are anticipating good profits going forwards. 

[Deleted User]

I am not convinced by your investment. It sounds like a minimal yield and repairs which will take years to recoup.

I do not think saving rates are as good as they should be but supposing they hit 5 to 7 percent then that is food for thought.

jj_43

After tax BTL returns for higher rate tax payers are not worth the risk, unless you can add value to the property. 

JDi

Got two BTL's myself and honestly, i wouldn't want a 3rd.

The yield your looking at for the investment is quite poor, your buying at possibly peak house prices (atleast in the short term), the house needs various work at reasonable expense, the EPC band C minimum malarkey is highly likely to come into effect in the next few years and every piece of new legislation makes the landlord job more time-consuming and costly.

All that without factoring in potential bad tenants which the current cost of living crisis makes more likely.

Do something else with your money.

Sarah1Mitty2

Market has changed massively since May, value it now and it will be less, having three is over-exposed I think, don`t do it!

keith8170

Sarah1Mitty2 said:

Market has changed massively since May, value it now and it will be less, having three is over-exposed I think, don`t do it!

Yes, I agree, given the last few days and yours and other comments above, that was enough to pull the trigger. I've decided to pull out of the purchase. 

It seems prudent to sit back and see how the market plays out over the coming months/years.

Thanks all for your views!

jonnydeppiwish!

You’re running a business. Is it a sensible idea to invest more into the business at this point? Only you will know that answer, and if you’re coming in here to ask then maybe you’re in the wrong business?

[Deleted User]

keith8170 said:

Sarah1Mitty2 said:

Market has changed massively since May, value it now and it will be less, having three is over-exposed I think, don`t do it!

Yes, I agree, given the last few days and yours and other comments above, that was enough to pull the trigger. I've decided to pull out of the purchase. 

It seems prudent to sit back and see how the market plays out over the coming months/years.

Thanks all for your views!

A difficult choice but credit to you.

Meanwhile someone else on the forum thinks its a buyers market!