Buy to Let - has the time passed?

Solarstart001

Hello All,

Looking for some advice on a BTL investment. Rookie investor and understand a lot of the landlords are coming out of their investments. However, the house prices are finally on a slight down shift and  this ‘might’ be a good time to get a fair deal? Some details below on the BTL option. 

90k house
25k deposit
6.6k rent p.a
say 15 year term
Higher rate taxpayer
considering repayment (not interest only mortgage). So no tax to pay as no profit made whist the mortgage payments are being made. 

Not looking for this as a monthly income stream but outright house ownership (at the end of mortgage term).

Thoughts and advice very welcome.

thanks 

ciderboy2009

Can you explain why you think there would be no tax to pay? You will only get tax relief on the interest part of the mortgage payments so, unless you get a mortgage with an extremely high interest rate, there will be taxable income.

Mstty

You will run at a loss with approx £520 repayment and £6.6k a year with maintenance/lost rent if your tenant stops paying.

We base our year on receiving 10 out of 12 months. However in the last 5 years we have not dropped a penny and perhaps that's because the market has changed and tenants are in fear when they have a decent property at a low rent.

So depends if you are pushing the rent for the area or at the median?

What's your thoughts on what the property may be worth in say 5 years time is this an area where properties do increase in value when markets rise or does it lag or stagnate?

housebuyer143

One, you always have tax to pay. You only get 20% credit on your interest payments (not capital) and you have to pay tax at 40%, and then agent fees?
Secondly, you won't get a mortgage for £90k assuming the rent you are going up get is about £600 a month. Mortgages are self funding so you need to meet the ICR calculations (meaning you only get a loan up to what that calculation dictates) and at the current interest rates there is a very low chance you get a mortgage on interest only, let alone repayment for that rent and loan. 

I don't think you should consider BTL unless you really understand what you will be getting into. 

Solarstart001

Thanks very much for constructive comments there.

@ciderboy2009 , @housebuyer143 - Apologies, my thinking (incorrectly) was that noting the repayment mortgage cost per month will be same/similar to the rent pcm (550), given there is no profit there will be no tax to pay. I now understand that the tax will be paid (at 40%) on all the incoming (- the 20% rebate), regardless of the outgoing (repayment mortgage repayments). I 'should' be able to get the mortgage (rent is 550 pcm). But noting the tax, unsure if the numbers now stack up.

@Mstty - the area I am looking at, there isnt a huge house price appreciation. The prices have been pretty stagnant over the years. 

caprikid1

Welcome to the horror world that is facing tenants currently, landlords exiting and anyone considering it will see the figures clearly don't stack up, this is before you have even considered the true cost of voids hassle, damage and the ever flow of additional legislation.

No doubt the government will continue to pump money through the back door into the pockets of highly paid Housing association directors and everyone loses.

No doubt the government will try and fix this with more legislation, section 21 reforms.... further nail in the poor tenants coffin with less landlords coming in and a total loss of any short term accidental landlords as the perceived risk will be too high.

Mstty

Hence why demand for available rental property is through the roof and rents are just going one way fast.

MEM62

Solarstart001 said:

Higher rate taxpayer

Solarstart001 said:

considering repayment (not interest only mortgage). So no tax to pay as no profit made whist the mortgage payments are being made. 

 

BTL's are not the best investments from the viewpoint that they are not tax efficient (particularly for you as a higher rate tax payer) and legislation is becoming more and more onerous.  Also, your lack of understanding of how 'profit' is calculated suggest that you have not done your research and I am not sure that you really know what you are getting yourself into?  

theartfullodger

If you've been a landlord for some time with little or no mortgage(s) I think not (yet).

But property is always a long term game.  If you can't handle setbacks don't play 

Sg28

Doesnt make any sense to me, you can get £5400 a year gross on a 1 year fix saver completely passive with no work involved. 

Basically you need house price growth to make it worthwhile. 

El_Torro

Has the time passed for Buy to Let? There is a strong argument to say yes, or at least to say that it's not as easy as it once was. I think there is a place for Buy to Let in some people's investment portfolios though, depending on what other investments they have and as long as they go into it with their eyes wide open. 

I bought my current (and only) BTL property in 2011. I actually bought the place to live in. I soon moved away for work and didn't want to sell so soon after buying, so I quickly became an "accidental landlord". 

Since then I have seen the value of the property roughly double, the monthly rent I charge has also doubled. This property isn't in London, though obviously it's in an area with high demand. I have steadily been releasing equity from my BTL, including financing the deposit on the place I currently live in this way. When I remortgage in 18 months time my plan is to get rid of my residential mortgage altogether and have all my debt in my BTL. As long as mortgage interest rates stay below 8% I won't have a problem getting the bigger mortgage on the BTL. 

Sure, the profit I get now has more eaten away by tax than the profit I was making 12 years ago. One way to look at the more punishing tax regime is that the more the government punishes landlords the higher rents will go, making being a landlord more attractive. This works especially in areas with high demand for rental property, perhaps not so well in areas where it is difficult to find tenants.


I don't pretend that I'm sort of genius by ending up in the situation I'm in. I got lucky with when and where I bought and the assumptions I made back then paid off. Not everyone is as lucky. 


If I didn't currently have my BTL would I buy one now? A tough question to answer. I would certainly think very carefully about where to buy, as well as stress testing certain things. For example: What happens if interest rates continue to increase? What happens if the tenant stops paying for X number of months? What happens if I have a big expense, like replacing the boiler?