Buy to Let in 2025

finchy_2020

Hi all.

Currently in the process of purchasing a house as a BTL through a LTD company, with money from our current house as the equity has gone up by a considerable amount, and I'd greatly appreciate everyone’s input on the risks vs reward side of things, I've had mixed opinions... I have some numbers below and just wanted to share to see what people think.

Understandably it’s a tough market for landlords, arguably it’s not worth it for new landlords, but I’ve done some calculations based on final figures and it doesn’t seem all too bad… (I hope!)

I’d also like to mention that we’re borrowing about £28k on top of what we need for the BTL (deposit + stamp + solicitor etc…) to put towards our honeymoon and personal house works. BTL funds are £71k, with £28k for honeymoon, personal house works, a safety fund etc...

Main current outgoings per month:

• Mortgage 4.2% (40yr): £1306

• Council Tax: £224 (paid for 10 months a year)

• Internet: £37

• Car: £441 (expected to drop to approximately £370 this year)

• Water: £42

• Gas & Electricity: £200

• Food Shopping: £240

Total - £2490 split 50/50 with my wife, £1245 each. We both pay in £1350 comfortably every month.


Main outgoings once we remortgage / purchase BTL:

• Mortgage (2yr fixed 4.54%, 40yr): £1779 (around £120 is for personal funds)
  

• BTL Mortgage (2yr fixed, 4.89% 25yr interest only): £724 (£5k product fee included in this cost)

• Council Tax: £224 (pay 10 months a year)

• Internet: £37

• Car: £441 (dropping to approximately £370 this year)

• Water: £42

• Gas & Electric: £200

• Food Shopping: £240

Total - £3687

Est minimum rental on the BTL is £1300pcm

Total - £3687, with £1300 rental income, total is £2387, £1193 each.

Estimated current profit on the LTD Company BTL is around £4383 per year (£15600 income, minus £8688 interest and £1500 to cover accountant, insurance and gas safety etc...) makes corp tax approx £1028.

Obviously the LTD is separate, so we have to cover the increase in the personal mortgage ourselves, then look at taking dividends etc... when necessary if we needed the income.

Completely understand there’s wear and tear etc… on property and the figures are only accurate if there’s guaranteed rental all the time, but currently it’s pretty much the same price per month but with our honeymoon and personal house works being paid off as well.

I know it's a gamble expecting rates to drop (although predictions indicate they will) but even a 1% drop on our personal mortgage would save us an extra £250 month, including the BTL then its £350/£400 per month.

Am I missing anything as an immediate concern in my calculations? I’m new to this and it’s my first BTL, hopefully long term. BTL profit will eventually be used for pension / retirement.

Thanks all! 

Hoenir

finchy_2020 said:

I know it's a gamble expecting rates to drop (although predictions indicate they will) but even a 1% drop on our personal mortgage would save us an extra £250 month, including the BTL then its £350/£400 per month.

With a business hat on. My approach would be to take the opposite view. What if interest rates were to rise 1%, 1.5% or even 2%. Stress test your plans. Don't gamble on the complete unknown. Views are being influenced by recent history rather than the pre GFC 2007 world.  Where a 5% mortgage rate was extremely competitive. 

caprikid1

How much is stamp duty ?

What would be the costs if rates were 1% more ?

Voids ? 

Agency fee ? (Introduction only ?)

finchy_2020

Hoenir said:

finchy_2020 said:

I know it's a gamble expecting rates to drop (although predictions indicate they will) but even a 1% drop on our personal mortgage would save us an extra £250 month, including the BTL then its £350/£400 per month.

With a business hat on. My approach would be to take the opposite view. What if interest rates were to rise 1%, 1.5% or even 2%. Stress test your plans. Don't gamble on the complete unknown. Views are being influenced by recent history rather than the pre GFC 2007 world.  Where a 5% mortgage rate was extremely competitive. 

I think if it went down that route then both our current house and BTL wouldn't be viable anymore regardless. I think even pre 2007 when 5% were competitive, house prices were vastly different then, especially where I am down south near Brighton. I think current trends indicate they will drop, especially as the housing market is so important in the UK. But yes, ultimately we don't know.

finchy_2020

caprikid1 said:

How much is stamp duty ?

What would be the costs if rates were 1% more ?

Voids ? 

Agency fee ? (Introduction only ?)

Around £11,500, included in the £71k budget.

A lot more, a scary amount more on top of what is already a high mortgage.

Voids I am struggling to factor in, it's hard to tell?

Planning to manage myself for the first year or so

Hoenir

finchy_2020 said:

Hoenir said:

finchy_2020 said:

I know it's a gamble expecting rates to drop (although predictions indicate they will) but even a 1% drop on our personal mortgage would save us an extra £250 month, including the BTL then its £350/£400 per month.

With a business hat on. My approach would be to take the opposite view. What if interest rates were to rise 1%, 1.5% or even 2%. Stress test your plans. Don't gamble on the complete unknown. Views are being influenced by recent history rather than the pre GFC 2007 world.  Where a 5% mortgage rate was extremely competitive. 

I think if it went down that route then both our current house and BTL wouldn't be viable anymore regardless. I think even pre 2007 when 5% were competitive, house prices were vastly different then, especially where I am down south near Brighton. I think current trends indicate they will drop, especially as the housing market is so important in the UK. But yes, ultimately we don't know.

As a comparison to the UK. The average rate for a 30 year fixed term mortgage in the US is currently around 7%. Mortgage funding has to come from somewhere.  After the GFC international investors basically pulled out. Hence in part the reason behind the enormous amount of QE injected into the UK financial system to stop it from collapsing. A very different era lies ahead. 

finchy_2020

Hoenir said:

finchy_2020 said:

Hoenir said:

finchy_2020 said:

I know it's a gamble expecting rates to drop (although predictions indicate they will) but even a 1% drop on our personal mortgage would save us an extra £250 month, including the BTL then its £350/£400 per month.

With a business hat on. My approach would be to take the opposite view. What if interest rates were to rise 1%, 1.5% or even 2%. Stress test your plans. Don't gamble on the complete unknown. Views are being influenced by recent history rather than the pre GFC 2007 world.  Where a 5% mortgage rate was extremely competitive. 

I think if it went down that route then both our current house and BTL wouldn't be viable anymore regardless. I think even pre 2007 when 5% were competitive, house prices were vastly different then, especially where I am down south near Brighton. I think current trends indicate they will drop, especially as the housing market is so important in the UK. But yes, ultimately we don't know.

As a comparison to the UK. The average rate for a 30 year fixed term mortgage in the US is currently around 7%. Mortgage funding has to come from somewhere.  After the GFC international investors basically pulled out. Hence in part the reason behind the enormous amount of QE injected into the UK financial system to stop it from collapsing. A very different era lies ahead. 

Interesting to know! could you elaborate more on what you wrote about a different era lies ahead?

RHemmings

Looking at the figures in the OP, the first thing I thought was 'one bad tenant away from bankruptcy'. 

theartfullodger

In November 1979 rates jumped from (?) 10% to 17%. I was lucky, my building society only went to 15%. It was painful (Thatcher's in ). Two salaries.

You young folk....

WellKnownSid

finchy_2020 said:

Main current outgoings per month:

Total - £2490 split 50/50 with my wife, £1245 each. We both pay in £1350 comfortably every month.


Main outgoings once we remortgage / purchase BTL:

Total - £3687

Est minimum rental on the BTL is £1300pcm

Total - £3687, with £1300 rental income, total is £2387, £1193 each.

Estimated current profit on the LTD Company BTL is around £4383 per year (£15600 income, minus £8688 interest and £1500 to cover accountant, insurance and gas safety etc...) makes corp tax approx £1028.

Your figures are very confusing because you show the BTL as a personal outgoing plus have the income from the LTD co.  You need to keep them separate - for multiple reasons.

Personal outgoings look to be £2963 --> £1481.50 each.  You say you both pay in £1350 "comfortably".

LTD Co outgoings are £724.  Plus £125 for accountant etc.  £849 a month.

If you have a void then there be council tax to pay?  Say, another £125?  Let's hope it's not double tax.
So you've now got to find another £974 a month to fund your LTD Co.
That's £1968.50 each.  How "comfortable" is that feeling?

What if someone loses their job?  Do you have job security or some kind of income protection?  What about ill health?

Grumpy_chap

finchy_2020 said:

I’d also like to mention that we’re borrowing about £28k on top of what we need for the BTL (deposit + stamp + solicitor etc…) to put towards our honeymoon and personal house works. 

Your post is difficult to follow because of the way that personal and company income and expenses are mixed together.

The Ltd Co. will borrow (and be liable for repayment) of the extra £28k.  That funding will be in the Ltd Co., not simply available for a honeymoon etc.