Buy to let mortgage with main house protection.

mrstingy2022

hi All

I have my home nearly paid off (15 percent left) and consider taking second mortgage to finanse much cheaper buy to let property. I have to be 100 percent sure about potential worst case scenario if things go wrong with the buy to let property and it has negative equity can i be chased by the bank on my main property? In general is there a way to have a mortgate where risk is only limited to the deposit? Would having Ltd help?

Any advice would be highly appreciated on this topic where different people tell me different things..

Best Regards

silvercar

Simplest is to have the buy to let mortgage secured on the rental property. That way if you failed to pay the mortgage and they repossessed, it would be the rental property they repossessed. Given that a BTL mortgage requires a 30% deposit usually, there is plenty of head room in there in case the lender sold it for less than it’s worth and there were mortgage arrears to cover.

If you had a further mortgage to give you the cash to buy on your main home, that would be at risk if you failed to make repayments.

Belt and braces approach would be to have the rental property in a limited company, but mortgage rates could be higher and a lender may require a personal guarantee, which negates the benefit.

mrstingy2022

@silvercar thanks for reply. I heard that LTD is the only way to make profit from the rental as it allows much more deductions. Do you reckon all banks always require personal quarantee on the LTD (including my main home) which as you mentioned is pointless? i thought the point of LTD is to limit the risk to the company. As a next step shall i contact several banks to find out?

Anybody working in the bank to comment?

Regards

silvercar

https://forums.moneysavingexpert.com/discussion/comment/81905871#Comment_81905871

It doesn’t allow more deductions, but the mortgage interest is an expense of the company before taxable profits, whereas owned in person restricts the mortgage interest to basic rate tax. (I’m probably not explaining it technically correctly, but you get the picture). It only makes a difference if you are or will be a higher rate tax payer.

Another advantage of a limited company is that you can keep the profits within the company and can therefore take out profits in a tax efficient way.

UnsureAboutthis

https://forums.moneysavingexpert.com/discussion/comment/81905854#Comment_81905854

"Simplest is to have the buy to let mortgage secured on the rental property. That way if you failed to pay the mortgage and they repossessed, it would be the rental property they repossessed. Given that a BTL mortgage requires a 30% deposit usually, there is plenty of head room in there in case the lender sold it for less than it’s worth and there were mortgage arrears to cover."

How can you say that the rental property would pay off the all the debt?

As you know and we've had a couple of big property crashes over the 35 years, prices can nose dive, lenderswill sell at rock-bottom prices anyway, ie via auction, often lower prices than during market uncertainty, and people are reluctant to buy.

There are often charges etc to be paid, interest on what was outstanding, etc., so the 30% you refer to is no guarantee it will cover shortfalls and costs, etc.

It's important to remember that a "30% deposit" results in a massive difference for a property costing 100k vs a property/BTL costing 600k.

There is always a risk the buyer has paid too much.

OP - There is no guarantee whatsoever that the BTL property will cover the shortfall, so please keep that in mind and seek professional financial advice.

What I would say is when buying a BTL - consider the type of tenant you are looking for; avoid flats/apartments that may come with high service charges; buy in the nicest location you can, consider months of no rent/court cases/evictions, etc.; take out adequate BTL insurance; use a good letting agent; and be prepared for changes to

the rules in renting often going the renter's way. Also consider what could happen if you lost you job, but worse still unable to work via illness/etc

Good luck.

silvercar

https://forums.moneysavingexpert.com/discussion/comment/81905885#Comment_81905885

30% is a lot of head room in most circumstances. The vast majority of people buying a property with a 30% deposit wouldn’t worry about the property being worth less than the mortgage.

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https://forums.moneysavingexpert.com/discussion/comment/81905892#Comment_81905892

"Most" is not always, always be aware as per my previous post.

A friend of the family bought a btl in London IIRC 2206/7 - high service charges due to a security guard, private car park, and lift - he paid 180k inc. stamp and had to sell in 2009. sold at auction for 125K, minus costs etc, bank charges on interest - the amount he go back was close to 100k. The tenant stopped paying rent after the first month. Thankfully, the guy had a good job and paid off the 80k odd over 10 years

Many things can go massively wrong, so best to be fully aware that the "30%" CAN and WILL impact your other assets if the debts is not covered via the sale of the lender's possessions.

As long as the buyer is aware that the "30%" deposit is no guarantee it will cover the losses, this is more accurate statement and one that is clear.

UnsureAboutthis

https://forums.moneysavingexpert.com/discussion/comment/81905871#Comment_81905871

I Know people who have gone down ths route they have several rentals.

Seeking advice from an accountant is the best way—others will give you more insight here and there are specialist 'landlord' forums that may guide you further.

When meeting a lender/accountant/etc., prepare questions and get them to confirm in writing any important points which are not clearly stated in the T&C's of the loans.

mrstingy2022

https://forums.moneysavingexpert.com/discussion/comment/81905915#Comment_81905915

if mortgage advisor gives me wrong advice confirmed on paper is he liable to be taken to court? Should his insurance be used? I guess that is really bumpy road to be avoided but still makes sense to have all info on paper

theartfullodger

What experience or training in beling a landlord have you had?? If none or vey little don't even start.

What makes you think you'll make money out of BTL?? Most years (since 2000) I make money, but not always.

Agree, get a BTL mortgage on it. There are various BTL mortgage brokers, speak to them. They can be quite flexible - I had one until recently (paid it off) which ran until I was over 80.

Only gamble if you can afford to lose- a very important rule for ANY investment, eg cash under bed, betting shop, BTL. stocks & shares…

Good luck…………………

UnsureAboutthis

https://forums.moneysavingexpert.com/discussion/comment/81905928#Comment_81905928

It's just an extra layer of being aware of what was said and it may come handy if things went wrong

The best way forward is to use a well-known/established/respected lender and get your solicitor to look over things and ask "what would happen if you could not pay the lender... who/how the shortfalls would be covered?"

Before you ask if a solicitor is covered if she/he gives you wrong advice. I don't know, but IMO, the main points get them in writing, as its better than word of mouth/memory.