Really appreciate your views

Physio

Sorry for reposting this but I posted it in the mortgage and endowment section and would really appreciate any views. Thanks folks.

First post on the site but have been a regular visitor for a long time.

We have a mortgage about to come out of fixed rate in July.

Currently we pay £2165 per month on a mortgage currently outstanding £324000. We expect our payments to rise considerably when transfered from current rate of 4.99 to SVR 7.99. Had great difficuly securing mortage two years ago as self employed (OH employed) and needed true self cert. So transfer to another lender would be very difficult and stressful +++. Only option is new deal with current lender.

Fortnately we have option of selling two properties we own. One is mortgaged with about £100,000 equity and the other is free of mortgage with a value between £55-70,000. Currently the income from renting these properties are £750.00 and £275.00 per month repectively.

What would anyone recomment, I know we have to sell the property to get to the money but is this a good option.

Also we have a with profits norwich union endowment that matures in April 2010. The target was £47,000 and the valuation about 1 year ago was £32,000. Should we cash in and put it against the mortgage.

Any advice would be helpful as we are anticipating a big raise in interest payments (mortgage is repayment) in July when we switch. We have paid our maximum of our mortgage for this year (£36,000) so we cannot pay any more.

Thanks in anticipation

JonnyBravo

Physio wrote: »

Sorry for reposting this but I posted it in the mortgage and endowment section and would really appreciate any views. Thanks folks.

Thats ok. Sorry did see it on that section but didnt answer.... lots of unknowns here and depending on the answers it could make quite a difference to what I'd do.

Physio wrote: »

We have a mortgage about to come out of fixed rate in July.

Currently we pay £2165 per month on a mortgage currently outstanding £324000. We expect our payments to rise considerably when transfered from current rate of 4.99 to SVR 7.99. Had great difficuly securing mortage two years ago as self employed (OH employed) and needed true self cert. So transfer to another lender would be very difficult and stressful +++. Only option is new deal with current lender.

Fortnately we have option of selling two properties we own. One is mortgaged with about £100,000 equity and the other is free of mortgage with a value between £55-70,000. Currently the income from renting these properties are £750.00 and £275.00 per month repectively.

What would anyone recomment, I know we have to sell the property to get to the money but is this a good option.

Also we have a with profits norwich union endowment that matures in April 2010. The target was £47,000 and the valuation about 1 year ago was £32,000. Should we cash in and put it against the mortgage.

Any advice would be helpful as we are anticipating a big raise in interest payments (mortgage is repayment) in July when we switch. We have paid our maximum of our mortgage for this year (£36,000) so we cannot pay any more.

Thanks in anticipation

Gulp!
£324k... thats a lot of cash! But I guess you know that, sorry for stating the obvious.
I've highlighted important questions in bold

First questions are importantly about the rented properties. Will you be due to pay CGT on them? (All sorts of things affect this eg purchase price, have either been your home, money spent on them etc etc etc)
The answer here to my mind will determine whether its even worth considering selling them.

Just supposing you could sell them both (with no CGT liability) and cash in the endowment for 100k, 70k and 32k respectively you could get your amount owing down to £122k (ignored fees for simplicity).
A mortgage on that at 7.99% is 1034/month but at a more reasonable 5.63% (which you should have no trouble getting with the equity then in the property) would only be 859/month. How much is your house worth?

At the moment your effectively paying £1140/month for your mortgage presumably. (cos 2165-750-275 = 1140).

Just how much can you pay towards your mortgage?

Do you have to stay on your house or is moving/downsizing an option?

Can you switch to interest only if needed in an emergency? ( I ask this as 324k at 7.99 is 2157/month... ie pretty much what you pay at the moment and may give you breathing space for a while).

Whats the current worth of the endowment? If you havent found out... why not? Is this urgent or not?


Well sorry but without some answers its impossible to say with any degree of accuracy what is best.

Even better..... speak to an expert?

Best of luck.

Physio

Thank you Johnny,

Fortunately we are quite well paid and have some avaliable cash (£30,000) behind us. What we are looking at really is the best way to utilise our avaliable money, ie is it better to sell or better to continue as we are.

We dont need to move on and our current home is worth about 480 -500,000. We have not used our entitlement for CGT ever so we both have that availible, I think you can go back three years and forwards one with that.

If we did reduce our mortgage dramatically we would then have a much greater choice of mortgage as we would then not need to self cert the mortgage.

At present we are leaning towards selling and getting the mortgage down to as low as possible, it the removes all the hastle and worry about the other houses etc. Though we are looking for as much advice as possible before making the decisions. Going to endowment valuations today, the back on here asking should I sell them!!!!!!

Dithering_Dad

From a tax standpoint you should have mortgages on your rented accomodation because you can offset the interest payments against rental income.

If I were in your position, I would arrange interest only BTL mortgages for the two rental properties (you need less papaerwork for BTL mortgages - you just need to show that the rental exceeds the IO mortgage payments) and put the remortgage money onto your home mortgage.

This would mean you are in a much better position tax-wise and you can get the money out of the houses without any CGT implications. You also get to keep the rental properties.

With a lower mortgage on your home, you should be able to get a better mortgage deal and if you do overpayments, could soon get it down to a more manageable level. Once you have done this, you can then start overpaying the mortgages on the rental properties.

Daft_Pegasus

I agree with DD here. Look at mortgaging your BTL properties as you can off set the interest part of the mortgage payments against rental income for tax purposes. you can then use the capital raised from the remortgages to lower your main property mortgage requirements which should help offset the higher interest rate.

Personally I'd only consider selling your rental properties if you're having problems with them or the tennants (or no tennants). Turfing out good tennants in order to sell a property will cost you money.

JonnyBravo

Dithering_Dad wrote: »

From a tax standpoint you should have mortgages on your rented accomodation because you can offset the interest payments against rental income.

If I were in your position, I would arrange interest only BTL mortgages for the two rental properties (you need less papaerwork for BTL mortgages - you just need to show that the rental exceeds the IO mortgage payments) and put the remortgage money onto your home mortgage.

This would mean you are in a much better position tax-wise and you can get the money out of the houses without any CGT implications. You also get to keep the rental properties.

With a lower mortgage on your home, you should be able to get a better mortgage deal and if you do overpayments, could soon get it down to a more manageable level. Once you have done this, you can then start overpaying the mortgages on the rental properties.

I've seen advice on this site before (from silvercar) stating you can offset the interest even if its secured on another property. eg your primary residence.
I've no idea if this is accurate or not as mine is secured against the rented property, but it does make sense.
This thread covers it
http://forums.moneysavingexpert.com/showthread.html?t=678295


I'd already assumed this was being done as I didn't deduct the tax in my calculations in my first reply

JonnyBravo

Physio wrote: »

Thank you Johnny,

Fortunately we are quite well paid and have some avaliable cash (£30,000) behind us. What we are looking at really is the best way to utilise our avaliable money, ie is it better to sell or better to continue as we are.

We dont need to move on and our current home is worth about 480 -500,000. We have not used our entitlement for CGT ever so we both have that availible, I think you can go back three years and forwards one with that.

If we did reduce our mortgage dramatically we would then have a much greater choice of mortgage as we would then not need to self cert the mortgage.

At present we are leaning towards selling and getting the mortgage down to as low as possible, it the removes all the hastle and worry about the other houses etc. Though we are looking for as much advice as possible before making the decisions. Going to endowment valuations today, the back on here asking should I sell them!!!!!!

Well theres going to be many routes but it seems as if you're not in the hole I thought you were as so at least it appears as if you'll have a choice!

I have to admit I don't self certify so don't know much about how restrictive that would be... especially currently..... but your LTV is 67.5% even on your lower valuation so that shouldn't be a sticking point. I guess it's all going to be down to how much income you can prove/how much people are going to be happy to lend you.

I find it hard to believe there isnt a better deal than 7.99% with a LTV of 67% and with over £1k per month being covered by rent.
Have you been to a whole market mortgage broker? Do you have any bad credit history?

Ultimately if there isn't a better deal its going to be a judgment call.... do you want to keep the rental properties and pay a higher percentage or cash in your rental properties and get a better deal.... youve not cleared up quite what your CGT liability would be there though.... it could be nil... it could be massive...
Perhaps your savings and the endowment might be enough to ge the figures down to where more options are open?

Good luck.