UK Landlord Forum / Life

Guys, I'm looking for some advice...

I currently own two properties in Scotland which are both let via an agency. I currently live overseas and don't intend on returning to the UK anytime soon.

One property is BTL and the other is a part\part mortgage.

Both mortgages have around 10 - 15 years left.

I was considering changing the BTL to a repayment mortgage and was wondering if someone could offer me some friendly advice? I appreciate that there could be 100 variables that would help you answer my question.. so ask away.

Thanks in advance for any advice you can offer...

Stuart

BTL can be repayment... do you mean Interest Only and Repayment? If you let both properties out then both must be BTL... or you must have CTL on one? I doubt you are letting out a property on a residential mortgage as that would be against the rules.

Thanks.. and apologies.

One property is BTL [Interest Only] and the other is Repayment [part and part] .  Both have around 11 years left on the term.

The Repayment [part and part] was \ is a residential mortgage and I have a letter from my lender to say that I can lease it.

A few more facts...

The BTL [Interest Only] monthly mortgage payment is 190.. with a profit monthly rent of about 650 net
The Repayment [part and part] monthly mortgage payment is 400... with a profit monthly rent of about 500 net.

OK, so your question is - I am considering changing the BTL interest-only mortgage to a BTL repayment mortgage, right?

Your payments would go up, possibly dramatically, and your profit would go down. But you would own the asset at the end of the term... nice. As it stands today, if you're blowing your £650 per month on women and drugs then you'll not have anything to show for it at the end of the term... I know you know all this.

I only do property mortgages on a repayment basis. I want to own the properties outright, giving me greater freedom and control in the later years. Other Landlord will say "don't be daft" always go "interest-only"... and they bank more on the capital appreciation the property will benefit from. I also believe you can just overpay on an interest-only mortgage, thereby effectively turning it into a repayment mortgage (but only when you want it to be) and each time you overpay you pay off the interest you need to and a bit of the capital... hopefully reducing your interest burden as time goes by.

I still prefer the longer-term planning of repayment myself. I do not think I am typical. I think this sometimes comes down to your overall approach / philosophy as a Landlord... I still think I'll want to be a Landlord when I'm older, and it'll give me something to do... whereas others will want to cash-out well before then and live off the proceeds. What are your objectives?

Are you registered as a non-resident Landlord with HMRC and is your rental income being taxed at source... ensure that's taken care of, no-one wants a nasty surprise upon their eventual return to the UK. You sound like you've followed all the rules re. CTL, which is good...

I agree.
Interest only is not something I would recommend at all.
At this stage I would say you would be better leaving it all as is, and starting to repay some capital on the interest only mortgage.
Unless you have another reason for wanting a change?

Taxes: on an interest-only you're maximising your debt because you pay tax on the repayment portion (income you never see). That's different from putting a big (40%-50%) deposit down. If tax liability in the UK is not an issue stick with repayment. The idea is that in 10+ yrs time the capital appreciation on 1 property is enough that you pay all off all of your mortgages with the sale of that one property - preferably the one with the lowest yield.

And in the last ten years property prices have risen by........................... Nothing. Good luck with that.

The theory is great, the reality for cautious investors is different IMO.

Then I have no idea where you're investing but I'm getting seeing about 21% growth in the blocks I own in :-)

If you want to own the property outright at the end of the mortgage, you can still do this with an interest only mortgage, just one that allows you to overpay and bring the debt down to zero.

I, personally, only do repayment mortgages. However, this is because I want to own the properties outright at the end and I do not want the flexibility that comes with an interest only mortgage where you can overpay... or not. I want my options to be limited so that I always pay off the amount I need to pay on the mortgages. I don't want the temptation of being able to pay £x one month and 50% of £x another month... I want a clear and defined path to complete ownership.

For allowable expenses, an interest only mortgage where you overpaid to the same amount as the cost of a repayment mortgage would be equivalent to that repayment mortgage... you'd have capital repayment of X and interest payment of Y - the Y is an allowable expense. I don't see any difference in those two, unless someone tells me any different?

I think most Landlords who are building a portfolio would go for interest only... this seems to be a more accepted way of doing things. I am satisfied that my approach serves my purposes.

To retire early I want to have a modest number of properties owned outright (or very close) and then live off the rental income and my paltry pension. The properties will give me something to do, as I will manage them all myself. Capital appreciation does not matter that much to me as it's the income stream I want, but a property will always be there, ready to sell off, if needed. Maybe I'll develop a drug habit or a very expensive like for lap-dancing.

Quote from: Pori78 on October 10, 2014, 06:55:24 AM
Then I have no idea where you're investing but I'm getting seeing about 21% growth in the blocks I own in :-)

If that is over 10 years its not allot overall though.

If its per year, at the minute, then how long will it last?

You nor I can answer that.