UK Landlord Forum / Life

Hi and thanks for reading and possibly helping.

My position is this.

I owned my home (property 1) outright but put a mortgage of £100,000 on it two years ago so that with my savings I had enough to buy a second property cash .. 

The second property has been a great investment - bought for £220,000 and recently had an offer  of £380,000  but turned it down as I wanted to hold on to it and rent it out. Rental income is £1450 per month the Tenants are due to move in next week.

This is where I'm unsure what is the best forward move.  I have been approved for a Buy to let mortgage for £200,000 on (property 2) just need to finalise the paperwork but I'm now wondering if this is the best financial choice?

My choices are:

1, Should I be putting a mortgage on the property 2 at all? I could just take the rent £1450 each month and use it to improve my living standard,  I'd pay income tax though as I still work full time.   

2,  If I did take out the mortgage on property two the money raised would allow me to buy a second, possibly third BTL putting down £100k on each as a deposit and raising a further two BTL Mortgages.

3, should I take out the BTL mortgage but use £90.000 to repayment the mortgage on my home. keep some money in reserve and use £100,000 as a deposit on another BTL  (I'm getting no tax relief obviously on the repayment on my home mortgage)

All the investment property's would need to be sold after 15 year as I'd have no other way of repaying the loans - property 2 BTL mortgage would be a 15 years interest only, the first 5 years fixed at 3.75%

My husband is aged 60 and has no pension - I'm aged 55 and do have a private pension. We hope to use some of the money accrued from the BTL to provide us with a reasonable standard of living in retirement.

What would you do?  Or anything I've missed that I should be doing?

Thanks for any advice.

What would I do?

I always would advise having your own home fully-owned. To me, safe and secure, this just makes perfect sense... for security, not necessarily to be tax-efficient, although you've obviously thought about that. Any interest you pay on a loan on your own home is not in any way deductible, so it's just leaving your pocket and going somewhere else.

Paying off any mortgage and having money left over - plus having an income - is going to improve your standard of living, that's for sure.

I also advise that letting one property is not fantastic. I urge people to try and consider whether they want to be a Landlord or are just 'having a play around'... that's not meant to be offensive but the Landlords we see on the forums who run into the most trouble are the amateurs (often they call themselves accidental Landlords)... I think it should be a professionally-minded person who takes on the responsibility (for that's what it is) of being a Landlord. I, therefore, think that this kind of Landlord is likely to have more than a single property (although everyone starts somewhere, of course, don't they?)... it's just my personal view.

So, I would probably get a BTL mortgage on the property you will let out and use that to pay off your own home (assuming there's no complications like ERCs) and then see what you have left... if you have more left over, maybe get on the horse again, maybe something more modest (£220,000 sounds like quite a large investment property but I'm not sure where you are in the country)... up where I am, £100,000 will get you a really well specified 2 to 3 bedroom terrace in good nick and desirable areas... that'll bring in £550 to £600 per month no trouble. £1,450 on £220,000 looks quite attractive with those numbers, admittedly, but if you want to get the next, then the next, then the next, maybe they can't all be that price.

So, I think my answer to your question is 3.

I'm not a fan of BTL on interest-only mortgages... I think I'm a discrepancy, though... any mortgage I ever have is repayment, I always intend to own those properties and for them, all unencumbered (fingers-crossed), to be my income stream until the day I cark it. If I could get to 10 properties then I would stop... 10 would be enough for me to manage on my own through my twilight years.

 HippoGriff
Thanks very much for taking the time to reply.
Originally my plan was to use the rent money from property two to repay the repayment mortgage on my home which would be drip feed obviously.    I may now consider just paying the mortgage off completely and keeping my BTL completely separate as I'm sure that's the most tax efficient way!

I too have only ever had repayment mortgages so paying interest but never finally owning the house seems strange! 
  Both my houses are in a London Borough hence the hefty prices paid, both are semi detached houses in a nice area. I Absolutely intend to be a good landlord and run any future purcheses I might make as business like as I can I,ve been reserching for months hence why I owned house 2 for nearly two years before I let it out.. That and refurbishing it.....  First mistake I know as quick turnaround is important.

Having looked at freehold property within a 30 mile radius which is what I feel comfortable investing in, £100,000 deposit on a £300 house.. (I'd struggle to find one for less than that ) The yeald would be around 5.53% not much is it, especially when I'd be paying a likely mortgage rate of 3.75% at best...  Capital growth needs to be considered of course but so does a down turn!'  Considering all of theses factors was the reason I thought forget mortgaging property 2 and just be happy getting the rental income with no intrest payments!!!

Thoughts please!!! 

I understand the concept of yields, I never use them... they don't give me interesting information. I think they are an artificial way of Landlords either feeing very good or very bad about a deal, but they are just a model... models are impacted by real life. What I find interesting is how much rent I've received vs. how much I've had to spend and, then, how much tax is due (overall, as you don't pay tax on a single property in isolation). Even if a property is "in the red" I'd not necessarily think it is a bad deal... it's unlikely to be in the red forever. You may put a lot of money into a property to get it ready to let, or things might need fixing in the first year, but your mortgage payment remains the same and rent goes up, so the position improves over time.

A property I have had a rent of £550 last year, mortgage payment (repayment) was £377, but this year the rent is £570... next year it's likely to be £585, mortgage payment will still be £377 (5 year fix). The Tenants won't move on due to modest rises like this, rises that they expect. By year 5 of that mortgage the rent might be £620 / £630.

What I find even more interesting is overpaying on repayment mortgages and having unencumbered properties.

One again thanks HippoGriff. Your  business model makes perfect sense - I've made the decision to pay off the mortgage on the house I live in and wait for the right property to come along before I buy another BTL...  I will visit this site often though to read the posts and keep my knowledge up to speed!