Pay off mortgage or BTL

[northernladuk]

I think some if not most are forgetting Osborne's effing budget is going to throw most landlords into serious debts... mortgage interest no longer would be offset against rental income, plus they took away the 10% wear and tear allowance, therefore any rental income will be considered income no matter what the loss you are making, if you are intending to take out the 43K out of your ltd, then any income you make from BTL will push you into higher tax pay...

I will suffer personally from this, at the moment my BTL rental income pays for the mortgage and rental expenses, I make little profit from it, however, once the mortgage interest is no longer offset against the rental income, I will have a huge income tax bill from next year.

Have you crunched the numbers though? It's a right pain in the arse I'll grant you but it's hardly puts me in to serious debt and gives me huge tax bills.

[WTFH]

I'd say BTL, so long as:

• You will be able to get good tenants (decent location and condition)
• Say 80pc of the rent will cover the mortgage payments
• You are comfortable work-wise for the next few years

Fair points, particularly if you have a permanent job. If a contractor knows what they are going to be doing work-wise for the next 5 years, then they are going to get hit by the taxman.




Having lived through interest rate rises and housing price falls (something that a few of you may not have experienced as property owners), I try to make sure any loans/borrowings/mortgages that I have are sustainable even with a change in interest rates, a fall in house prices or a change in my circumstances.
If I keep borrowing then my personal finances will end up like the Greece (or like we would have been if Bliar/Brown had hung around any longer).


So, if you're a contractor and you have a 6 month warchest, then that warchest needs to be able to cover not only living costs and 6 months of your own mortgage but also 6 months of any other loans you have - e.g. BTL mortgages.


Also consider the type of mortgage you have - for your own property I would go with a repayment mortgage, that way when you have paid the mortgage off, you actually own the property, interest only is not much more than renting off the bank. You may have been sold the mortgage on the idea that property prices rise, so you can sell it to pay for it, then use the difference in value to buy the next place. Except, if your property has gone up 200k, so will many others, potentially including the one you want to buy, so you need a new mortgage to pay for that.

[SandyD]

Have you crunched the numbers though? It's a right pain in the arse I'll grant you but it's hardly puts me in to serious debt and gives me huge tax bills.

Yes I downloaded some spreadsheets on the property forum, like you I will survive... I am also planing to raise the rent next year to cover for some of the damage.

[SandyD]

Oh but a major increase in interest rate on top of the new tax laws may be very damaging to me...

[Lightwave]

Offsets charge ridiculously high rates 4% plus, for the mugs that are prepared to pay that!

I wasn't paying that!

A lot of mortgages are not far short of 4% when you include all the fees.
Then the deal runs out after a few years and you could be on a comedy rate or struggling with whatever their latest lending criteria are.

[Lightwave]

Yes I downloaded some spreadsheets on the property forum, like you I will survive... I am also planing to raise the rent next year to cover for some of the damage.

The trouble is, a high proportion of private lets are not mortgaged and more still are very lightly mortgaged.
So hoping higher interest rates will drive rent up is wishful thinking.
Rents will probably rise with demand in many places of course.

[Lightwave]

How many BTLers are actually in this thread, and would the recommend it?

I am LTB rather than BTL.
We will be letting our current house and moving into the one we've just completed on, in a few months.
Not much mortgage.

The highly leveraged BTL empire model is absolutely great, provided you can wind the clock back 15 years and get in at a sensible price.
IMHO.
I think there is medium term risk now, but we don't care if price falls in a 5 year window, we are looking to have a solid asset and a bit of income for 15 years, perhaps more. Also the option to move back to current abode in South East.
So, I've probably jumped in near the peak of the market, but it's mostly ill-gotten gains from buying an expensive(ish) place in the mid 90s.

[Lightwave]

Over at housepricecrash dot com they seem secure that house prices are going to slump big style in the near future

There's always a few predicting that.

Personal observation, was looking at £500k+ houses near the West Sussex coast earlier this year.
Got offered a lot of discounts on brand new houses.
The best houses sell quickly, others have lingered on the market.
Take the train along the coast. It's building site after building site. Some of which seem to have slowed progress.
Mortgage rules are tighter this year than last, and last year was tighter than the year before.
(Our mortgage is based on SWMBO's permie salary, so I see how 'civilians' get treated).
Plenty of people want nice houses.
Very few people have £300k+ of actual money.

OTOH, 100 years ago, 90% of people lived in private rental houses they couldn't afford to buy, a model repeated the world over across the years.

[SandyD]

The trouble is, a high proportion of private lets are not mortgaged and more still are very lightly mortgaged.
So hoping higher interest rates will drive rent up is wishful thinking.
Rents will probably rise with demand in many places of course.

No I do think most of the private lets are mortgaged, also career land lord are mortgaged to the hills, its a business, they invest any surplus cash into new properties all the time.
Many are thinking of leaving the UK to a country that will offer tax free overseas income to stop them from getting bankrupted ... for me once 2020 comes, I may also either leave the UK or give up my day job so I am not pushed to be a higher tax payer... 3rd option is to keep working as a contractor and not touch a penny of the income from my Ltd until I retire, any money I take out means half of it will go to the tax office, but considering I already paid company tax, its more or less 70% of anything I make as a contractor would be gone to the HMRC ... what is the point of working !!

[Lightwave]

No I do think most of the private lets are mortgaged, ....!!

I thought that too, but apparently it's not the case.
At least not heavily mortgaged.
A lot are foreign owned.
A significant number are inherited houses. People inherit their parents house, rent it out, maybe with small finance on it.