As I’m self employed it’s looking like buying a second propery to let out is going to give me the best chance of ever being able to retire.

1. My original plan was to buy a single property and attempt to pay the mortgage off in 15 years so I can retire at 65 but I’m now aware that it’s more common to pay interest only and save to buy more properties. Is either approach that much ‘better’ than the other?
Wifey and I have discussed buying somewhere we’d like to retire to and when that time comes, moving there and letting the house we currently live in.

2. Buy to let mortgages are more expensive than residential both in arrangement fees and interest rates. Would there be serious repurcussions if I were to pretend that my wife and I were going our seperate ways, get a residential mortgage and then once the paperwork’s done have a miraculous reconciliation and let the new place?

1. If you pay interest only you’re not reducing the capital so will be in the mire if the house price drops over time. If you’re aiming to very quickly get a lot of properties running and hope to cream the monthly income then it will work short term.

If you want to play the long game and end up with a lot of properties that are your assets in the future, ie a retirement fund then you’ll need to pay back the loan too.

2. The mortgage companies would not be happy about it and if they found out could call in the loan early and terminate the mortgage. You also need to consider the financials of that as you paying the mortgage would look a bit weird if its meant to be the wifes place etc

The other reason is that (I think!) you can only offset the mortgage interest against rental income, not capital repayment. So it makes sense to find a more tax efficient way of using the money that represents the capital repayment.

1. If it’s for retirement income, what exactly will you own if you go interest only?

2. If it’s a life of dishonesty you’re after, I hear bicycles are expensive these days, and very easy to steal. Internet forums and ebay allow you to sell them either whole or in parts, no questions asked.

in the long term I dont believe house prices will drop, only my opinion, there might be short term drops but I think a longer term view will have a price increase. This wont clear the capital if your on interest only, obviously, but it would give you equity if you eventually sell it.

you can only offset the mortgage interest against rental income

The above is true, lenders now have some calculation whereby the rental income is the main consideration, not the pure value of the house. So a mortgage is based on the rental value. This means typically that you cant get as good a mortgage either interest only or repayment as you might on your own home. Its a bit tough but I would find yourself a decent broker and discuss the options.
I cant imagine a divorce/split being as simple as it sounds to help. I know somebody who has done this and its both risky and complex. Not me.
Good luck.

Thanks for the replies. The attraction of the single property option is it’s relative simplicity with only one tenant to deal with.
I’ve recently finished paying a loan so the money I was putting into that I really want to be investing rather than spending. I’m not bothered about making an immediate profit, I just don’t want to have to work for ever, at least not full time.

Buy to let repayment mortgage. Make overpayments equal to what your paying on the current loan. Most lenfers will let you make a 10% overpayment on the outstanding capital balance per year. Tax wise interest only make sense, but it’s marginal and in my opinion your essentially “renting to let” plus any incidental capital gains if/when you sell. Depending on what you buy it’ll probably need some work doing which you can also offset against the tax. There’s no reason it can’t be in the wife’s name for tax efficiency. If she doesn’t qualify for the mortgage there is a way of sign over the responsibility of the property and subsequent profits to her. I’ll try and find the exact terminology, you can search for the relevant form on the HMRC site.

Also use a mortgage calculator.

£100k borrowing at 5% is £591 a month repayment and £417 interest only and In 25 years you won’t own it. Look at the difference overpayments make to the term length also. If you’ve never overpayed your mortgage this will make you cry. Depending on the overpayment you make owning it within 20 years and then realising the entire rent as profit is not unrealistic. Just don’t forget the admin, costs and responsibilities that comes with being a landlord.

Kev

Thanks Kev. Putting it in my wife’s name isn’t an option as she has her own business which in recent years has shown a similar profit to mine.

I’ve looked briefly at a mortgage calculator and as long as I don’t lose the rent for long periods and the interest rate doesn’t rocket I should be able to clear the mortgage on a 1/2 bed small house locally in 15 years without too many sacrifices.

Do you have equity in your current home? If so could you raise the money by remortgaging/further advance from it? Likely to be fewer snags and less deposit worry than a BTL mortgage, but harder to track interest portion of repayments. Depends what’s most important to you, tax efficiency or earliest full ownership.

Think about what sector of BTL you want to get involved with.

(generalisation) the higher risk BTL’s (HMO’s, students) return the higher yields, lower risk (young professionals, families) will yield lower returns*

Also are you prepared to do some work / grafting? Tenanted houses need more maintenance than your own home, so get used to being handy with a drill, paint brush etc.

The alternative is to use an agent / get professionals in to do all the work, but you’ll rapidly see your returns disapear, IMO.

*of course any type of tenant can turn out to be great / nightmare etc.

If she doesn’t qualify for the mortgage there is a way of sign over the responsibility of the property and subsequent profits to her. I’ll try and find the exact terminology, you can search for the relevant form on the HMRC site.

Kev – if you could remember this term I’d be very interested in this.

Thanks

Can I also ask why you’re ignoring conventional pensions?!

The tax advantages are pretty enormous. BTL has no such tax efficiency.

Conventional pansions require a rather longer investment period to be effective than the 15 years I’ve got left at work (I hope). Unless you know different?

HMRC Form 17 into Google.

This thread return is with a read
http://www.propertytribes.com/hmrc-form-17-tax-saving-t-8135.html

Kev

Conventional pansions require a rather longer investment period to be effective than the 15 years I’ve got left at work (I hope). Unless you know different?

Not massively no! I guess you’ve got the advantage of gearing with BTL (which you don’t get with a pension)
You’d have to do some sums but I think the 20 or 40% tax advantage of a pension could still be pretty powerful over 15 years, and (assuming you’re LTD) your company can also contribute to your pension, further reducing tax liabilities.

Obviously I have no idea what sort of deposit you’d be putting down on a BTL, but clearing a BTL mortgage in 15 years is fairly aggressive.

None of my points are meant to be criticisms, just asking the objective questions I’d want someone to ask me.

Sorry, but have you any pensions currently?

I have several small pensions from previous employment but I moved jobs too frequently to accrue anything meaningful.

Do it legit, interest only on the buy to let, use any ‘profit’ to overpay your own residential mortgage if you have one.

Gearfreak just reminded me, pay off/overpay your main resident mortgage first for tax efficiency, if you have one. Although the numbers might suggest that paying off the mortgage with the highest rate (most likely the BTL) is more beneficial than the tax savings. There’s also benefits to keeping your residential mortgage ticking over if it’s cheap and has a low balance, useful if you may need cash later on. I.e. A bank is more likely to lend against a known entity that they’ve already conducted searches on etc, saving you money and arrangement fees at the same time in most instances.

Our residential mortgage is paid off and to answer a previous question, my Wife is not comfortable with remortgaging the house we live in.

Thanks for the info on form 17 Kev.

BTL economics in the past have worked best with leveraged debt, however I think times have changed & future capital appreciation will be limited. Be aware when leveraging that any capital losses leverage against you.

I just can’t see BTL working unless you buy at least 50% LTV or better still straight cash. I know too many people who have been wiped out with large borrowings.

Best yields I’ve seen in SE are c4% gross, so after expenses that’s say 3%, you only need a bad tenant & your mortgage ticks on & your income doesn’t.