Rents or equity?

Rents or equity?

8:43 AM, 19th June 2018, About 6 years ago 7

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What is best for retirement income? Net rents or equity withdrawal by remortgaging?

If drawing equity is the answer to what Loan to Value should I max out at?

To put some meat on the bones – my wife and I are retired investors in our 70s, with a portfolio of 41 properties and living off the net rental income.

Approx half the properties are in a Co and half in personal names, mainly unencumbered props, and therefore S24 is not a problem.

Our LTV is only 52%. We also operate the personal properties via a Management Co structure.

Do we stick or twist? Ie do we continue to live off rental income and stay as we are, or remortgage some of our personal properties for cash?

If we considered the remortgage route our rental income would drop, but equity would be released to spend and/or reinv est.

We believe our situation is simple, we have no problem as we are, but  sitting on large equity is frustrating.

Any comments would be greatly appreciated.

Thank you and regards


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Neil Patterson

9:04 AM, 19th June 2018, About 6 years ago

Hi Ken,

Lots of things to consider her.

52% LTV is quite a decent gearing level and you tend to find mortgage rates are best up to 60% LTV and then start increasing. Therefore, if you only increase to that level you are going to face potential valuation fees, lender fees and legal fees if you have to remortgage. Then the fees would be way too big a percentage cost of the equity released. Unless you go to existing lenders for Further Advances.

If you don't release equity what is the opportunity cost ie what gain are you missing out on if you don't have the cash to invest?

Have you done the figures and are you 100% sure you would not be affected by Section 24?

If you stick you always have the option to change your mind later and twist, but if you twist without a plan it is harder to go backwards and good rates will normally have early redemption penalties.

I am a bit of a natural sticker, but there may be more readers less risk averse than me and be twisters 🙂

John Parfett

10:02 AM, 19th June 2018, About 6 years ago

Sell everything immediately!

Monty Bodkin

10:43 AM, 19th June 2018, About 6 years ago

Reply to the comment left by John Parfett at 19/06/2018 - 10:02
Sell some, very very slowly!

I'm selling one a year, utilising CGT allowances.
Selecting the worst performers as they become empty. Increasing rents means I have the same income for doing less work.
Regular rent reviews, targeting heavily the ones I want to sell.

Monty Bodkin

10:57 AM, 19th June 2018, About 6 years ago

41 properties at £750 pcm = £30750
Sell one property, increase rents across the portfolio by 2.5%
40 properties at £768.75 pcm = £30750

Same income, less work.
Profit from the sale to enjoy now.

Tim Rogers

11:50 AM, 19th June 2018, About 6 years ago

Given that approximately half your portfolio is in personal names and you are in your 70's, I would view your decision process with inheritance tax in mind, if you have not made provision already.

Seething Landlord

12:06 PM, 19th June 2018, About 6 years ago

If the encumbered properties are held in the company I would be wary of assuming that tax relief on finance costs will continue to be available. Nobody expected S24, who knows whether a future budget might produce something similar for companies? Re-mortgaging to release equity for reinvestment in property seems to be a risky strategy in the current climate - it's exactly what S24 was designed to eliminate.

Michael Barnes

17:56 PM, 19th June 2018, About 6 years ago

I would suggest selling a privately-owned property, making maximum use of your and your wife's CGT allowance, and live off that, then sell another when necessary.

Remember that there is no income tax on that money, unlike the rent you receive

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