Early redemption fees, worth it?

by Readers Question

10:58 AM, 22nd January 2015
About 4 years ago

Early redemption fees, worth it?

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Early redemption fees, worth it?

Hello!

I have managed to hang on to 2 properties which I could not sell during the credit crunch. It meant that I bought a smaller residential property to live in, but it is now providing a good 2nd source of income and possibilities for the future. One of these is in Vauxhall / Nine Elms, and has done pretty well with the redevelopment of Nine Elms. Unfortunately, 2 years ago I went for a 5yr B2L fix rate, with 5% early redemption (£20k!), not thinking forwards that I would be in this position now. I would like to remortgage to a lower rate, and take out enough money to buy 2 more rentals in another area of London where I can still buy a terrace house for £250k. Early redemption fees

Has anyone else done this? Can you use the redemption fee as a loss against tax for future years? If so, in the long term I think this will be worth it as it will give me a growing portfolio.

My alternative is biding time waiting until 2018 to save the 5% fee.

Thanks for listening!

Olly



Comments

Mark Alexander

11:03 AM, 22nd January 2015
About 4 years ago

Hi Olly

A £20k fee plus other costs associated with refinancing sounds like a bitter cocktail of pills to swallow. However, I also understand your thoughts in respect of missed opportunities.

Have you considered keeping your existing mortgage and taking an Equity Finance top up to 85% LTV? This will mean your existing cashflow is unnaffected and you will be at least £20k better off immediately when compared to refinancing. You will pay in the end if your property increases in value and all this has to be considered. How much do you think your property will increase in value between now and when the ERC period ends?

Take a look at this thread >>> http://www.property118.com/85-percent-ltv-buy-to-let/69350/

and also this one >>> http://www.property118.com/btl-second-charge-mortgages-no-monthly-payments/44627/
.

Amanda Stevens

12:30 PM, 22nd January 2015
About 4 years ago

Hi Mark,

Other than an individual having a good credit rating are any other personal circumstances taken into consideration to be eligible for Equity Finance (i.e. employed with a minimum income) or is the lending criteria purely based on the property value?

Thanks

Mark Alexander

12:40 PM, 22nd January 2015
About 4 years ago

Reply to the comment left by "Amanda Stevens" at "22/01/2015 - 12:30":

Age, must live in the UK and property must be in England and Wales. More detail on criteria can be found via the discussion threads linked in my comment made earlier today.
.

Amanda Stevens

12:44 PM, 22nd January 2015
About 4 years ago

Thanks for your speedy response Mark. I read the criteria on the other threads and there was no mention of personal circumstances related to income, should I assume then there are no minimum income requirements?

Thanks

Mark Alexander

12:48 PM, 22nd January 2015
About 4 years ago

Reply to the comment left by "Amanda Stevens" at "22/01/2015 - 12:44":

Hi Amanda

I don't know all the details but if our recommended broker can't get you a positive decision in principle I will happily refund any intro fees you pay to Property1-8.
.

Amanda Stevens

12:53 PM, 22nd January 2015
About 4 years ago

Reply to the comment left by "Mark Alexander" at "22/01/2015 - 12:48":

Fantastic, thanks Mark

Tim Fenn

14:45 PM, 22nd January 2015
About 4 years ago

Hi,
Could you port your mortgage to a new property, leaving the exisiting house free to be re-mortgaged?

Oliver Bradford

15:57 PM, 22nd January 2015
About 4 years ago

Mark - Accord isn't listed as one of the providers accepting equity finance, but maybe they do. Nine elms is still increasing alot in value, lets say it increases £100k in 3 yrs, i would lose £40k which is worse. USeful to know you can do this though.

Tim - i hadn't thought of porting it to a different property, but wouldn't this mean it would need to be the same price loan and LTV, and they would need to complete on the same day? Worth thinking about..

Anybody any idea on the tax question?

Howard Reuben CeMap CeRER

17:14 PM, 24th January 2015
About 4 years ago

The subject of 'do I or don't I?' with regards to repaying early redemption penalties is an age old one and where there is no straightforward answer .... without taking into consideration all of the forward plans and future projects and potential profit realisation.

Over the past 22 years that I have been a financial adviser and mortgage broker I have recommended both a 'do, and a don't' action strategy.

Do you leave the monies in your property, miss opportunities and lose profit?
Do you not pay the ERP and continue to pay a higher rate, when in fact you could switch and overall save?
Does inertia cost?

Only a personal / financial review and the advice of an experienced financial consultant with full access to the whole market and therefore personalised recommendations can help.

We have completed recently on a deal where my Client was still locked in to a mortgage which he arranged 2.5 years ago on a 5 yr fixed rate. However the pay rate is over 6% (a great deal for an 85%LTV BTL at that time), but values have increased now and due to the new lower LTV, he was able to refinance, he paid the erp and will make an overall saving over the next 2 years of many thousands.

It's horses for courses but careful planning is needed and we're here to help.

Howard


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