Funding B2L from re-mortgaging own home.

by Readers Question

21:15 PM, 30th July 2013
About 5 years ago

Funding B2L from re-mortgaging own home.

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Funding B2L from re-mortgaging own home.

I’m considering entering B2L for the first time.Funding B2L from re-mortgaging own home.

Rather than securing a B2L mortgage, can funds be released by re-mortgaging our own home and then purchasing the B2L property outright. Rents can then be used to pay the payments on the re-mortgaged home. I’m thinking of seeking a £200k re-mortgage from a £800k property which is owned outright,

I recognise there’s no tax relief on the residential mortgage payments, but this will be offset by the lower rate on a residential mortgage: approx 3% residential rate v’s 5% under a B2L mortgage.

I’d appreciate views.

Thanks

Richard



Comments

Mark Alexander

21:27 PM, 30th July 2013
About 5 years ago

Hi Richard

Welcome to Property118, you are certainly in the right place to learn from a community of very experienced landlords and newbies too. Be sure to check the member profiles of people offering you advice.

Many people start out by raising funds against their own homes. If you can afford to raise money on your home it makes a lot of sense to begin this way, for one, the costs are lower as you have already found out.

I have some good news for you too. As the funds are being raised to invest into buy to let property you will also be able to offset the mortgage interest against your rental income, i.e. get tax relief on it 🙂

The availability of a mortgage will be largely dependent upon your income on this basis, unless you are over the age of 55 in which cases equity release mortgages may be available to you.

I'm not authorised to advise you as I retired from financial services and surrendered my licences back in 2009. However, the are some excellent IFA's and mortgage brokers who contribute to this forum. Personally I recommend Howard Reuben - see >>> http://www.property118.com/member/?id=314

I also recommend you to speak to a good accountant who specialises in landlord tax - see >>> http://www.property118.com/member/?id=452
.

Howard Reuben CeMap CeRER

8:17 AM, 31st July 2013
About 5 years ago

Thanks Mark

Hi Richard, as Mark rightly says, it is indeed possible to remo your own home although I must add 2 quick points .... 1) not all lenders will allow capital raising for the purpose of buying another property, so knowing the market is essential in order maintain compliance with the lenders terms and 2) not all lenders and their products are the same of course, so a considered whole of market search is essential as well.

Raising money against your own home (irrespective of purpose) requires 'affordability' and so income and expenditure needs to be analysed (and agreed upon) for a lender to say 'yes'. BTL mortgages, on the other hand, are mainly offered based on rental income only, and you may find that in the future for any further acquisitions that BTL mortgages may prove a viable option.

Property118 is a fantastic resource for new and experienced landlords alike and so welcome to the forum.

Hope this helps, my profile is above and also in Mark's reply, for your interest.

Vanessa Warwick

9:01 AM, 31st July 2013
About 5 years ago

Hi Richard,

It is completely possible to do what you suggest ... in fact, that is exactly what I did 10 years ago to get started in BTL.

The only thing I think you should reconsider is buying outright for cash.

One of the main things that BTL allows you to do is to LEVERAGE!! This is a very powerful aspect of wealth creation.

We have a fantastic discussion on Property Tribes which explains more

http://www.propertytribes.com/leverage-leverage-leverage-really-a-good-thing-t-8544.html

With £200K cash you could buy 4 x BLT properties with £50K each into acquisition costs.

If you think about 5% capital growth per annum on four properties over 10 years, instead of just one, the numbers become very very compelling to leverage, as you also start to benefit from the eighth wonder of the world - COMPOUNDING.

Remember to take into account that inflation also erodes your debt over time.

The other thing you could do is use your £200K as your own bridging funds to buy properties below market value for cash, add value, and then finance via a mortgage 6 months later to pull your cash out. Rinse and repeat! 🙂

Hope that has opened your mind to the many possibilities of what you could achieve with £200K if you leverage instead of buying for cash?

Jayne Owen

16:01 PM, 31st July 2013
About 5 years ago

Hi Richard,

Not much I can add to what has already been said. This is the way that we started as well, but were fortunate in that the property we bought was a block of flats so we had rental income from 5 units right away.

Vanessa's point about leverage is of course true and what you decide to do will depend upon your long term aim - whether you just want one or two rental properties or a larger portfolio with higher gearing.

Paul Shears

16:12 PM, 31st July 2013
About 5 years ago

I mortgaged my own home to pay cash for a property which I then rented out a few years back.
In my area getting enough income to cover mortgage repayments would mean very little in the way of leverage unless you were borrowing for decades.
As stated by others. you can certainly offset the interest against tax.
If you do accept the risk of high leverage, you are then confronted with the increased workload of managing multiple properties which can be considerable if being a landlord is not your main source of income.

Mark Alexander

16:21 PM, 31st July 2013
About 5 years ago

The only point I would add at this stage, and I throw this open to all to comment on, is SAFETY IN NUMBERS

I consider myself to be risk averse, but that's a matter of perspective isn't it?.

I believe in safety in numbers. For example, if 100% of your property portfolio has a problem at the same time that’s a BIG problem. No business ever runs smoothly so you can be guaranteed to have that BIG problem one day if you only own one investment property. On the other hand, the more properties you own, the less chance of that BIG problem ever happening.

My rule of thumb for safety purposes, and this is where people say I am over cautious, is that for every £10 borrowed I believe that a further £2 should remain accessible in terms of cash funds, or as I prefer to refer to it "a liquidity fund". This formula is based on research I did to identify the differences between landlords who thrived during the early 90's property crash and 15% interest rate period vs the landlords that went bust.

I have written two series of blogs, both at different times, but both plotting my own strategy. Maybe you would care to read them.?

I’m not suggesting that my strategy is the only one that’s right of course, but it is right for me and it may make you think.

Each series contains multiple articles.

This is the first series I wrote was called "The roots of my Property Investment Strategy" - see >>> http://www.property118.com/the-roots-of-my-property-investment-strategy/1744/

This is the second was called "My first intentional property investment" - see >>> http://www.property118.com/my-first-intentional-property-investment-part-1-2/29019/

If you decide to read these blogs please feel free to post questions in the comments section below the articles as you work your way through each series.

PS - it takes less than 2 hours a week of my personal time to manage my portfolio. Not wishing to brag but it is substantial and also highly geared. Quality help isn't as difficult to find and needn't be as expensive as you might imagine!
.

Martin Cunningham

17:09 PM, 31st July 2013
About 5 years ago

@Richard,

As part of your B2L acquisition strategy might I suggest you look at acquiring an existing tenanted property via auction? A growing number of divesting landlords are recognising the benefits of selling with tenants in situ rather than going through the potentially costly void experience of decanting them and selling as vacant possession. From a new landlord perspective they can pick up a readymade investment with revenue from day one of acquisition and no tenant find costs.

Anyway hope this is food for thought.

You can find a buying at auction help guide here:
http://www.auctionhouse.uk.net/buyers-route-to-auction-success.aspx

A calendar of regional auction dates here:
http://www.auctionhouse.uk.net/auction-diary.aspx

sally lloyd

11:51 AM, 2nd August 2013
About 5 years ago

i bought my home for cash 2 years ago and am now in the process of getting a let to buy mortgage so I can buy more properties. I noticed that on the mortgage agreement it says I can't live in my home. Does that mean I will never be able to move back if I need to at some time or will I be able to request this at a later date if the need arises.

Howard Reuben CeMap CeRER

12:03 PM, 2nd August 2013
About 5 years ago

Reply to the comment left by "sally lloyd" at "02/08/2013 - 11:51":

not 'never' necessarily but should you need to, please advise your lender so they know you haven't intended to raise a 'back door' residential mortgage by way of securing a BTL (which is based on rental income, and not earned income) instead.


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