Newbie Questions re Capital Repayment

by Helen King

11:30 AM, 18th September 2013
About 5 years ago

Newbie Questions re Capital Repayment

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Newbie Questions re Capital Repayment

I would really appreciate some input having read though the “Advice” articles here.

I currently own my own home outright without a mortgage. I was thinking of remortgaging to release some equity which combined with a small pot of cash I have available could be used as deposits on two small BTL properties (in the region of £140-£150k each). I have actually had a mortgage agreed in principle by my bank in order to do this, being totally upfront about what I am remortgaging for. The LTV is low, circa 35% and they have no problem with it.

My question relates specifically to whether to have this remortgage aspect on a capital repayment mortgage or interest only? I was intending to have the remortgage element on capital repayment and any BTL mortgages on interest only (BTL mortgages would have LTV of close to 60% in order to take advantage of good rates I have been offered, again by my bank).

Having now read your article I am now doubting this approach is correct, I was wondering that your thoughts were?

My goal if that is helpful is focussed on longer term, pension planning planning.

Any steer would be gratefully received. Newbie Questions re Capital Repayment

Thanks

Helen



Comments

Mark Alexander

11:43 AM, 18th September 2013
About 5 years ago

Hi Helen

It's a great question but I'm sorry to say there is no definitive answer, it's a matter of personal choice and strategy.

One consideration is that your income is likely to drop when you retire. Given that it's this income you are likely to be using to pay your personal mortgage then paying off your personal mortgage before retirement age is logical. All that said, I would still recommend interest only and paying off lumps of capital when you choose to as opposed to committing to regular payments. Cashflow is king so it is important that you take control of it wherever possible.

Another way to look at this in deciding whether to pay of your personal mortgage is that your buy to let properties may be sold at retirement age and you may plan to use part of any sale proceeds to pay off your personal mortgage at that time. In that scenario you may feel more inclined to keep your payments low and enjoy an extra holiday every year whilst you are young enough to do so.

Have you read all 14 articles in the Advice section? If so, how did you arrive at the decision to raise just a 30% mortgage on your home to buy two buy to let investments? I'm not saying that's wrong, you could do more or you could do less. I'm just interested in how you have arrived at your conclusion.

If you like buy to let then might you want to increase your personal mortgage to raise further deposits for further investment? If that's likely then there is little point to commit to capital repayment.

The other point I would make is that you should shop around for mortgage rates, don't just go with the deal your bank has offered you. Consult a whole of market broker - I recommend this member >>> http://www.property118.com/member/?id=314

Helen King

17:31 PM, 18th September 2013
About 5 years ago

Thank you for your reply.

The idea of the 30% remortgage has really stemmed from a place of caution! I am partly self-employed and income can be erratic and therefore I did not want in way to find myself over committed on any front. I suppose your highlighting the importance of cashflow is relevant here. That said, once I have dipped my toe in the water I may find it works well for me and as you say want to pull out more to invest in the future.

I think on reflection for now I will go down the interest only route, at least for now. I feel that given what you've highlighted it will provide for more flexibility when I am just starting out. I am 32, so as you say have a few years until retirement.

Thank you, this has been helpful.

Mark Alexander

18:25 PM, 18th September 2013
About 5 years ago

Reply to the comment left by "Helen King" at "18/09/2013 - 17:31":

Hi Helen

Also remember to raise enough money to have a liquidity fund to fall back on if you need to. The more cautious you are, the bigger the liquidity fund should be. Think of it this way; in the event of a financial crisis, would you prefer to be paying £100 a month less for your mortgages or have say £20,000 in the bank?
.

John Constant

12:05 PM, 28th September 2013
About 5 years ago

Reply to the comment left by "Helen King" at "18/09/2013 - 17:31":

Helen, the mortgage market has changed quite considerably over the past couple of years, and things that we took for granted then are not necessarily applicable now!

I am a mortgage consultant with close links with Property118 (Mark will know about me!) and the fact is that the FCA, and prior to that the FSA, have been quite vociferous in ensuring that all mortgages are repaid by their due date. There are just a handful of lenders who will lend on a pure Interest Only basis for residential mortgages, and there are usually riders to this, ie you must be left with a certain amount of equity in the property, to enable you to trade down for example.

The guiding advice from the FCA to lenders is that borrowers should have a robust plan in place to repay the mortgage. A few lenders will accept the sale of other (BTL usually) property, but for many lenders there would need to be an ISA (but not a money ISA) or similar investment with substantial sums planned to be invested. Sometimes these plans need to have been in place for at least a year with a demonstratable history of payment.

If you would like HD Consultants to investigate the possibility of obtaining an Interest Only residential mortgage, please pass your contact details onto Mark, who will in turn forward them to me.


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