Should I sell or take a Lifetime BTL mortgage ?

by Readers Question

7:40 AM, 2nd August 2019
About 2 weeks ago

Should I sell or take a Lifetime BTL mortgage ?

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Should I sell or take a Lifetime BTL mortgage ?

I am a 65 year old single female, no children and my only incomes are state pension, carers allowance and rental income from my former home in London. The property is worth around £1.3 million and rents for £3,000 a month. I now live with my Mother in the North East as her long term carer. The arrangement works well for us both.

I have a £300,000 mortgage secured against the London property, which comes to the end of its interest only term next year. I don’t think I could remortgage due to my age, credit status and my income position. In recent years I’ve spent a lot of money on the London property, which has kept my tax bill right down, but it has left me very short of cash and with very little profit to show to lenders to enable me to secure another mortgage. To cut a long story short, I made the mistake a few years ago of renting to a person who turned out to be a tenant from hell. I trusted my instincts instead of having them professionally referenced – never again! My savings are all but depleted as a result of that naive mistake and I cannot afford to make another, hence this post.

What I need most is more income, but replenishing my financial reserves would be good too.

Until I read the article yesterday about Lifetime BTL mortgages I thought my only option was to sell up. Whilst that would produce a large amount of capital it would also leave me with no income other than my state pension and carers allowance, the latter of which will not go on forever sadly. I would also have a huge CGT bill to pay given that I have been letting the house for 12 years and I only lived there for just over a year before I moved in to help my Mother.

I have reconciled myself to the reality that I will never be able to afford to live in my London property again.

The Lifetime BTL mortgage option appears to solve several problems for me. I could pay off my existing mortgage, retain my rental income, make no further monthly mortgage payments and never have to worry about money again.

I have already obtained a quote and I do qualify for this Lifetime BTL mortgage subject to valuation. If the value comes out at £1.3 million I can raise enough to pay off the existing mortgage and have an additional £77,000 left over. The lenders maximum LTV is 29% for my age.

I’m quite keen on this but felt I should put my thoughts into writing and ask the Property118 community to comment.

What would you do if you were me?

Thanks

Anonymous Retiree

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Comments

Joe Bono

11:53 AM, 2nd August 2019
About 2 weeks ago

No brainer - SELL and enjoy your capital now

Mark Alexander

11:56 AM, 2nd August 2019
About 2 weeks ago

Reply to the comment left by Joe Bono at 02/08/2019 - 11:53
Welcome to Property118 Joe, I see that you are a new member today.

However, I disagree with your first post, because I follow the logic of this ladies question.

Why do you think she should sell?

Corral

12:06 PM, 2nd August 2019
About 2 weeks ago

This is Equity Release (under any name you want to call it) Look at the “+” and “-“
 + This Mortgage will give you about £70K for your savings account.
 + You will have paid off your Mortgage
 + You will be Renting – so your Rental income should be able to service the Mortgage and ongoing costs of House ownership maintenance etc. I would caution against Roll-over!
 + You have the option of spending at will, investing, or buying a little bolt-hole with your £70K
If you choose to make no further monthly mortgage payments - There are negatives
 - It’s a loan secured against your home.
 - The Interest is rolled over and it is only expected to be repaid on death or entry into long-term care!
 - Roll-over of interest is Compound Interest THEREFORE the amount you owe can grow quite quickly.
 - Long-term care may not be available on the public system in 15, 20, or 30 years’ time so you would need property as a “Bricks ´n Mortar resource”
 - Equity release MAY have tax implications
DISTURBING
 At the stroke of a pen in 2015 the ending Tax Relief on Mortgages was introduced. I think that pen is still in the Chancellor´s drawer. ( He is responsible for raising revenue through taxation or borrowing and for controlling public spending which will continue - Ad infinitum)
 About 2000 to 2009 banks Entered Stage Right & cleverly packaged loans, mortgages, etc 2009 enter stage left Crash
 The one thing you can be certain of looking into the future is uncertainty!

Lindsay Keith

12:34 PM, 2nd August 2019
About 2 weeks ago

Corral is right. Read, mark and digest!
I am well aware that I seem to inhabit the minority in disliking intensely Equity Release and such like contracts involving in compound interest. That rolls up at a frightening rate over just a few years to destroy equity and for nothing left over. I wear a former professional indemnity legal hat.
At 65 and with the benefit of ever increasing medical magic, you may live another 30+ years. Keep in mind the cyclicality of property prices. For each downturn there follows an upturn. It's up to you to assess your needs and to get the best qualified property advice. Put the phone down on the shyster who offers 'free' reviews of this and that, they are only interested in parting you from your nest-egg.
Whatever you do, don't touch any form of Lifetime Mortgage, Equity Release or however the same dreadful product is wrapped up and sees compound interest ramping up along with swingeing penalties for early redemption. Such contracts have the smell of the next mis-selling scandal. After the insurers and banks have used up all their reserves (your money from increased premiums and charges) set aside for PPI claims, they will then have to come in time for more to bail out the victims of Equity Release. The 'victims' are the customers (e.g.: you) themselves and disappointed beneficiaries whose predecessors were improperly advised to take out the Loan from Hell.
Faced with an army of complainants and their ambulance-chasing lawyers turning them into claimants, banks and insurers generally cave in and submit to the 'buy them off' syndrome.
It may take for ever and an age but this perhaps pessimist sees only wailing and clamour in the impending daaarknesss!!! And the same ball rolls again.... we never learn.

Mark Alexander

12:40 PM, 2nd August 2019
About 2 weeks ago

I think the key driving factor here is that it is unlikely that you would qualify for a traditional interest only BTL mortgage where you service the interest monthly. The secondary issue is cashflow.

I agree with the comments regarding roll up of debt and the effects of compounding interest, but I don’t see why you would have any cause to be concerned about this. Also, whilst the debt will grow, it is also likely that your property value will too over the longer term. Which will grow quicker is anybody’s guess.

The Lifetime BTL mortgage seems to me to be a better alternative than selling the goose that is likely to continue to lay golden eggs for you, especially if it is managed properly, insured properly and tenants are chosen wisely.

If you wanted to leave a legacy for others this would make your decision a lot harder

Mark Alexander

12:51 PM, 2nd August 2019
About 2 weeks ago

Here’s another alternative for you to consider.

Sell the property, pay off the mortgage and have £1,000,000. Even after paying the tax and the costs of selling that will leave you with a very big chunk of money. How long will it take you to spend all of that? How long will you live? Where might you be able to invest that money to make it last even longer? Do you want the hassle of a rental property? Do you have other reasons for wanting to hold onto it?

Allan Thornton

15:51 PM, 2nd August 2019
About 2 weeks ago

I agree with Mark Alexanders last comment. £1M will get you 10-15 properties with a solid rental income of more than the £36k you speak of - in your present location. So you can afford to choose a good property manager (another subject to think long and hard on) and relax a bit in later years.

Joe Bono

16:00 PM, 2nd August 2019
About 2 weeks ago

Reply to the comment left by Mark Alexander at 02/08/2019 - 11:56Hi Mark
This lady is single, no children, does not want or need aggravation from tenants, with the net sale proceeds in cash she has independence, financial freedom, no risk and most of all peace of mind to enjoy her golden years.

Joanne Andrew

17:03 PM, 2nd August 2019
About 2 weeks ago

Most BTL mortgage lenders will give you a mortgage until you are least 75 years old. You only require an income of over £2000. They assess the value of your property against potential rental value (not past profits). I use the Mortgage Works who have an extensive range of mortgages on offer to suit your needs. You require a broker in the first instance to arrange it. Going forward you switch to better deals online via their website. Investigate this option before you sell your biggest asset which will be increasing in value substantially over the years.

Mark Alexander

17:14 PM, 2nd August 2019
About 2 weeks ago

Reply to the comment left by Jo Jolly at 02/08/2019 - 17:03
I think maybe you meant £25,000 minimum declared annual taxable income?

The lady has made it quite clear this isn't the case, and with just one property she isn't a portfolio landlord so cannot obtain mortgages on that basis either.

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