Should I sell or take a Lifetime BTL mortgage ?

by Readers Question

7:40 AM, 2nd August 2019
About A year ago

Should I sell or take a Lifetime BTL mortgage ?

Make Text Bigger
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

Show Form to get a Lifetime BTL Mortgage Quote


Comments

Joanne Andrew

17:22 PM, 2nd August 2019
About A year ago

Reply to the comment left by Mark Alexander at 02/08/2019 - 17:14Point taken! They may of course consider her rental income. She already owns the property and has substantial equity. Perhaps she would not be treated as a new BTL Landlord would be, and the mortgage is not for the purchase of the property as she already owns it?

Mark Alexander

17:28 PM, 2nd August 2019
About A year ago

Reply to the comment left by Joanne Andrew at 02/08/2019 - 17:22
Maybe, but I doubt it.

In this instance I think Lifetime BTL (equity release) is definitely one of the most viable options available. She still has choices though.

Corral

18:16 PM, 2nd August 2019
About A year ago

Reply to the comment left by Mark Alexander at 02/08/2019 - 17:28
I am inclined to take Mark´s last comments on board. But I think she should pay her monthly interest only, not roll the interest forward.
?This option is available to her - isn´t it?
!That way she should be able to re-structure at the age of 70 or 80 or whenever!.
Bearing in mind that she is a primary carer and her life is about not knowing, having to change, taking the moment and making the best of it! This could be her moment future proofed.

Charles de Lastic

18:18 PM, 2nd August 2019
About A year ago

I deal with a number of these kind of cases in my work. Yes the previous posts are correct in that Equity release is a complex product and you have to be careful to get the right product.
In the end the outstanding debt rolling up against the property is not a huge issue as you do not have any children to leave assets to so why struggle through your life? - as long as you ensure you have a no negative equity guarantee ( they cant kick you out if the house is worth less than the outstanding debt which I believe is on all equity plans these days but make sure). Also an equity release will mean neither you or your elderly mother will not have to move home.
Care - If the compound interest charges grows beyond the amount where you have a good amount of equity in the property it is possible you may find it difficult to move in the future
Lastly interest rates are low historically.
My advice see a couple of fee based financial planners and decide once quoted.
Talk to a number of advisers and find one who will charge a fee rather than take a commission. Ideally they refund back the commission to you as it no doubt be larger than the fee.

Charlie

8:58 AM, 3rd August 2019
About A year ago

I'd just like to say that although most btl lenders have minimum earned income requirements of 25k or 20k some do not. I have used lenders like Birmingham Midshires & the mortgage works since 2015 to obtain btl mortgages on earned income under £10k.

** Recommended broker removed by moderator as this contravenes House Rules **

Darren Peters

9:03 AM, 3rd August 2019
About A year ago

Value 1.3 million, income £3000 per month is a very low return on that property. 2.76% return on the value or 3.6% return on capital. I would not want the problems of that property, remote from me at that small a return. If you want your money in property I'm sure you could find a better return local to you and just invest the million in several properties with no mortgage involved.
Assuming no interest you could leave the money in the bank & draw down £25,000 per year to the age of 105 or £33,000 per year to the age of 95. Okay inflation could spoil that but you could open several bank accounts (keep less than £85000 in each for govt guarantee) and regularly 'save' money across from one account to another to earn 5% interest.

https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/
Or lock in some of the money for 5 years for a high return. But since you already know how to landlord, perhaps a mix of a few local properties plus strategic investment/drawdown of cash.

Queen Victoria

9:04 AM, 3rd August 2019
About A year ago

If it were me I would be minded to sell because 1. There are much easier and more tax efficient ways to earn 3.6% (assuming you earn £3k net/m on £1m equity) 2. As you get older you likely find it more difficult to manage the property 3. You do not sound to be in a position to be able to cashflow the property if big bills or bad tenant appears so are vulnerable to disaster.

I would also take some tax advice to see whether the CGT bill might be avoided/reduced given that you have had to leave what reamins as your main home to provide care for your mother. I am not an advisor so this may be a red herring but worth exploring I would think.

I would then consult a financial planner and look at resources such as meaningfulmoney.tv to figure out a plan for investing my £1m or whatever the figure ends up as to provide regular income

Mark Alexander

9:42 AM, 3rd August 2019
About A year ago

Some excellent suggestions in this thread folks, keep them coming.

Just as in tax planning, there is never a 'one-size-fits-all' strategy. A combination of numbers, emotion, future plans and aspirations all have to be factored into any decisions based on the available options.

Mrs A

10:51 AM, 3rd August 2019
About A year ago

I think there’s also a change coming on CGT for those who have lived in their rental properties next April. There will be less CGT to pay if you sell before then than after.
In your shoes, I’d sell for sure. I’d like the cash, freedom of choice as to where to live (city/country/coast), no more tenants to deal with. I’d perhaps buy a few shares that pay dividends. So easy to sell shares when you want to, no unexpected maintenance costs or missing rental payments. Enjoy your retirement and nest egg!

Mark Alexander

11:02 AM, 3rd August 2019
About A year ago

Reply to the comment left by Mrs A at 03/08/2019 - 10:51
There are indeed changes coming in regards to Letting Reliefs which impact CGT on the sale of former homes which are now let - see https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/790479/CGT_PRR_changes_to_ancillary_reliefs.pdf

1 2 3 5

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Law Society says eviction rules must support tenants and ensure access to justice

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More