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  • Mortgages & Finance

    £250k - buy with cash or extend mortgage

    Hi there. Through selling a property I soon hope to release around £250k. I want to buy an apartment overseas as a bolthole for me and my children to enjoy. I would also like to purchase something in the U.K. to either develop/refurb or rent out. 

    I already have a small portfolio of btl houses which gives me an income to just pay my increased taxes etc, covers my own mortgage, holidays, living etc . I have around £1.5m equity across all the properties in total including my own. (Most mortgages are on around 2.5% fixed for at least another few years but there is one at 6% because it’s a shop with flats above (this property though has £500k equity in it and only has a 50% ltv on it)

    My question is:

    1. Should I buy the flat overseas cash and if I buy/develop/let in the U.K. release money through remortgageing OR use the £250k to pay down some mortgages here and remortgage to buy overseas or does it not make any difference ie is it the same either way round?

    2. What I’ve always been confused about on here is when people remortgage, release, rebuy/rekey etc is that by remortgaging it reduces their profits on the first property  (because they’ll have a higher mortgage) , add in buying costs etc,  so unless the profits on the new property  far exceed what you would have made on the remortgaged property, what’s the point of doing it or am I missing something? (probably!)

    3. Is there anything else that I’ve missed a trick on?!

    My overall intention in life is to have an income which lets me live as outlined above, looks after me in old age and is something to pass to my children. However I’m in mid 50s so still want to work, have projects/challenges etc. 

    As always, thanking everyone in advance. 


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    Much though I’m sure many brokers (me included) reading your email would love to start remortgaging your portfolio the reality is that might not be the right answer.

    I assume you are buying abroad in a country which does not use Sterling as it’s currency, in which case you have exchange rate risk. Asset in overseas currency and if your functional needs are in GBP, if you borrow in GBP to buy the property (using existing cash or any other UK property as security) and GBP falls then your Net Asset Value (translated into GBP) has risen and vice versa if GBP rises. Does that bother you? Are you prepared for that? You can minimise this by borrowing in the local currency so it’s only the equity which is exposed (I thinking hedging the equity is too expensive for the size of funds you have). However the UK has a highly developed property and finance market and the size and type of any borrowing you can secure are likely to be lower than you would expect in the UK (with worse terms) (portfolio lending rules aside).

    Without income how would you finance overseas borrowings? Again FX plays it’s part. You also need to consider if you are generating income which is at some point repatriated into the UK the FX also affects value. Managing overseas  tax compliance is also expensive (you should check the VAT and wealth tax positions before you decide any any of this). I have a few tax clients who buy overseas property - some for own enjoyment and some for business reasons - and it can get quite complex managing the intra-jurisdictional matters. So it may be for family reasons but is it solely for family at all times?

    So onto your questions, 
    1) Noting what I have said above, this is very much a personal choice, but you need to consider how FX will affect things along with different tax regimes and different debt costs. Very few UK brokers will be able to secure you funds on overseas properties - this is in my experience the sole domain of the large private banks and £250k doesn’t get you through the front door! So you will in my view need to meet the banks locally to get an idea of what’s possible and I suspect they will ignore your UK income and focus on how the property can service the debt payments itself. My sense is the conclusion will be UK borrowings but you should explore this before concluding (I don’t even know the country!).

    2) For many property has been a  home for people’s surplus cash. Buying more through further borrowings just goes longer in property to use investment parlance. You are right the additional borrowings are almost certainly going to reduce profits on that property (particularly with recent tax changes on increased borrowings) and so if the new property does not compensate for that then from an income generation purpose it’s self defeating. You for example are not doing it for financial reasons but family reasons - is it worth it and is it affordable?

    Have you missed a trick? Almost certainly. That’s what we are doing here trying to avoid doing that. But as humans were will err and miss tricks.

    The advice you need, particularly in countries with which you are unfamiliar will be time consuming and expensive. I looked at redeveloping some property in Croatia around a year ago and with everything going on spoiled a great holiday and didn’t do the deals in the end.

    Best of luck.
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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Hi there. Thank you for your reply. I’m buying in Spain in an area I have holidayed for many years. 

    So what I’m reading from your reply is to not mess around with mortgages etc for the Spanish property and just buy it cash? If I did that presumably there’s no risk from banks there and all the complications that you describe?

    I’ve calculated buying costs etc and can do everything within the 250 so no need to borrow anything for the Spanish property. 

    What I am a bit ignorant about is the tax stuff. Is there tax then if I’ve bought it cash and not renting it out?

    What trick have I missed?

    Many thanks 

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    I think you summarised my post well with your "not messaging" about statement.

    As to tax you should check the VAT for Spain as VAT is often added but there are conditions for exemption. Worth checking.

    If you let it out you will be subject to Spanish in one tax and I'd need to check the double tax treaty but possibly UK income tax too (with a form of relief for tax suffered in Spain).

    Not letting it out I think solves this so long as there isn't a wealth tax.

    I think you need to try and speak to someone whose does this before in Spain and possibly a Spanish tax advisor.
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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Buying property in Europe can have horrendous buying/selling costs - as well as the currency fluctuation to allow for - and by saving/avoiding those costs you could easily fund a series of holidays to different destinations.

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    Hi Sharron, why not buy a motorhome and then you can holiday all over the UK and Europe any time you want with far less financial commitment or worries.

    Motorhomes can go on the channel tunnel or on the ferry to the continent and I always feel like the holiday starts when you turn the key on your drive. 

    A large luxury motorhome that you can spend extended time in would cost anywhere from £50 to £100K.  When you are not using it, you can rent it out as luxury Air BnB accommodation, so it will assist with paying for itself.

    Obviously, you would need somewhere to park it on your drive.

    There are some wonderful campsites in Spain with restaurants, bars, tennis courts, swimming pools, beaches etc.  They are typically about 20Euro to 30Euro per night.

    Do give this some thought as you could also park the motorhome outside your refurb and use it as an office!  It would be far less stress for you financially and far easier to exit - plus you will get many many happy hours in it with your family and friends. Smile

    The good news is that large motorhomes also tend to hold their value and you also have an easy exit should you wish to sell.

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    That’s a wonderful idea Warwick and I can really see the appeal. 

    As you know my situation, my purchase abroad is more complex and emotional. We were going to do this before I lost Andy, I have a couple of friends out there, we want a base to create new (but not better) memories da de da......we’ve thought long and hard. It’s not a whimsical decision and it’s not about extending my portfolio in any way. I

    May be if I hit the jackpot in the future I can buy a motor home to drive to Spain!!
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    I would imagine right now isn't the best of times to invest abroad with how weak the pound is (assuming it doesn't get any weaker).  I think I've read that after this whole Brexit debacle we can expect to see the pound bounce back a little.

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    As I Have said many times over the last few months, this is not the time to be increasing your leveraged position. You may have lots of equity now but this can and will disappear as property prices fall. Just buy your property abroad - wherever you like to live and enjoy it.  The other way is pay down the mortgages and have piece of mind going forward into the coming financial melt down.

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