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The principle of the choice between C&R or IO is the same whether in the SE or NE
Its what you do with the say £1000 pa saved which is important
Geography is not relevant. CG is not relevant
Its about the ability to have control of your own finances rather than the lender
The investor who chooses IO has broadly 4 potential options with that £1000. They can either ...
i) Spend on lifestyle
ii) Overpay on the mortgage @ a time of their choosing - typically 10% pa allowed
iii) Invest in other assets which equal or beat the loan rate on the mortgage
iv ) just save it for a rainy day
The investor who chooses C&R has none of those 4 options so they are in a strait jacket
If you had 10 properties on IO that`s £10,000 you can utilise effectively
If that rainy day comes and my daughter slips in the Grand Canyon and breaks a leg ( god forbid )
I can airlift her to hospital from USA to the UK as I have that 10K in my hand
IO allows me that option C&R doesn't . With C&R option they let my daughter suffer
Extreme example of course but its the the principle which is sound in my view
A bird in the hand is worth 2 in the bush as they say
I struggle to see any advantage of C&R over IO
Unless one is perhaps a frivolous spender addicted to bling / drugs / gambling etc
Jonathan Clarke. http://www.buytoletmk.com
To add to my previous comment, even if the additional money saved wasn't used for other investments, it still would have been interesting to see the difference in repayments over the 25 year term (appreciate that would be tricky to sum up though).
Your IO example could easily look like the following:
IO - £200,000 - £100,000 mortgage - £28,000 CGT = £72,000 to you Plus £100k in your bank account totalling £172k to you.
I agree with every word you have written
I can see some merit of using IO when your starting and growing a BTL Business
The early years are the most vulnerable years too
But I think if you have a Good Yielding Business paying down debt puts you in a better position
With Little Capital Growth expected in the coming years and low interest rates its wise to pay down debt
I have just been looking at one of my company Mortgages which is 4 years old its on a fixed rate and because I have paid down debt The company can take a new deal
with the interest rate 1.5% lower than when the Company first purchased the property so It will save interest of around £100 a month
£100 a month dosent sound much but its £1200 a year more for company profits and If I had 20 properties its enough cash flow for the company to fund a deposit for another property Or its £1200 per property to pop into a pension
The problem I can see is we have a sector of the Landlord community who are sticking to the principles of RDPD which I think in the UK is folly
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
I am missing something or are you 10K out on both sums ?
IO all the way, especially if you have time on your side. Its very difficult to build a large portfolio from scratch via the C&I route.
Long as the figures stack up and you have a contingency, why tie you money up??
Of course this is just my view, but then again I am a fan of flats, that goes against the grain on here