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  • Buy-to-Let

    Interest only or repayment best for 2019 BTL?

    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

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    Jonathan Clarke. http://www.buytoletmk.com


    In business I had it drummed into me that cashflow is king and io surely gives you this. Even if it’s a saving of £80 per month it’s still money that can be used intelligently or for an emergency. Lots of businesses in the early days make a loss with many going under before they can even build some momentum. It’s often the little bills that add up and end up crippling them in the end so surely having as much cash available makes more sense. 
    Whilst its arguably worth consideration paying down some mortgages once you’re up and running with a healthy cash flow position and a business on its feet, I personally think that having as much liquidity in the early days is crucial to any businesses chances of survival and growth. In my mind it doesn’t make sense to handcuff yourself to an agreement that will only make a small dent using money that could have outgrown the mortgage pay down had it been utilised more intelligently elsewhere and made to work harder.
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    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. 

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    The figures are speculative, there may be £100k, they may be more or less. 

    Some will take comfort from a reducing mortgage, others happy to owe as much as possible.  If somebody has a repayment mortgage they can always remortgage to take out the capital paid back.

    If you want to do a comparison there is a calculator here 

    I think their assumed interest rate for 25 years is low and suggest that comparisons also include 5% and 8% interest rates as a minimum for a 25 year term.

    I have both C&R and IO, I can see the merits of IO in the early years, but equally appreciate the benefit of C&R on mortgages that are between years 20 & 25 with most of the capital repaid.

    Property prices are reducing, that means lenders could ask for the LTV's to be reduced to the percentage agreed at outset, equally they could increase the interest rates to reflect the higher LTV - it may also mean that on remortgaging less attractive rates are offered due to the higher LTV.

    I know people who think they will sell 50% of their portfolio after 25 years to pay off the mortgages on the others, in my view selling 50% of the portfolio is unlikely to be sufficient taking account of probable inflation and taxation.  Equally there are people that go for ten year mortgages on C&R knowing that they will be mortgage free in a relatively short period and only need a small number of properties - with less work - to provide the income they require.

    We may see a Corbyn government, if we do we are likely to see higher interest rates and increased taxation on investment income.   I tend to think anybody taking out a new BTL mortgage should be making provision for the possibility.

    There is no right or wrong answer,  just different views.  

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    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




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    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.


    That’s a significant saving and another consideration for going with C&R.
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    I am missing something or are you 10K out on both sums ?

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    Jonathan Clarke. http://www.buytoletmk.com

    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 Smile


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