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CR is only for the financially undisciplined.
Not convinced with this argument.
1. Repayment removes the gearing element of the investment.
2. The figures don't stack up in your argument:
Fixed rate 2% - 20 yr term
After 10 years outstanding £32987
Repayment £303.53pcm vs 100 int only
So you payback £303.53 x 10 x 12 = 36423
Some if this is interest so s24 payable on that (9406 x .2) = 1881
Total paid out = 38304
Mortgage balance reduction = 60000 - 32987 = 27013
So net cost is 11291
On int only:
100 x 12 x 10 = 12000
S24 tax (12000 x .2) = 2400
So going out = 14400
But extra income = 303.53- 100 = 203.53pcm x 12 x 10 = 24423 - assume no additional tax when compared to repayment as this element is not expensed in either case.
So net income 24423 - 14400 = 10423
So we are 11291 - 10423 down in interest only, ie 868, but we have cash flow.
Further more we could invest the 10423 into pension getting a 40% tax credit taking this to 17371, a gain of 6948. This then accounting for a larger mortgage at the end gives a gain of 6080 in the case of int only.
Admittedly you can't get this pension money back until 55 But you can then get 25% tax free and take the rest as and when needed.
I'm not one for capital and repayment at all!
As the Rt. Hon. JC on this very forum has previously stated, let inflation run the LTV down for you, free of charge.
I'd keep the money to one side ready for a few cheeky chunks off towards the end of the term ;->
Norman Wisdom and I just show the difference between The attitude between the North and the South Landlord
The Southen Landlord should have higher capital growth and the Northern Landlord should have higher yields
So the Logic may be the Southen Landlord should use IO and the Northern Landlord should use CR
I know I dont rely on capital growth although even in the North you can get it
I like my High Yields and I like to fund deposits with cash and I like CR
I learned my lesson in 2015 not to depend on Governments to allow you to offset Interest and thats why I stick with paying down debt
I know If I had gone CR 10 years ago my problem with S24 would have been much easier to deal with
I think If you asked JC what his Tax rate will be it will be higher than 40% because of S24 I think he has said his Tax Bill is much higher
and thats my point
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.
Yes, I think CR should maybe only be used up north so that there is an ongoing asset left at the end of the term.
For a southern LL to not have CG in say 10-20 years is unthought of!
The Two markets are so different
Chalk and Cheese
and Each has its dangers and plus points
I have always thought S24 is a clever tax it hits hardest in the SE because of the sums of money that are borrowed
Stamp Duty is similer again more tax is paid when a Landlord buys a property because of the capital costs involved
I take the view on my own risk assessment What Can I do to protect my Business
So I factor in Interest rates of 7% and Rent Control set at around LHA rates
I know that if rates increased and Rent Control comes I can survive and carry on buying more property
There is also the strong possibility of Interest rate rises this Summer and again in my risk assessment I Fix mortgages long term If I can get 10 year term I take them but 5 years is easily available
But I still have a Plan B away from BTL which is Pensions and ISA investment
and if all Tax relief goes on personal BTL I will not be caught out
Having a good income away from the PRS
Maybe I am being a little to Pessimistic in planning But The govt has given the PRS such a lot of hurdles in the past three years I expect more to come
It wont stop me buying more property and it wont force me to sell
But it has made me think outside the box of BTL
and Because I am an old Landlord I have seen in the past the old ways which I strongly think we are going back too
I will not be caught out as I was with S24
As I approach my dotage, I have all of my IO mortgages on long term fixed low rates. I am geared at about 60% I would guess as I have not done the figures for a year or more. I was geared at around 69% a few years back so inflation has improved my gearing by 9%.
In 20 years I have never paid a penny tax on property income due to me constantly refurbishing properties at the rate of one a year. I am carrying forward losses at the moment of about £70k. I don't expect section 24 to catch up with me for a few years. By then I will be ready to start selling as I will be 70.
If I start paying back the capital amounts I will be saving between 2.9% and 4.9% on the cash repaid.
If I put the cash in an all share mutual - L&G or Vanguard and reinvest the dividends, the cumulative effect is that I should be able to average about 8% or more over the same period. The investment accelerates at a very impressive rate if you drip a few hundred a month into the fund and leave the dividends in. Tax will be due of course, but you have the added advantage of being able to access the cash in an emergency.
The net benefit of not paying off the mortgages should be between 2% and 3% after tax. Someone on the forum quoted an AXA fund returning over 50% in I think it was 5 years.
My other option in a few years is to sell of about half of my properties and use the cash generated to clear the capital on the remaining ones and therefore be debt free. I'll be taking advice on how to do this tax efficiently.
Or I could sell the lot and spend it on sex and drugs and rock and roll seeing as I have no ungrateful kids to leave it to.
Are you looking to adopt...…..
Director of Tax Peplows Limited
CTA ACA FCCA
As you will be the person sorting out the tax man, you are disqualified for adoption purposes. Hope you're well. Chris is hospital. I'll email you.
Wonderful thread Dislexic_Landlord. Great to see your ideas and opinions as well as everyone else’s in the comments, it’s always good to see different viewpoints.
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