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Hi Property Tribes,
My name is Matt, I am 25 years old and looking to purchase my second property (First one is my home). I am looking for advice on getting started.
I have spent the last couple of years learning as much as I can about property; online, books & even attended a free property training course, where I was introduced into GRQ schemes (No I did not spend any money or ever plan to). After writing notes for the first 2 hours, upon reviewing them I realised I had learnt nothing about property and had just written down a few inspirational quotes. I’m still glad I went as I see everything as an opportunity to learn and boy was it an eye opener, especially seeing 20-30 people sign up for a massively overpriced course on the basis they were a loser and if they don’t do it today they never will, influenced by other people’s quotes the GURU had used all day. (The price was only reduced that one day funnily enough).
I am aware that times today are not like they were 10/20+ years ago thanks to the impending implications of S24 and the PRA to name a few. The government seems very anti landlord, but I just see this as more challenges to overcome, please don’t take that as naivety but determination. I will never do anything without Due Diligence.
I plan to borrow more/re-mortgage my home to fund a BTL and to buy out my share of help to buy I used when purchasing my home (I know there’s some strong mixed opinions on HTB).
My partner and I purchased our home in 2014 when we were 21 with a 5% deposit and a 20% equity loan, here are some numbers –
Purchase Price - £155,000
Deposit 5% - £7,750
Equity Loan 20% (HTB) - £31,000
Mortgage 75% LTV - £115,260
Rough Market value - £208,000
Left on Mortgage - £107,000
Equity share 20% - £41,600 (Nice no input JV from the government there)
My current lender is happy for me to borrow more up to 80% LTV to pay off the Governments share of my home + keep what’s left. (I know this isn’t a large sum left but I do have some other funds). I understand this is a second mortgage.
To access the maximum amount of money after eligibility checks could I re-mortgage when my fixed rate ends to a new provider to 95% LTV to access more equity? Or am I missing something here?
This site has been great and has a wealth of information containing things that I didn’t even know I needed to know, so thank you for that!
I am looking for any initial inputs on raising the funds, getting started and what the best way of doing so is in my situation. If you have made it this far thank you for taking time out of your day to read my excessively long first post. Any opinions and inputs are greatly welcomed and thanks in advance!
You just need to speak to a specialist mortgage broker.
But it is worth raising funds on your Residential as they won't be subject to S24 as you obviously wouldn't now claim the tax relief as you would previously prior to S24.
HMRC can't force you to claim on borrowed funds unless it is a BTL mortgage.
You will need to consider what you want from bring a LL.
If it is jam today then you will need to be a S24 LL which will cost you dearly or jam tomorrow in about 30 years time going the corporate route.?
One thing you won't have to concern yourself with is rapidly rising property prices
That game is over for the foreseeable future
So cash in on your equity as you seem to be able to do and wait for the BTL deals to fall into your lap as all the S24 LL seek to sell up.
Most S24 LL don't even know they are one
They will when the big tax bills start hitting them early next year.
With cash in your pocket and a good DIP you should be able to snap up a bargain from a motivated and very distressed LL!!
Hi Paul, I don't understand this comment from you, can you clarify?:-
"But it is worth raising funds on your Residential as they won't be subject to S24 as you obviously wouldn't now claim the tax relief as you would previously prior to S24."
I thought the whole thing about S24, is that the income tax relief on mortgage interest is falling to 20% over time, and it's being phased in.
So essentially, I still get tax relief on the mortgage interest, but at a lower percentage, if I am a higher rate taxpayer. So, surely still to my benefit to book as much mortgage interest as possible (including from resi mortgage), to get as much tax relief on interest as I can...
If you don't have mortgage interest because you own a BTL outright, you pay tax on all the income. If you have a mortgage, in future you calculate the tax you pay, assuming there is no mortgage interest,, then claim the 20% mortgage interest relief that remains.
That's how I thought it had been defined, but your comments make me think I have missed something there?
Can you or someone else add clarity / point me in right direction?
Hi Matt,Welcome to the tribe.First of all I want to compliment you for your approach and attitude. It would appear you have a very sensible head on your shoulders and this bodes well for a successful property career.I think you have been eminently sensible and your strategy makes sense - the only slight concern being leveraged so highly on your own home. That is a more risky position.I agree with Paul to keep your powder dry and build up your cash reserves, waiting for S24 to bite, as you will be able to pick up some bargains.I personally believe Section 24 will be repealed within 3 to 5 years, so you could use such timing to your advantage.Make sure you work with a reputable and experienced mortgage broker and tax advisor and build solid foundations.Good luck and keep us posted how you get on.
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
The place I would start is with a good Mortgage Broker
and then a Valuation from a lender
Once you have that under your belt you will know what cash you have
before you know this You cant plan anything
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.
Thanks for the replies so far,
Paul funnily enough I am booked in next weekend with a Mortgage Broker.
“But it is worth raising funds on your Residential as they won't be subject to S24 as you obviously wouldn’t now claim the tax relief as you would previously prior to S24.
HMRC can't force you to claim on borrowed funds unless it is a BTL mortgage.”
Sorry, I don’t really understand what you mean by the above. Are you talking about CGT? I’m aware I won’t have to pay this.
Vanessa, I really do hope S24 will be repealed and I do see a potential opportunity there (of course counting on this does come with its risks). I’m looking at this with a fresh look. If you are in my shoes you have never been able to claim mortgage expenses so personally I’m not missing out on anything. This is just another part of being a LL for me, albeit with a few more obstacles to overcome.
Paul, what I want from being a LL and what is feasible unfortunately seem to be two different things. I would love to make it my career and generate all my income from property and manage my whole portfolio. As I have seen in many posts being a highly leveraged LL may well be a thing of the past and I can see no alternative to this in my situation. Flips in the SE where I live seem to be too costly with minimal ROI, HMOs are for experienced LLS and most lenders seem to want at least a year of experience in single lets (There does seem to be a demand for these in my local area, probably due to the high speed rail link to London and no article 4s in place). I have no interest in NMD or LMD deals personally. I could potentially do a JV with my Dad? I was offered a few JVs after meeting people within hours when I went to a property course but there is no chance I would even consider this!
So, unless I find another way, I guess property will have to be a side-line venture alongside my full-time career (which I hate) sadly.
DL (excuse me for abbreviating your name but everyone else seems to), as above I have an appointment booked this coming weekend.
I would also like to note that I have joined the RLA, maybe a bit prematurely, but there is a lot of guides and documents on there I think I could use. Would you recommend I do some of their courses before acquiring a property and even trying to get accredited? or is this only possible if you are currently a LL?
I would suggest your thinking is absolutely correct.Take the RLA courses.
Especially do those that deal with the eviction process.
That will scare the pants off you! !
You will realise then how important RGI can be and this may change your investment profile.
As for your query.
Any funds you borrow from your residential mortgage just don't claim any tax relief on the resi mortgage interest
Don't tell HMRC you have used residential mortgage funds for a deposit otherwise they will charge you S24 taxes on the resi mortgage interest for the additionally borrowed funds from it
The key with S24 is to have as few declarable finance costs as possible as you will be charged S24 tax on those costs as though they are an income.
I am unsure if you fully understand what S24 means.
If I was starting again I would not be pleased that S24 existed.
Potentially I would start out as a corporate LL.
As long as you know what S24 does to a LL business then fair enough.
Doing those RLA courses before you attempt to become a LL could be the best money you ever spend! !!
Thanks for your reply,I shall do those courses!If RGI is rent guarantee insurance? Then I am aware of how important this is seeing how inexpensive it is for what it does! Seems silly to not have it.I have read a lot about S24, but by no means consider myself an expert. The Gov site explained it quite well here.I am just looking to gain information from experienced LLs like yourself.I have looked into starting as a corporate LL, but as a novice investor accessing the money seems quite daunting, and can only pay a certain amount of dividends etc (Not enough to live on). Corporation tax would be applied and if I paid myself a salary I would then also pay income tax effectively being worse off? Is that correct?
Cash has always been king in the PRS
you will need deep pockets to make a business now out of BTL
You will enter a very different market from the one we knew
think it can still be done but over a much longer time frame than before
You will have to keep one eye on govt policy all of us were once like you
keen and wanting to make something in there lives
You have to realise Now The govt will not encourage you to but property
and will tax you higher than ever before if you create wealth from property
only you can decide if its for you after you have taken the plunge
and gained some experience Good and Bad
Your dealing with Tenants and that is the hardest part of being a Landlord
I always say the easy bit it buying the property The Hard bit is the day to day management
arrears repairs increased overheads all hit the bottom line
I would not even factor in Capital Growth in your plans If it happens its a plus and treat it that way
But as I have said your plans can only start with the cash I your bank to purchase the first investment
Thank you for not sugar coating things, we will see how much "Cash" I can have in my pocket after speaking to my mortgage broker. With my current income and 1 property I won't be affected by s24 so I plan to gain greater understanding on what implications increasing my portfolio could be and how to best approach.
I can see how dealing with tenants is the hardest part of being a LL, but I hope that working with the public for the last 10 years of my career can only be of value and having the ability to offer a home to someone excites me. I plan to have a pot of money set aside for repairs, I will stay close to my finances ensuring I always have the best deal and rent protection insurance seems to be fairly cheap for what it can do for you.
Prices do seem to be quite stagnant in my area lately after watching them for some time now, so I agree factoring in CG wouldn't be sensible. There are some local developers that are offering to pay all stamp duty and reduced rates if I buy 2. Could this possibly help me gain some equity?