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  1. #1

    How best to finance a rental property

    Hi all thank you in advance
    looking for buy to let advice. we have excellent credit rating and good income.

    we currently have a property paid for worth 150,000 GBP (sorry foreign laptop)
    a one bed flat tenanted at 400 gbp per month (this has a residential mortgage with 13,000 outstanding) can cancel pay off or swap when ever.
    we have just sold a one bed flat and this will give us 30,000 capital for deposit

    financial advisor is steering us down the buy to let mortgage route but we are wondering if there is a better option?
    perhaps release equity in property or residential mortgage then convert to a buy to let later? (first pay off mortgage on flat) any help or advice gratefully received

  2. #2
    I am by no means an expert in buy to let. I bought a 2 bed garden flat in a northern suburb of London for 245k a couple of years ago. it is now worth circa 300k. I put down a 100k deposit and a mortgage for the balance. With an annual rental of 15600 this equates to a gross return on the purchase price of 6.37%. However the mortgage interest is 5172 pa (fixed for five years) giving me a gross return on my own capital employed of 10428 or 10.4%.

    In pure investment returns it makes good sense to retain the mortgage whilst ever the mortgage interest rate remains appreciably below the percentage return in rental income.

  3. #3
    Please bear in mind the imminent changes to tax relief on buy to let mortgages. ( there won't be any). I'm sure you are aware but.....just in case.

  4. #4
    "Please bear in mind the imminent changes to tax relief on buy to let mortgages. ( there won't be any)"

    Not quite so. I, too, was under the impression that, phased over the next 4 years, interest would no longer be able to be claimed as an expense against rental income, but in fact it seems that the relief will be limited to basic rate tax (20%). Still an impact, but less than I thought originally.

    The other thing to be aware of is the Stamp Duty 'surcharge' of 3% on top of existing rates on any additional properties bought by existing property owners.


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