Interest only or repayment ?

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    Interest only or repayment ?

    I'm looking at buying 2 more btl properties .I currently have 2 .one has a mortgage of £50000 and the other I own.I'm looking at buying two more at £120000 with a 15 per cent deposit.if I did interest only it would bring in roughly £2000 a month minus mortgage interest £500 equals £1500.I'm looking for extra income now but I'm thinking if interest rates rise a lot I could come in to trouble.Do most of you do interest only repayment ?

    #2
    Do both? Go interest only, hold some money back in a reserve account, if you don't need to spend it you can make annual over payments or stick it all in at remortgage time, if you need to spend it at least it's there and not irretrivably with the bank.
    "I'm afraid I didn't do enough background checks apart from checking her identity on Facebook" - ANON

    What I say is based on my own experience and research - Please don't take as gospel without first checking the gospel yourself.

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      #3
      Hi Craig
      i am intrigued at the level of rent which could be achieved on a £120000, I presume that this must be a student Let or similar?
      Borrowing 85% on a BtL would at worse cost £469 per Property which given the rental surplus provides an immediate positive cash flow but importantly could indeed a surplus for making periodic capital payments and as Wannadodah suggests allows for the mortgage to be reduced on a periodic basis rather than having a Capital & Interest loan where the surplus might not meet your immediate need for cash.
      If one assumes that interest rates were to rise over the next two years and capital values remain static, you will have to hope that the lender in question continues to offer a product switch at the end of the incentive period, even then the switch rate is only slightly lower than that offered for new mortgage business and if this USP is stopped then the reversionary rate would scupper the viability of what you are planning.
      From my experience as a former lender and for the past 10 years as a broker the vast majority of borrowers elect for Interest Only Mortgages given that the loan is classed as a “commercial Loan” and wish to keep expenditure as low as is possible. For some they regard Repayment Mortgages as part of their Pension Planning and having Property generating income without the encumbrance of being Mortgages.

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        #4
        Thanks for your reply.I would be receiving between £600 to £650 a month purchasing a £123000 terraced house.

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          #5
          Unless you are managing the property(s) yourself the profit margin taking account of tax/Annual Property Insurance makes such acquisitions quite marginal even excluding provisions for voids and essential repairs etc; if you were to include management fees this would hardly wash its face and with the possibility of increases in rates is the deal a viable entity. I only ask and have no wish to puncture your entrepreneurial efforts but the margins do raise a big question mark based on the figures I made mention of in my previous post.

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            #6
            Originally posted by craig30 View Post
            I'm looking at buying 2 more btl properties .I currently have 2 .one has a mortgage of £50000 and the other I own.I'm looking at buying two more at £120000 with a 15 per cent deposit.if I did interest only it would bring in roughly £2000 a month minus mortgage interest £500 equals £1500.I'm looking for extra income now but I'm thinking if interest rates rise a lot I could come in to trouble.Do most of you do interest only repayment ?
            I think a fall in property values by 15% next year could also be trouble for you.

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              #7
              Gordon, if your estimate of such a correction were to be confirmed this would play havoc with thousands of BtL investors and importantly for homeowners as this would place them in negative equity and we all know the ramifications of this, makes one shudder; for my part I expect a modest decrease in certain geographic locations with clearly the worst area being Central London which has experienced greater percentage growth than any other areas.

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                #8
                I am also expecting a significant drop in property values at some point in the next 12-24 months.
                The value of shares worldwide is due for a "significant correction", and property will have another 2008 drop.

                Obviously, I could be wrong, but that's my current working mindset.

                My thoughts are also that rents will rise as a consequence.
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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                  #9
                  Property is the only really commonly used leveraged investment, at least as the bulk of a portfolio. That has, up to now, forced the government to ignore its free market principles and manipulate the market so as to avoid investors being exposed to the negative side of the risks of such investments, because the impact on the spending power of those people could seriously hurt the economy.

                  In my view, the availability of an investment with returns that are disproportionate to the risk of losses is one of the main reasons for house prices being out of reach of most potential owner occupiers.

                  The government is going to have very difficult decisions in balancing free market principles against having a spending class that is also a large part of its voters.

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