Second property as investment these days?

[bellac11]

We have often talked about getting a second property and either renting it out or having it for the kids but havent put much thought or investigation into it

The subject came up again recently with house prices dropping would it be time to buy at the bottom of the market, if it is at some point.

We own our house outright, so would need a mortgage on tht to buy something else outright, is that a thing? Or would you get the mortgage on the second property, not sure how it works?

I know quite a lot about landlord responsibilities etc but wondered if anyone is entering into that now? We wouldnt really want to leave it empty as such.

We havent got great pensions so this would be something for that at the time, if it was a good idea

We bought a house 5 years ago and it's increased in value by £150k but we did pay cash so I don't know how viable it would be with a mortgage. Like you we wanted to help with a nest egg for our children. So far it's been a better return than our other investments.

Do you rent it out, if so how has that gone?

I've just done the opposite and sold a BTL and couldn't feel more relieved. It wasn't bought as a BTL but was my home at one point. It was a good investment but being a landlord is stressful unless you have a lot of cash available. In my experience it needed a lot more maintenance than my own homes have ever done, and of course you need to fix things quickly for tenants.

Have a look at the EPC changes coming up in 2025, if you are buying now it's worth keeping this in mind when choosing your property as many in the UK are hard to bring up to a C rating.

Are you mainly looking for additional income or hoping the value will go up in the long term? My property gained a lot of value in the first few years and then nothing for the past 10 years, based on mortgage valuation.

Do you rent it out, if so how has that gone?
Well sort of, we rented it to a family member but half the market rate. We're about to rent it out properly so it will be interesting to see how it goes!

Like @viccat I was an "accidental"'landlord but sold my property last year- very luckily at the peak of the market.

It was hard work. Lots of safety type costs- gas, electric, tenant demands. But also tax on rental income, fees to estate agent and management costs, and potential capital gains when you sell it. In addition, changes to law mean that it is hard to get tenants to leave.

Make sure you go into it with your eyes open. For me, I didn't make any money off of it- but it did allow me to rent it out for a year whilst I "trialled" living with my partner.

We have two BTL and are considering buying a third one.
What PP said is absolutely right. There are a lot of additional costs that have been added in the last few years; our council also just changed their HMO definition. Previously only properties that had 5 or more people living in it were HMOs, now it's 3 or more; as both our BTLs are 3 bedroom flats, we had to pay for 2 HMO licenses.
It's not easy income as for instance if you'd invest in shares. However, when we bought our first BTL it wasn't like we had a spare £50k sitting in our savings accounts. Like you are possibly planning, we remortgaged our house and used that money as a deposit. (You will need a 25% deposit, and your projected rental income must be 125% the your mortgage payments -for the 75% or whatever mortgage is on the BTL.
Saying all that, I "understand" property, it's tangible.
Our BTLs are very close by so if things go wrong (and they will) it's not a big effort to go over and sort it out.
We also do not use a letting agent, but rent them out via open rent.
It's helpful having good electricians and plumbers or handymen.
I regret not having bought the flats as part of a company - if you are a Ltd Co you can still offset your mortgage interest payments (so if the rent is £1000 and your interest payments are £600, you only pay tax on the £400 profit. If you are not a Ltd Co you pay tax on the full £1000.)
Or of course, as a typical Tory policy, if you own more than 10 BTLs, then you also only pay interest on the £400 profit.

@viktoria where did you see that if you own more than 10 btl you don't pay tax on interest? I thought it was only if they are part of LTD company.

I wouldn’t, we are selling our first home which we kept. By the time you’ve factored in mortgage payments, tax, upkeep, fees and the endless certificates the government keep adding on, it’s cost us more to rent out than the profit we will get by selling it. Oh and we have to pay capital gains tax for the years we haven’t lived in it too.

This is very interesting

So people would generally re mortgage on their substantive house just for the deposit, not the whole cost of another property?

But then I suppose you have to hope that the rental income pays for the mortgage payments, if you buy it outright, you would just pay the mortgage payments back in the normal way?

although that actually amounts to the same thing

I dont really understand the tax issue to be honest, I dont think we want to be messing about setting up ltd companies

And do most people do this via interest only mortgages or repayment, I have never had an interest only mortgage.

I feel really embarrassed!
I did read it in a newspaper when the change in mortgage interest tax relief came in. But I just googled it - and it obviously isn't the case anymore! You are totally right : you pay tax on the full rental income unless you are a limited company.
Thanks for questioning it! I hate being the source of wrong information!

@bellac11 I think theoretically you could put the full amount of the new mortgage on your own residential property. (If your mortgage lender is happy with it, they might not be)
You would actually get better interest rates on a residential mortgage (BTL mortgages tend to have a higher interest rate and also can come with hefty product charges)
However, while it is very easy to get an interest only mortgage for a BTL, I think it's trickier if you want an interest only mortgage on the property you live in yourself.
We have interest only mortgages on the BTLs and we try to pay off a chunk of the actual outstanding amount as and when we can.
That way we have more flexibility and more available cash in case any unexpected cost come up.

hi we've just done this, but we remortgaged our own house for the full cost of the 2nd property, so we now pay a repayment mortgage on our home, the rental is now owned outright and we are about to let it out.

Did you seek advice from anywhere about what to do or research anywhere specific about how to manage this?

I would check on Rightmove how much rentals in the area tend to go for
Then I would speak with a mortgage broker like town and country and get actual figures of how much your monthly mortgage cost would be with the different options, plus any additional costs such as stamp duty plus 3% etc
And then I would speak with an estate agent both for possible properties but also with a view to get that agent to manage the rental
In fact it would probably be better to rent out your first property with an agent. At least you would know that everything is done legally, such as deposit scheme, gas certificates etc
Additionally there are a number of landlord fori on the internet

hi, we spoke to a financial advisor who advised us that it would be best to do it this way as we owned our home outright rather than trying to get a buy to let mortgage.

Quite a lot of that isnt right
The deposit amount isnt fixed at 25% - it may be much more.
There isnt a fixed rule about rental income being 125% of mortgage payments- your personal tax rate impacts as well.

Your personal tax rate makes a difference. If you are a higher or high rate tax payer it can impact on the amount that you will be lent. Lots of companies have withdrawn BTL products and many those remaining have high interest rates and or/significant restrictions.

That’s so inefficient, or are you going to attribute the debt to the rental?

So you won't get any tax relief on mortgage payments as they are on your home and not on the BTL.

Are you sure they knew what they were talking about?

https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-aHQIA2d4bjXj

I think you'd be best off by buying a btl property through a LTD company. You'll be able to write off your interest payments against tax. Make sure you purchase a EPC C rated property though. A few btl lenders will offer a slightly preferential rate for an EPC C rated property. It's worth going through a good broker who can sometimes access better rates for you. Also look carefully about which parts of the country produce the best yields.

Commercial borrowing rates are higher
You need to prepare and file Co tax returns
You pay corp tax AND dividend tax

The CGT differential no longer matters.

You can gift Co shares to children more easily that slice up property.

Co structure for a single property, even 2 doesn’t always make sense.

Well Im not keen to have a ltd company, I dont want to complicate things and I also would prefer to just own the property outright and just have a mortgage on the residential property

It may not be financially as efficient but it feels more simple that way

If we did it of course, still thinking about it

Also its very unlikely that the property we would buy would be epc grade c

if we couldnt rent it on the open market we would probably use it for the kids

If you use it for the kids just be aware that you pay CGT if you gift it to them.

Property is not through the cycle yet, I’d hold fire or you’re in real danger of taking a bath on the capital value.

The number of people who think there is no tax relief on mortgage interest is staggering.

The way tax relief is given has changed and is now limited to 20% so for higher and additional tax payers they will pay more tax but for basic rate taxpayers they will pay no more tax than they did before. Before the interest was deducted as an expense, now 20% of the interest paid is deducted from the tax due as a tax credit.

Anyway, I’m also a landlord (2 properties) and we’re selling up when our fixed mortgage ends in 3 years. If we did sell now, we could put our equity in easy access ISA’s and get a similar return as we do via rent. Without all the hassle that comes with renting.

We certainly wouldnt be gifting it to them! Just letting them stay there/live there if they needed it