Mortgages when you are older... especially BTL...

[drspouse]

DH is not far off retirement and I could retire in 10-15 years, and we have two BTL flats.
We are just selling our old house finally after moving nearly a year ago and that will pay off one of the BTL mortgages but the other one will come to the end of a 2 year fixed deal in a year so the question is what to do with that.
We knew we were going to switch mortgages after this fixed deal so we kind of ignored the "how are you going to pay off this mortgage" question.
We have tended to go for interest only for our BTL because repayment is sooo expensive but we cannot keep remortgaging on interest only forever.
But then if we go for a fixed price deal then we will want to switch anyway... and you don't pay off much in the first couple of years...
It's a minefield! Anyone got any advice?

Hello DrSpouse! [waves from the 'in chain' thread].

There was an article on BBC news the other day about the 'ticking time bomb' of interest-only mortgages. Many people are using them with no clear plan for how they will repay the capital at the end. On that basis I'd probably go with a repayment mortgage personally, but I'm very risk-adverse.

Obviously though it depends what your long-term plan for the BTL flat it. If you are intending to sell it eventually you could just continue with interest-only repayments, and sell the flat when the times gets near that you need to repay the capital. Obviously though you would need a really strong contingency fund in place though in case the market crashes and you end up in negative equity.

I think it depends really on how risk-adverse you are, and how much you have in savings to put towards paying off the mortgage if you hit a negative equity situation.

They are clamping down, but BTL mortgages have not been subject to the same scrutiny and affordability checks as domestic mortgages. Certainly a couple of years ago it was possible to get a BTL mortgage lasting into your 80s.

The main determinants are the amount of equity; it really helps to have 40%, and whether the rent covers the interest payments.

Speak to London and Country who will advise on what might be available. They wont cjarge, and quite a lot of BTL mortgages are 'broker only'. You obviously have more choice of mortgage if you plan to repay before your dotage.

I would switch asap. If you start repaying it is a sort of savings account. Once the mortgage is repaid the income is more like a pension. Interest rates may go up, so get a fix now, and then review term and repayments when that fix is up.

Thanks, we could maybe afford a longer repayment mortgage actually if they'd let us do that, that's something to think about.
I'm hoping the flats will be our retirement income TBH.

(Very low LTV thankfully)

There are other whole of market firms that won't charge you a fee too!
Interest only not a problem on a BTL with a low LTV. Not the same "ticking time bomb" as those that have Interest Only on their main residence. No need to panic.

The problem though Vacant is that either we have to sell the property when we are older and can't get a mortgage any longer (which we'd rather not do, as we would rather have the income) or possibly sell these rental flats and get different lower priced ones (so as not to have a mortgage) which would be a hassle aged 80 or so.

For a slightly odd historic reason the mortgage (all interest only) is split into a lower interest rate (needs to be paid off in about 5 years) and a higher interest rate (even the fixed term is higher, and fixed term ends next year, with a penalty for paying off early in full).
So we've decided we'll treat the first one like an offset, repayment mortgage and (overpay as much as possible so it's paid off when it's due, rather than wait till then and panic - this part is quite small thankfully).
Then the second one we'll probably either go with long as possible BTL repayment, or if we can get one, offset on our main property/salary.
One of the issues is despite both of these being regular, they won't count DH's pension or our rental incomes in our main property affordability. I can see why, but it's annoying.
By next year our childcare bill will be lower (currently have one DC in nursery) so we should have better affordability on our main property.

Really ask London and Country or an alternative. Happy to PM the very helpful guy I have used several times. He was able to suggest a different way to structure borrowing which made a lot more sense. And, frankly, the amount I was able to borrow and the length of term, was quite shocking given my lack of alternative income. Lenders like experienced landlords and are mainly concerned with the gearing and rental income.

I started off with a two year fix and a ling term. Then, once I better understood the cash flow on the new rental properties I fixed for 5 years, increased repayments and reduced the term. We will then sell a property to reduce borrowing leaving rental income like a pension.

In short it is wise to start repaying so you don't automatically have to sell. You only need to make decisions for a couple of years. If you then have spare cash you can make a capital repayment and reduce repayments or term. Our original loan was for 25 years but we should have repaid in 10.