Advice on money please, I’m in a mess

[rainawf]

Please can I get some advice, I will be contacting a professional on Monday but just need to ask some outside advice whilst waiting.

when I was in my 20’s my parents had a rental that they wanted to sell they sold it to me for tax related reasons. I didn’t ask for it but being a naive 22 year old I didn’t think. I then got married and myself and husband couldn’t get a first time buyers mortgage due to me having a property already so already this decision affected me.

now fast forward to my 40’s the rental property has about £35k mortgage still left to pay but it’s okay as the rent covers it (I don’t see a profit ever it goes directly to mortgage). I’m in a bit of a tight spot and need about £15k to clear my debts and another £15k to last me till I find a job. Plus things are broken in my home which need fixing, Also our car is at breaking point right now. There’s no benefits as husband works and I do work but part time and not paid well but I have qualifications that will get me a good job but right now I can’t due to childcare.

my mum suggested I take a re-mortgage out in the rental property so if I take 80k I will give £35 to clear the mortgage and leave me with £45k which will be used to clear my debts, help with other things etc. she made it sound good till I worked out I’ll be giving back over my lifetime near £180k. The mortgage will be now slightly higher but the rent is increasing so it will cover the new mortgage payment.

I don’t know what to do and cannot discuss with DH as he will go crazy and I don’t really trust my mums business sense.

what should I do? I could find out the figure for £60k which will leave me with £25k

The rental is about £120k in value

It is probably not a good idea, but to advise you properly you would need to provide more information about your whole financial situation including all of your assets, debts, income now and projected income, ages of children (childcare needs and projected cost), and more information about the rental property (is there something fundamentally wrong with it’s condition or location?).

Also, your age and any major health problems that might prevent you working in the future.

You are being tempted with the prospect of having a lump sum to spend on a car and other things. What's the plan if the rental needs major repairs? I think you a potentially a spender hence can't talk to your hubby: as surely household and car problems is a current us problem.

You will be increasing your mortgage and the amount you have to pay each month, payments will go up a lot as it's double the debt now. One rent default and then where do you stand?

Put the property in auction? I think you need a clean slate.

If the rental is worth £120k then I’d be surprised if you could raise £80k against it. That’s an LTV of 66.7%. BTL mortgages are usually max 60% LTV plus min 120% rental coverage.

If you remortgage, remortgage for an amount that you actually need. Don’t include ‘clearing the mortgage’ of £35k. Chances are that you would be remortgaging the same amount at a higher interest rate. You can have more than one mortgage on a property.

Also think about whether it is worth entering into more debt to cover your £15k debt. A mortgage is for a longer term so even if it has a lower interest rate, you could be paying more overall.

I wouldn’t be in a rush to sell without exploring other options.

Finally, try to find an independent adviser and I’m not sure whether your mother is most clued up on financial matters and there could be an ulterior motive.

If you were making a profit, it would be worth remortgaging but you aren’t so what is the point of keeping it? It’s not increasing in value at a huge rate either.

You could go interest only so you’d get more of an income each month which would work if a monthly profit would help, rather than having a lump sum. This is viable.
but
looking at those figures I wouldn’t increase your mortgage AND go interest only. Your net gain wouldn’t be anything. I’d sell in that case.

Sell it, if you get £100k or even a bit less you can pay off the mortgage and have a chunk left over after fees and capital gains tax.
You are not making any gains monthly and it’s unlikely to increase in value any time soon.

Do it up and rent it as an air b&b

I can't understand why you're not making a profit on a rental property you've owned for 20 odd years! Are you getting a market rent for it? I'm assuming it's a repayment mortgage? Perhaps look at an interest only mortgage for a fixed rate for two years and then reassess then. This should give you some income each month
I wouldn't be increasing the mortgage though to pay off debt and buy a car etc.
What rent are you getting for it now?

You must be new here. This is Mumsnet, where they absolutely despise landlords 😂

This isn't true. Typical BTL mortgage needs a 75% loan to value

Good advice, it is the price that needs to be adjusted to get a sale, look at similar properties with PropertyLog OP to see what other sellers are doing, I would imagine in this market most are dropping their asking prices, you can also see rent rises/drops with PropertyLog so this could be helpful in setting a fair rent, but bear in mind that the headline rent figures come from estate agents etc. who are vested interests, many "less desirable" areas have not seen much rental growth in 20 years because wages never really moved.

I'm a bit confused about how this would work financially. If the rent currently only just covers the repayment on a £35k mortgage, then surely it won't cover repayments on a £80k mortgage with presumably a higher interest rate? Or would you be taking out a much longer term to bring the interest rates down?

If so, might it not be better to extend the term on the existing mortgage, and use some of the money from the rental income to deal with other expenses you are currently facing?

If you increase the rent, given the property clearly isn't in a desirable area, what would happen if your tenants decide to leave, and you can't find new ones? Could you cover the increased mortgage yourself for a month or two if needed?

Why would you take on a secured loan/mortgage to pay off unsecured borrowing? You put the rental property at risk if you ever default on repayments.
How have you got into so much personal debt?
If it's household expenditure then your DH needs some input on how it's to be repaid.

"Why would you take on a secured loan/mortgage to pay off unsecured borrowing?"

Exactly, seriously bad idea, credit cards etc. will make part-payment deals if you are really struggling (well they used to) and although it will affect your credit for a few years it may be a way out? You would probably have to disclose that you own a BTL and how much rent you get etc.

https://theintermediary.co.uk/2023/08/santander-increases-icr-calculations-across-buy-to-let/

Set a fair rent and keep it, or sell it, but don`t borrow any more against it.

Leave the rental as it is.

You need to find another way to sort your debts. I don’t know how you’ve racked up 15k in debts and need another 15k. Sounds like a family issue to me that I would 100% be discussing with my husband. Sorry OP. Sounds like you need more income rather than more interest payments.

I would have sold it ages ago, probably during the stamp duty holiday when people were paying top dollar on properties.

I would still sell it now if I was you, just keep reducing the price until you find a price it will sell at.

Couple of points

You say in OP that you don't make a profit on the rental now. So how will the vastly increased mortgage be covered by rent? Surely rents not increasing by that much?

Also

You will not get any tax relief by deducting the interest of the extra you are borrowing from the rent. That proportion of interest is not related to the letting it's personal. You will.still only be able to deduct the bit relating to the 35k borrowing you have left from buying the property.

Who is declaring the rental income to HMRC? Who oversees the accounts of the rental property?
I feel like it's not you, so who is it (if anyone)?
I think someone has told you that all the rent goes straight towards the mortgage.
Please make sure the professional you consult on Monday is absolutely random, not connected with anyone you know.

I am in my 60s, a millionaire from working class origins and know a thing or two about managing money.

Yes, a remortgage is a bad idea. More debt does NOT cure money problems.

Every piece of real estate will sell for the right price. Yes, even that house. In your place I'd sell for whatever I could get and use that to fix your current house.

Stop listening to mortgage brokers about whether to get a mortgage. Interest rates are not coming down any time soon unless there's a bad recession. And if there's a bad recession you will not be able to sell it for as much as you'll get today, because masses of people will be out of work. Sell it now.

Stop listening to your mum about anything money related. She got you into this mess in the first place. Do not look to her to get you out.

There's no tax relief on mortgage interest anymore. The Tories phased that out over the past few years.

OP, sell the house. The rules for rentals are going to get tougher in the next couple of years (new EPC requirements, getting rid of Section 21 etc) and if it's not profitable then it's better to sell now. You can earn interest from investing the proceeds and clear your debts.

There is tax relief on interest but it's restricted to 20 percent. That was the phased change.

"You say in OP that you don't make a profit on the rental now. So how will the vastly increased mortgage be covered by rent? Surely rents not increasing by that much?"

Exactly and BTL mortgage rates are rising, rents will fall fast if we have a recession.