A risk too far?

[GrumpyGranddad]

I wonder whether some Utility Companies are exploring the provision of heat by installing community based systems. They’ll need to replace lost revenues. Makes sense on new developments to install systems to be shared by a number of properties as suggested by @andyinluton.

 

[soulstyledevon]

Convert victorian 3bed semi to meet latest insulation regs, conservation area so all insulation internal & timber sash windows upgraded with draught stripping & double glazed units. heating changed to air source heat pump. Result £150k cost, heating performed well, reasonable cost to run in normal weather, lost approx 150mm off each external wall so rooms become smaller.

I’m interested to see how this project fairs in the future. The pros and cons.
I’m currently 40% through a renovation with solid walls and being mindful about work that may create issues long term.

I find these guys very informative.

Heritage House | BRE report into unintended Consequences of solid wall insulation

bre report into unintended consequences of solid wall insulation - its a disaster

www.heritage-house.org

 

[Karlos]

I think there is a community based system in Oldham from memory.

 

[Velma's Dad]

I’m interested to see how this project fairs in the future. The pros and cons.
I’m currently 40% through a renovation with solid walls and being mindful about work that may create issues long term.

I find these guys very informative.

Heritage House | BRE report into unintended Consequences of solid wall insulation

bre report into unintended consequences of solid wall insulation - its a disaster

www.heritage-house.org

Just as a sample of one: we've had no apparent damp issues after six years with external wall insulation, onto non-cavity brick walls (12+ inch brickwork on the GF, 9 inch above), normal plasterwork internally. As we work from home the house is heated fairly constantly and in any case the thermal mass + insulation + UFH (GF only, rads upstairs) keeps the temps fairly steady. Fingers crossed for the future but I suspect any serious issues would have emerged by now.

 

[Amarillo]

The ground source pumps would be far more cost effective if you could get say a clump of four houses wanting it , drill the deep bores where the four gardens meet & just have a trench back to each house, the cost would be about 70% less per house.
We have also done some shallow GSHP installations, for these you need a field & put a line of trenches about 2m deep running horizontally & lay out the pipework exactly like an underfloor heating installation - I am not as keen on this method as the pipes could get damaged in the future & at that depth a really really hard winter might affect the temperature. it also limits the future use of the field.

That is interesting to know. Does that also imply that a block of flats could jointly install GSHP for a fraction of the cost of individual ASHPs?

 

[Auberg-ine]

Problem with Heritage buildings is that in general you can't insulate the exterior, and when insulating the interior (where possible) you make envelopes around the bearing structures touching the outer walls. Of course where these end you get condensation problems (except if you pull these 'envelopes' more than 1m deep, which is rarely possible in Heritage buildings). Together with the Royal Heritage Institute we did some research on alternative 'healthy' details with special insulating plasters etc, till now without decent answers to the problem.
For standard buildings there are more solutions, mostly based on external insulation and recycling ventilation systems ("System D"). But when going towards passive (damp proof) constructions, there we get 'psychologic' problems, since opening a window is not compatible with these systems. The Flemish Government forces by law to turn the complete housing market towards 0-energy consumption on short notice. Called Progress.
My own house used to be a school from 1904 that I transformed some 30 years ago. It has 60-80cm thick massive brick walls. Very stable inner climate. And I can open a window.

 

[andyinluton]

That is interesting to know. Does that also imply that a block of flats could jointly install GSHP for a fraction of the cost of individual ASHPs?

Possibly - helps if there are no tube lines etc in the way.
We are seeing a trend towards communal heating systems on new build flats & for that it makes much more sense.

 

[Velma's Dad]

That is interesting to know. Does that also imply that a block of flats could jointly install GSHP for a fraction of the cost of individual ASHPs?

In effect, a heat pump driven geothermal district heating scheme. They've had them in many European countries for a while.

 

[willwander]

Isn’t there an environmental issue with refrigerants in heat pumps?

 

[Velma's Dad]

Isn’t there an environmental issue with refrigerants in heat pumps?

IIRC modern heat pumps use hydrofluorocarbons (HFCs) rather than the old chlorofluorocarbons (CFCs) which were ozone depleters. However HFCs do have a GHG effect when released over the equipment lifecycle, I don't know how significant compared to the saving in energy use versus burning gas.

I read somewhere that CO2 can be used as a refrigerant(!) although not a very efficient one.

(Of course we all have HFCs in the aircon in our cars and fridge/freezers etc, and building aircon in hot countries, without giving it much thought about emissions!)

 

[Amarillo]

A similar idea came up in the Guardian (as option 3)

I’m paying off the mortgage on my flat – what’s the best way to buy a house? | Mortgages | The Guardian

I’m wondering if I should sell my current property, or try to keep it to bring in rental income

amp.theguardian.com

The person responding claims it is a “non starter” but I don’t think they understood the idea.

The person is in their mid thirties, thinks they can repay their mortgage in full by the time they are in their 40s. And is asking if they can then remortgage their current flat, and use that equity release for a deposit on a house, and rent out their flat.

Quite why the idea is so comprehensively pooh-poohed is beyond me. Yes, there’s an additional 3% stamp duty to pay, but this can be recovered in full if the flat is then sold within three years, and regardless of that, yield on the flat should be about 5%, covering the additional stamp duty on the house within a year or two.

 

[andyinluton]

A similar idea came up in the Guardian (as option 3)

I’m paying off the mortgage on my flat – what’s the best way to buy a house? | Mortgages | The Guardian

I’m wondering if I should sell my current property, or try to keep it to bring in rental income

amp.theguardian.com

Quite why the idea is so comprehensively pooh-poohed is beyond me. Yes, there’s an additional 3% stamp duty to pay, but this can be recovered in full if the flat is then sold within three years, and regardless of that, yield on the flat should be about 5%, covering the additional stamp duty on the house within a year or two.

Without seeing the values of the properties in question its impossible to make an educated suggestion in that persons situation. Also need to know what the persons salary range is - 20% 40% 50% tax payer or worst case tax wise someone on £100k who looses £0.50 of their personal allowance for every £1 over £100k they earn.

How do you know that the yield on the flat is 5% and if so 5% of what?

If its a £200k flat and the house is £600k to keep the maths simple they need to get £25,000 of income from the flat taxed at 40% just to cover the additional stamp duty.

The chances are that if they sold the flat & used all the equity in the purchase of the house they would also get a much lower interest rate on the main house mortgage.

In the situation I assume they are in I would sell the flat, buy the house, save for another year to get the deposit together for a rental property and buy then with the lower value property attracting the 3% surcharge.

Medium term I can only see taxation on rent increasing, the capital gains tax has already increased substantially over the last few years, add in the energy requirements, more onerouse obligations as a landlord & renting out property does not look the attractive proposition that it once did.

 

[Whistler]

The person is in their mid thirties, thinks they can repay their mortgage in full by the time they are in their 40s. And is asking if they can then remortgage their current flat, and use that equity release for a deposit on a house, and rent out their flat.

Quite why the idea is so comprehensively pooh-poohed is beyond me. Yes, there’s an additional 3% stamp duty to pay, but this can be recovered in full if the flat is then sold within three years, and regardless of that, yield on the flat should be about 5%, covering the additional stamp duty on the house within a year or two.

They would effectively be sitting with a 100% mortgage. The deposit is being paid for by the mortgage on the flat (admittedly covered by the rent) and then the rest will be the house mortgage. How would a lender view that situation?

They are unlikely to be able to pay back the deposit in 3 years and sell off the flat so will be 3% down because of the 2nd home stamp duty. Ok they could get a yield of 5% from the flat but which home is the stamp south payable on? If it’s the more expensive house then the yield may not cover that.

Add to that any void periods in renting out the flat or repairs to the flat could leave him covering both mortgages from his own pocket.

So works in theory but wouldn’t take much for it to get out of hand and head South.


Sent from my iPad using Tapatalk

 

[andyinluton]

Ok they could get a yield of 5% from the flat but which home is the stamp south payable on?

It would be on the second home ie the more expensive one & there is no way round it.

We have been looking at a house with a building plot attached with a view to buying it & selling the house off ASAP but keeping our old house until the new one was built. It worked out at about £150k in stamp duty in total thats none recoverable just to end up with a plot worth £500k
You can't even swerve it if you buy as a Building Company / developer even if it is the companies only property you pay the same surcharge.

 

[Amarillo]

They would effectively be sitting with a 100% mortgage. The deposit is being paid for by the mortgage on the flat (admittedly covered by the rent) and then the rest will be the house mortgage. How would a lender view that situation?

They are unlikely to be able to pay back the deposit in 3 years and sell off the flat so will be 3% down because of the 2nd home stamp duty. Ok they could get a yield of 5% from the flat but which home is the stamp south payable on? If it’s the more expensive house then the yield may not cover that.

Add to that any void periods in renting out the flat or repairs to the flat could leave him covering both mortgages from his own pocket.

So works in theory but wouldn’t take much for it to get out of hand and head South.


Sent from my iPad using Tapatalk

It is exactly what we did in 2011.

Mortgaged my £200,000 flat for £120,000.

Bought our £348,000 house with the £120,000 as deposit and £228,000 mortgage

£228,000 * 2.08% (2011 rate(
£395.20 per month interest

£120,000 * 2.39% (2011 rate)
£239 per month interest

£1250 per month gross rental income (2011)
(Coincidentally exactly 5% yield)

Yes - 2011 is not 2021, and tax on rental income has changed. But also interest rates are lower, potentially as low as 0.99%.

I’m not saying it would be the right thing to do now, or whenever the person intends to do it. But it does seem wrong to dismiss it as a “non starter”.

 

[andyinluton]

What mortgages were available in 2011 is pretty irrelevant. Mortgage lending has tightened up considerably since then.

I was dealing in property in the 2000s & had a self certified mortgage facility of £1.5m to go out & buy, buy to lets.

It took an evening with a dodgy mortgage broker, one signature and one question to answer which was along the lines of can you afford the monthly repayments on this. Only stipulation was I couldn't buy more than ten properties & no individual property to be less than £50k.

I remember we got one property with a 110% mortgage as we needed some money to do it up. It was easy to borrow then.

I didn't even have a proper job!

I bought some, sold some , made a fortune on a few, lost a fortune in a property crash.

The one thing I have learnt is wherever possible keep your borrowing on the family home separate from everything else and as low as possible. When every thing else goes tits up thats the one mortgage you need to pay at all costs.

 

[NessL]

What mortgages were available in 2011 is pretty irrelevant. Mortgage lending has tightened up considerably since then.

I was dealing in property in the 2000s & had a self certified mortgage facility of £1.5m to go out & buy, buy to lets.

It took an evening with a dodgy mortgage broker, one signature and one question to answer which was along the lines of can you afford the monthly repayments on this. Only stipulation was I couldn't buy more than ten properties & no individual property to be less than £50k.

I remember we got one property with a 110% mortgage as we needed some money to do it up. It was easy to borrow then.

I didn't even have a proper job!

I bought some, sold some , made a fortune on a few, lost a fortune in a property crash.

The one thing I have learnt is wherever possible keep your borrowing on the family home separate from everything else and as low as possible. When every thing else goes tits up thats the one mortgage you need to pay at all costs.

Clearly not forgetting that the people renting all those other mortgaged properties, are likely to consider those to be their family homes too.

 

[andyinluton]

Clearly not forgetting that the people renting all those other mortgaged properties, are likely to consider those to be their family homes too.

I was buying properties that needed work on a rapidly rising market & reselling when finished rather than renting out, the BTL mortgages were just an easy way of financing it. I didn't want to be dealing with problem tenants. It was all good until there were too many tv shows showing how easy it was.

 

[Amarillo]

What mortgages were available in 2011 is pretty irrelevant. Mortgage lending has tightened up considerably since then.

I disagree. Mortgage lending was pretty tight after the 2008 financial crises.

And there was nothing at all dodgy about the mortgage application process.

 

[Amarillo]

They would effectively be sitting with a 100% mortgage. The deposit is being paid for by the mortgage on the flat (admittedly covered by the rent) and then the rest will be the house mortgage. How would a lender view that situation?

Lenders have now created a specialist product for such a situation called “let-to-buy”.

A good explanation here:

Pardon Our Interruption

 

[andyinluton]

If we use your flat finance as an example - £1250 income taxed at 40% is £750 / month less mortgage costs of £239 = £511/ month nett income.

The additional stamp duty on a £600k new main home is going to be £18,000. so you are looking at 3 years of rent just to cover the increased stamp duty, that doesn't account for any void periods, maintenance, insurance, mortgage arrangement fees etc

Probably more importantly you are then tied into a specialist mortgage which usually don't have as competitive rates.

It just doesn't sound as if its worth the hassle.

 

[Amarillo]

If we use your flat finance as an example - £1250 income taxed at 40% is £750 / month less mortgage costs of £239 = £511/ month nett income.

The additional stamp duty on a £600k new main home is going to be £18,000. so you are looking at 3 years of rent just to cover the increased stamp duty, that doesn't account for any void periods, maintenance, insurance, mortgage arrangement fees etc

Probably more importantly you are then tied into a specialist mortgage which usually don't have as competitive rates.

It just doesn't sound as if its worth the hassle.

Mortgage tax credit- plus £47.80 pm

The mortgagee might be in the lower tax band.

You do not have to use the specialist let-to-buy dual mortgage product. Any BTL mortgage will do for the flat, any residential mortgage will do for the house, so long as you can fulfil the borrowing requirements: on the flat that means demonstrating rental income > 140% of mortgage interest and a valid plan to repay the loan at the end of the term; on the house 4.5 * income > mortgage; and for both a good credit rating.

I’m certainly not saying this would be right for everyone, but the Guardian’s financial expert dismissed it as a “non starter”. I think that was wrong.

I also think that too much emphasis is put on the 3% additional stamp duty. This can be recovered in full if the flat is sold within 3 years of the main home purchase. Its significance can reduce significantly if property prices rise. Think about this past year: people who bought a day before the stamp duty holiday are mostly considerably better off than people buying now at the end of the stamp duty holiday.

 

[andyinluton]

The mortgagee might be in the lower tax band.

Get real.

The rental flat using your figures is generating £15k per year, are you saying that on a salary of less than £22.5k they have investments, savings, paying off the flat mortgage early & still have enough left over to take on a mortgage on another house.

Not going to get much of a house anywhere with 4.5 X salary on £22.5k + deposit.


If the intention is to sell the flat within 3 years, it isn't worth the hassle, by the time you get tenants in & most importantly get them out again before the completion on the flat sale its too risky. You would only be looking at 2 years of income. You are then up against the clock for selling the flat, what are you going to do at 2 years 10 months when you havn't sold it? or the tenants don't wan't to move out?

 

[The Merle]

If youre home is turning into a rental to buy another property you need a let to buy mortgage. They will only approve one once you have a new home to purchase.
They are strict on it as lots of people use to switch homes to reduce monthly mortgage payments as most let to buy and buy to let are interest only (that’s what I was told years ago by mortgage broker).

 

[Amarillo]

Get real.

The rental flat using your figures is generating £15k per year, are you saying that on a salary of less than £22.5k they have investments, savings, paying off the flat mortgage early & still have enough left over to take on a mortgage on another house.

Not going to get much of a house anywhere with 4.5 X salary on £22.5k + deposit.


If the intention is to sell the flat within 3 years, it isn't worth the hassle, by the time you get tenants in & most importantly get them out again before the completion on the flat sale its too risky. You would only be looking at 2 years of income. You are then up against the clock for selling the flat, what are you going to do at 2 years 10 months when you havn't sold it? or the tenants don't wan't to move out?

While past performance is a pretty useless way to predict future performance, it can be a useful illustration of what can be achieved.

Consider a couple sitting in a £240,000 2 bed flat pre pandemic (and pre stamp duty holiday). Each earns £30,000 pa.

They take out a new 2% BTL mortgage, releasing 60% equity in their flat (£144,000).

They buy a £360,000 house with £144,000 deposit and £216,000 2% pa mortgage (3.6 * salary) and pay the £18,800 stamp duty and second home stamp duty surcharge from savings.

They rent their flat out at below market rates to get a good tenant for £1,000 pm.

Mortgage interest is £7,200 pa for both properties and net rental income pays the interest for both properties; they each pay a modest £280 per month to repay the capital on their main home over 25 years but plan to make regular overpayments after spending some money on home improvements.

A month later they start kicking themselves after the Chancellor announces the stamp duty holiday, but a year later they reassess.

Their flat is now worth £264,000 (+10%) and their equity has increased from £96,000 to £120,000 (+25%).

Their home is now worth £396,000 (+10%) and their equity has increased from £144,000 to £180,000 (+25%).

£60,000 paper profit in a year - exactly the same as their *gross* combined salary, with interest on their mortgages paid by their tenants paying below market rates, and each repaying £280 per month of their borrowing.

Life is good for this young couple, (and their tenants who are paying below market rent). And the young couple now have choices. Sell the flat and reduce their home mortgage (and reclaim the stamp duty surcharge paid on their house). Sit and wait until selling their flat would fully repay their home mortgage (writing off the stamp duty surcharge if after 3 years). Slowly repay both mortgages, and use the mortgage free rental income to boost their pension post retirement by about £400 each per month at todays values.

So while this year has been quite exceptional, you can see how let-to-buy can be an excellent investment opportunity during this period of ultra low interest rates. The bubble will burst at some stage, but if they have managed to repay some of their borrowing before the bubble does pop, they will have some protection from deflating values and increasing interest rates.