Interest rates

[soulstyledevon]

£500 per month
£6,000 per year
£60,000 over the term

Great move dude!

Makes the 3.05% rate seem quite reasonable now…

 

[pjm-84]

With Andy on this one. I run a LTD company and what is mentioned in the post he replies to is a pipe dream thrown at those that run a company by those that work for one. I pay myself via basic income and dividends. My accountant tells me the windfall this used to be is long gone and I save myself a few % at most. On top of that my Corporation tax is eye watering as is my twice annual self certification.

For amounts you can offset, the wife as a company director wheeze is as much a fallacy as it is a reality, but either way you still have to pay them - the money has to come from somewhere. And you have to have someone who is not working and able to do this - less likely in 2022.

Investments are taxable and the only investment that *may* save money is R&D investment - but again - you have to spend money to save the minor tax - I have never found it worth my while even though my accountant keeps trying to get me to use it.

Anyone who takes all their company profits as dividends is not really a company, they are a sole trader, and should set themselves up as such. I keep my profits in the company, paying for staff, training, premises, etc.

Agree but salary and training is taken from net. Turnover and profit are two different things.

 

[pjm-84]

Currently paying 3.07% , interest only but were lowly leveraged and comfortable having purchased the house in 2006.

 

[GrumpyGranddad]

Agree but salary and training is taken from net. Turnover and profit are two different things.

Turnover is vanity, profit is sanity.

 

[dspuk]

Agree but salary and training is taken from net. Turnover and profit are two different things.

Understand how the maths work but as its my company it’s effectively all the same to me

My days are spent ensuring I make enough profit from the company vs it’s turnover to ensure my team retain their jobs and we remain in business.

Saving 2% personal tax or roping in my partner to be a 1970s housewife “fake” secretary while smoking a big cigar are the least of my daily challenges…

 

[pjm-84]

Understand how the maths work but as its my company it’s effectively all the same to me

My days are spent ensuring I make enough profit from the company vs it’s turnover to ensure my team retain their jobs and we remain in business.

Saving 2% personal tax or roping in my partner to be a 1970s housewife “fake” secretary while smoking a big cigar are the least of my daily challenges…

Didn't say you did. Just wanted it to make it clear to others that its profit, so any salary and training, rent, insurances, expenses is already deducted.

 

[Lambeth Cali]

Just had a call with our bank. We had the call booked to switch from tracker to 2 yr fixed but the rate offered went to 4.14% after BoE rate rise and then to 5.96% after the pound tanked.

This morning my wife and I did the maths and decided to ride it out. I didn’t fancy paying £490 fee to lock into a rate that was a lot worse than we have now. We figured base rates would have to pass 4% before we were worse off.

Anyway on the call our bank said they would honour the 4.14% from 2 weeks ago! Pre Kwasi chaos. I was speechless. It wasn’t an official offer so I’m surprised they stuck to it after they had published revised rates. On the radio this morning they said all 2yr fixed had passed 6%. Very impressed.

Will save us £30 a month for 24 months. So £720 win minus £490 fee if rates don’t change, but I think that seems unlikely.

I thought “the bank always wins” but perhaps not always.

 

[sidepod]

I thought “the bank always wins” but perhaps not always.

Pretty sure they'll bend you over at some point!

 

[Amarillo]

I thought “the bank always wins” but perhaps not always.

With base rates at 2.25% and them charging you 4.14% it sounds like the bank are winning. And even if base rates were to peak at 6%, what you need to look at is the average rate over the 2 years.

 

[pjm-84]

Yikes...... I moved our BTL mortgage a few years back to a 5yr fixed. Even thought the savings amounted to £18000 over the 5yrs it took a lot of persuading and discussion with the Wife

 

[westfalia]

 

[westfalia]

Even thought the savings amounted to £18000

I wouldn't call that savings, I would say thats money that you didn't have
to pay.
Not borrowing money is the key.

 

[andyinluton]

I wouldn't call that savings, I would say thats money that you didn't have
to pay.

Its a bit like when the Mrs goes to the sales & comes back having spent a fortune & tells me how much she has saved.

 

[Amarillo]

I wouldn't call that savings, I would say thats money that you didn't have
to pay.
Not borrowing money is the key.

House costs £200,000
You borrow £180,000 at 2%
Your investment is £20,000

Ten years later
House worth £400,000
You still owe £180,000
You’ve paid £20,000 plus £36,000 in interest
Your £56,000 has grown to £220,000

Multiply that for a portfolio landlord with five properties, add in the rental income over ten years and you can begin to image how borrowing money certainly can be the key.

 

[westfalia]

House costs £200,000
You borrow £180,000 at 2%
Your investment is £20,000

Ten years later
House worth £400,000
You still owe £180,000
You’ve paid £20,000 plus £36,000 in interest
Your £56,000 has grown to £220,000

Multiply that for a portfolio landlord with five properties, add in the rental income over ten years and you can begin to image how borrowing money certainly can be the key.

But.
House costs 200k
you borrow nothing at 0%

Ten years later
House worth 400k
you owe nothing

Then you have the headache of where to invest or keep your money safe.

 

[andyinluton]

Ten years later
House worth £400,000
You still owe £180,000
You’ve paid £20,000 plus £36,000 in interest
Your £56,000 has grown to £220,000

Multiply that for a portfolio landlord with five properties, add in the rental income over ten years and you can begin to image how borrowing money certainly can be the key.

If that was one of your rental properties you've also got a capital gains tax bill of over £50k so thats a third of your growth gone.
Your rental income would also be subject to income tax.

You can see why the government puts up with private landlords fleecing tenants, If that house was in private ownership the government wouldn't get a penny of that.

Quick win for the government, put up interest rates, buy to lets become unsustainable once the mortgage is more than the rental income, private landlords have to sell & the government gets a windfall in capital gains tax.

 

[Elmo3]

With base rates at 2.25% and them charging you 4.14% it sounds like the bank are winning. And even if base rates were to peak at 6%, what you need to look at is the average rate over the 2 years.

Base rates and swap rates (used to price fixed rate money) are completely different things.

 

[willwander]

House costs £200,000
You borrow £180,000 at 2%
Your investment is £20,000

Ten years later
House worth £400,000
You still owe £180,000
You’ve paid £20,000 plus £36,000 in interest
Your £56,000 has grown to £220,000

Multiply that for a portfolio landlord with five properties, add in the rental income over ten years and you can begin to image how borrowing money certainly can be the key.

You made a leveraged investment.

You might just as well have borrowed £180k and bought Bitcoin or Tesla shares. Last 10 years housings been great, but a rising tide lifts all boats.

 

[Amarillo]

If that was one of your rental properties you've also got a capital gains tax bill of over £50k so thats a third of your growth gone.
Your rental income would also be subject to income tax.

You can see why the government puts up with private landlords fleecing tenants, If that house was in private ownership the government wouldn't get a penny of that.

Quick win for the government, put up interest rates, buy to lets become unsustainable once the mortgage is more than the rental income, private landlords have to sell & the government gets a windfall in capital gains tax.

I wish I had made five investments like that: I didn’t. But we have gone from two flats (owned independently) to owning a house and five flats (owned jointly).

Capital gains tax doesn’t need to be paid unless the property is sold or given away. On death inheritance tax might become payable, but not CGT.

And let us not forget that interest payments attract a 20% tax credit.

 

[Amarillo]

You made a leveraged investment.

You might just as well have borrowed £180k and bought Bitcoin or Tesla shares. Last 10 years housings been great, but a rising tide lifts all boats.

I think most people would struggle to get someone to loan them £180,000 to buy £200,000 of Bitcoin (or Tesla shares) at mortgage interest rates.

 

[willwander]

I think most people would struggle to get someone to loan them £180,000 to buy £200,000 of Bitcoin (or Tesla shares) at mortgage interest rates.

You were still leveraged. If houses had dropped 50% you’d have lost your £20k and owe the bank another £80k

 

[Amarillo]

You were still leveraged. If houses had dropped 50% you’d have lost your £20k and owe the bank another £80k

Quite right. You need to be able to judge the timing. Spending £200,000 in 2011 is clearly better than spending £250,000 in 2008.

2011, three years after the 2008 financial crisis, and subsequent dip in house prices was an obvious bet. I reckon 2025 will be a good time to buy also. Coincidentally it is when we intend to move home.

 

[sidepod]

House costs £200,000
You borrow £180,000 at 2%
Your investment is £20,000

Ten years later
House worth £400,000
You still owe £180,000
You’ve paid £20,000 plus £36,000 in interest
Your £56,000 has grown to £220,000

Multiply that for a portfolio landlord with five properties, add in the rental income over ten years and you can begin to image how borrowing money certainly can be the key.

Did you miss out the tax paid on unearned income?

 

[Amarillo]

Did you miss out the tax paid on unearned income?

No tax payable on second homes until sold or given away.

 

[andyinluton]

Capital gains tax doesn’t need to be paid unless the property is sold or given away. On death inheritance tax might become payable, but not CGT.

And let us not forget that interest payments attract a 20% tax credit.

Well until you've actually sold something you havn't made a penny.
So you are not going to be able to dispose of the property without paying a tax in one form or another.

If its inheritance tax you are paying its 40% on the whole value, I assume if your buy to lets are £400k your main house takes up all the tax free part of any inheritance.

If you are unwise enough to sell up & suddenly pop your clogs on that £400k house you could pay £56k capital gains tax, & then your estate pays 40% on the remaining £164k that you stuffed in your bank account so another £65.6K By the time you've forked out for estate agents, solicitors, etc your £220k is down to £90k