Do buy-to-let mortgages still exist?

MuffinsDa

I know I know... :-)

My sister has a bit of cash and a steady job paying a modest salary. She has a bit of cash and is thinking of buying an apartment with it but she would need a mortgage for it -for lets say 75% LTV. Do banks still lend to people for the purpose of buy to let. She has another well performing mortgage jointly with her husband for their family home and no loans at all in her name. She is anxious to put her savings to work this way. I told her I don't think there's a chance that banks give a BTL mortgage to anyone these days but she is going to give it a shot! Any recent experiences in this area would be greatly appreciated!

djimi

I know this is more "I heard from a man down the pub" type of advise, but a colleague of mine was trying to get a mortgage with a view to buying an apartment to let, and the banks were making it extremely difficult for him. I think in his case they set the criteria so high it was unrealistic (for him anyway). I dont know if its a general policy with banks, but that was his experience. I suppose the best people to talk to are the lenders themselves.

Is she doing this because she has her heart set on becoming a landlord, or because she think its a worthwhile investment? Given the heartache so many landlords have had in this country in recent years, would she not be better off looking at less stressful ways of investing her money...?!!

The_Conductor

I'd seriously echo what djimi is saying.
Its planned to abolish mortgage interest as an allowable expense, there are all the costs of ownership along with the stress of running a letting business (being a landlord is a business- even if you have only 1 property). Contemplating becoming a landlord is something that you should do with your eyes wide open. It is not for the faint hearted.

nhg

smccarrick wrote: »

I'd seriously echo what djimi is saying.
Its planned to abolish mortgage interest as an allowable expense, there are all the costs of ownership along with the stress of running a letting business (being a landlord is a business- even if you have only 1 property). Contemplating becoming a landlord is something that you should do with your eyes wide open. It is not for the faint hearted.

Excellent advise & unfortunately very true, but the banks are still giving out BTL mortgages, I got one last year without any problem, already had my name on another BTL mortgage. It wasn't for an apartment it was for a old house in need of repairs.

fricatus

What's the net yield? It would want to be good to be worth the hassle.

She could ring her stockbroker and buy shares in Shell (div. yield 4.3%) or Vodafone (5.5%), and she wouldn't have to answer a single call about a broken TV or the boiler not working.

If she has cash lying around, she's right to put it to work, but she should spend a small amount of it getting good advice from a non-tied professional first.

Remember she can sell shares or bonds in a couple of hours online, but it could take months to sell a property if she needed the money in a hurry. And nobody should ever put all their eggs in one basket like that.

Scortho

smccarrick wrote: »

I'd seriously echo what djimi is saying.
Its planned to abolish mortgage interest as an allowable expense, there are all the costs of ownership along with the stress of running a letting business (being a landlord is a business- even if you have only 1 property). Contemplating becoming a landlord is something that you should do with your eyes wide open. It is not for the faint hearted.

This is true alright. But was there not talk about allowing the new property tax to be an expense? Or was that the indo trying to sell some extra papers?
http://www.independent.ie/business/irish/buytolet-investors-will-be-allowed-to-file-property-tax-as-expense-3357475.html

Op Ive heard 50% quoted in a few places as the max LTV. If she does go and buys herself the apartment, make sure she buys one that is returning a high yield. At least 8% to be comfortable.

on the issue of shares that another poster posted, and no offence but the value of the shares can fall as well. Who knows what could hit Shell or Vodafone down the line. Yes they might be blue chips paying good dividends but so was the likes of our banks and we've seen how they've ended. Unless she is willing to do a bit of research, and tracking the price regularly, she shouldnt be investing in shares. Buy and holds are too risky.

fricatus

Scortho wrote: »

on the issue of shares that another poster posted, and no offence but the value of the shares can fall as well. Who knows what could hit Shell or Vodafone down the line. Yes they might be blue chips paying good dividends but so was the likes of our banks and we've seen how they've ended. Unless she is willing to do a bit of research, and tracking the price regularly, she shouldnt be investing in shares. Buy and holds are too risky.

Yes of course, and in fairness that's why I said to get professional advice. If she doesn't understand the concept of yield, diversification across asset types and classes, or know what a stop-loss order is, then she needs to keep her money in her pocket and do some research first. The only reason I mentioned those two companies was just to pick two sample yields out of the air and get the OP thinking about how important it is to know these things.

the_syco

MuffinsDa wrote: »

She has another well performing mortgage jointly with her husband for their family home and no loans at all in her name.

Do both of them work, and could they still be able to pay should one of them lose their job?

MuffinsDa wrote: »

She is anxious to put her savings to work this way.

Does she have any landlord friends? I'm thinking someone has been telling her a few white lies on how well their property portfolio is doing...

Villa05

Scortho wrote: »

This is true alright. But was there not talk about allowing the new property tax to be an expense? Or was that the indo trying to sell some extra papers?
http://www.independent.ie/business/irish/buytolet-investors-will-be-allowed-to-file-property-tax-as-expense-3357475.html

Op Ive heard 50% quoted in a few places as the max LTV. If she does go and buys herself the apartment, make sure she buys one that is returning a high yield. At least 8% to be comfortable.

on the issue of shares that another poster posted, and no offence but the value of the shares can fall as well. Who knows what could hit Shell or Vodafone down the line. Yes they might be blue chips paying good dividends but so was the likes of our banks and we've seen how they've ended. Unless she is willing to do a bit of research, and tracking the price regularly, she shouldnt be investing in shares. Buy and holds are too risky.

My shares went up 60% in 2012, how did apartments perform, house prices only go up I suppose

makeorbrake

Villa05 wrote: »

My shares went up 60% in 2012, how did apartments perform, house prices only go up I suppose

60%? What were the constituents of your share portfolio in achieving that?

whatnext

You can still get buy to lets but its a tough slog.

But what I would say is that the banks and the tax system are both ganging up on you to make it a very tough ask.

They will almost certainly want to see that you can meet the mortgage demands without allowing for any rental income.

Your sister really needs to sit down and do the maths properly. Not just rent v mortgage.
This is very rough - but it will give you a feel for what you are looking at.

Look at the following on a monthly and annual basis.
Rent use an 11month year
less mortgage
less block management fee
less property tax
less prtb fee
less 1 months rent for agent fees / repairs etc.
less any insurances and certs you may need, gas safety / BER etc,.
less income tax!!
- thats your cash flow forecast sorted.

Tax is calculated
Rent
less 75% of the interest charged on the mortgage. NB only the interest, not the capital repayment part.
less block management fee
less real expenses incurred, eg new fridge, new mattresses etc., (not going to get into capital allowances for these purposes).
The figure left is your income - and you are basically looking at a tax liability of 50% on it.

If it still looks good on paper versus a state savings bond then I'd chat to the bank, and maybe even an accountant for the sake of a couple of hundred Euro just to make sure.

Never look at potential capital gains for property investment purposes.
They are a bonus if you get them, and are taxed differently for that very reason. Capital gains tax it a half way point between gambling and income tax for a reason, (well it was back in the day anyway).

fricatus

Villa05 wrote: »

My shares went up 60% in 2012, how did apartments perform, house prices only go up I suppose

makeorbrake wrote: »

60%? What were the constituents of your share portfolio in achieving that?

Now now children, shares can go down as well as up. So can house prices. Nice to hear of your good fortune Villa05, but while you might have Warren Buffet's eye for stocks, the OP's sister may not, and should do her research first.

There are many people who bought to let in 2005 and 2006 because their neighbour boasted of a big return from their investment, and look where they are now!

Glenbhoy

I'd echo what the rest are saying and add that banks aren't giving buy to let mortgages on apartments (or any other sort either).

The problem with buying shares is that you can't leverage up the way a property investment allows, although you could always start spread betting, that's the simplest way to leverage up!!

What about overpaying her mortgage - that would result in significant savings and may well be one of the best uses she could put her money to.

There are many opportunities out there for her, maybe she should go see an independent financial adviser who could properly assess here needs and wishes. It could well be worth the few hundred quid an appointment costs.

Marcusm

smccarrick wrote: »

I'd seriously echo what djimi is saying.
Its planned to abolish mortgage interest as an allowable expense, there are all the costs of ownership along with the stress of running a letting business (being a landlord is a business- even if you have only 1 property). Contemplating becoming a landlord is something that you should do with your eyes wide open. It is not for the faint hearted.

Care to cite your source for this?

delthedriver

Put the money in the Post Office, risk free, guaranteed return on investment.
Your interest is free of DIRT, if invested in Post Office Bonds.
Worth talking to your local Post Office.

fricatus

Glenbhoy wrote: »

What about overpaying her mortgage - that would result in significant savings and may well be one of the best uses she could put her money to.

Long term, you're absolutely right, but then that money can't be called on if needed in the future. It will only come back to her in the form of lower future mortgage payments, and indeed a period at the end when the mortgage has been paid off early. Niiiice, as long as you can wait that long!

It's no use if she ever wants to get her money back into her hand, so she would need to be aware of that before committing it. It's probably a good thing to do with some of the money, but I imagine she would definitely want to keep some of it in more liquid form, such as cash, stocks, bonds and funds.

MuffinsDa

Thank you all for great advice. I'll point her to this thread.
I think her motive was a combination of potential capital gain in long term and decent (but not really big) yield in the mean time, as long as it covers most of the rent...

But by the sound of it she wouldn't have more than 30% deposit for the properties in the area she's looking to probably BTL mortgages may not be available to her anyway!

Will look into spreadbetting. She already has shares but as someone said you can leverage up on shares - but of course there's the associated risk of leveraging too!

Glenbhoy

MuffinsDa wrote: »

Will look into spreadbetting. She already has shares but as someone said you can leverage up on shares - but of course there's the associated risk of leveraging too!

I was only throwing that in for the laugh!! Trust me, spreads aint for the faint hearted, there's leveraging and then there's spreads - ask the Quinn's!!

The_Conductor

Marcusm wrote: »

Care to cite your source for this?

Its in the terms agreed with the Troika, and has already been reduced- the stated intention being to phase it out entirely. Originally this was supposed to happen by 2017- however the revised document is now mentioning 2022, a further 5 years down the line. In the meanwhile we have introduced other taxes on the rental sector- such as PRSI on gross rental income- skinning the cat by another method..........

Thanks for reminding me of the Economic Forecast by the way- I need to ask for a copy of the latest one.

Marcusm

smccarrick wrote: »

Its in the terms agreed with the Troika, and has already been reduced- the stated intention being to phase it out entirely. Originally this was supposed to happen by 2017- however the revised document is now mentioning 2022, a further 5 years down the line. In the meanwhile we have introduced other taxes on the rental sector- such as PRSI on gross rental income- skinning the cat by another method..........

Thanks for reminding me of the Economic Forecast by the way- I need to ask for a copy of the latest one.

Not sure where it has been agreed with the Troika; other than certain very high value reliefs (pension tax relief mostly), the micro level fiscal consolidation measures remain within the competence of the Irish government. I have copied the extract from the original document below. There is no reference to it in the November 2012 update either.

I wouldn't be unhappy see it removed but I scan see it as a relief that many Govt members will likely "forget"; in relation to PRSI, although all the Budget documents referred to "rental income", I'll wait and see if the Social Welfar Act is amended to include profits assessable under section 78 TCA as reckonable for PRSI (meaning the rental profit rather than gross amounts). Perhaps I'm too cynical....

Taxation


Programme Measures Fiscal Measures in the Programme


Lowering of personal income tax bands and credits or equivalent measures A reduction in pension tax relief and pension related deductions
A reduction in general tax expenditures
Excise and other tax increases
A reduction in private pension tax reliefs
A reduction in general tax expenditures
Site Valuation Tax to fund local services
A reform of capital gains tax and acquisitions tax An increase in the carbon tax

fricatus

MuffinsDa wrote: »

Will look into spreadbetting.

:eek:

"Warning: you may lose more than your original investment."

There's a reason they say that on the ads. Put it on the 3.45 at Newmarket instead! :pac:

Scortho

Villa05 wrote: »

My shares went up 60% in 2012, how did apartments perform, house prices only go up I suppose

My bank of Ireland shares went up 55% before I sold them last week. Would I recommend her buying them! No I wouldn't unless she understands what's shes getting involved in.


Take for example 2 pensioners.
One invested his life savings of 400000 in blue chip irish bank shares in 2004 on the basis of the dividend.
Another invests his money in a 2 bed apartment on Hannover quay. His apartment has fallen by 55% but he's getting 1200 a month in rent.
The person who bought the shares is getting nothing. Instead he has a few pieces of paper.

Villa05

Scortho wrote: »

My bank of Ireland shares went up 55% before I sold them last week. Would I recommend her buying them! No I wouldn't unless she understands what's shes getting involved in.


Take for example 2 pensioners.
One invested his life savings of 400000 in blue chip irish bank shares in 2004 on the basis of the dividend.
Another invests his money in a 2 bed apartment on Hannover quay. His apartment has fallen by 55% but he's getting 1200 a month in rent.
The person who bought the shares is getting nothing. Instead he has a few pieces of paper.

When investing in one particular share, a rule of thumb I use is, Do not invest money you cant afford to loose and always look at strong companies that may have hit a rough patch, they are generally oversold in this environment. (Not all companies of course, this is where the work comes in. Do your research)

My gain was on an Irish listed stock tipped by Moneyweek. Here is there common sense view on Irish property. http://www.moneyweek.com/investments/property/europe/is-it-time-to-snap-up-irish-property-60221

Incidentally I was told the very same thing by a mortgage advisor at Bank of Ireland in 2007 about the merits of property over shares. Luckily I know the difference between an adviser and a salesman

Scortho

Villa05 wrote: »

Incidentally I was told the very same thing by a mortgage advisor at Bank of Ireland in 2007 about the merits of property over shares. Luckily I know the difference between an adviser and a salesman

I know this is hypocritical but I'd only buy property for the yield and shares for capital appreciation. Don't ask me why, I don't have a clue.
The price of the property doesn't bother me at all it's the yield. In 2006 the yields were atrociously low 1-2%. It would cost you more to borrow the money to buy the property than the return.
Now yields on property have gone up especially in commercial properties. Some in dublin were over 10% others close to it last year. However banks don't like to loan millions to 20 year olds anymore (probably right too considering it was the 50 year olds plus who destroyed them) so ill just have to wait until the next property crash (20 years!)

commited

Bit of a thread resurrection but I'm just wondering if someone can help me with a couple of queries.

Say a person was living in a property that they owned outright and decided to vacate the premises, let it and take a buy-to-let mortgage on the property, could they still claim 75% mortgage interest relief?

Would a bank entertain a scenario where 2 properties (1 owner occupied, 1 BTL) were under the same mortgage and 100% of the early principle payments went to the owner occupied until it's portion was paid off in order to maximise the 75% interest relief?

The_Conductor

I'm pretty sure what you're describing is tax evasion.
Be very very careful.

commited

The_Conductor wrote: »

I'm pretty sure what you're describing is tax evasion.
Be very very careful.

It's just a query. Interest-only mortgages existed in the mad times, just wondering if any bank would have the appetite for 15 year interest only, then 20 year principal pay down or similar, especially if the equity was linked to your private home which was paid down fully in the first 15 years. A bit like the split mortgages that they're suggesting these days, just structured differently.

From my research, I believe that my first question is certainly not tax evasion but I was wondering if anyone had done this.

The_Conductor

commited wrote: »

It's just a query. Interest-only mortgages existed in the mad times, just wondering if any bank would have the appetite for 15 year interest only, then 20 year principal pay down or similar, especially if the equity was linked to your private home which was paid down fully in the first 15 years. A bit like the split mortgages that they're suggesting these days, just structured differently.

From my research, I believe that my first question is certainly not tax evasion but I was wondering if anyone had done this.

I have never heard of a scenario such as the one you've described.
I am not aware that interest only loans are available any more.
In the scenario such as you're describing- you'd have two different loan product types, that you are trying to bundle into some sort of a package- its not homogenous. At very least- I'd imagine the lender (if you could find one agreeing on providing a package such as you're describing)- ascribing the entire package investor status- which would massively hike the interest payments over and above what they might have been, on the owner occupied portion of the loan- and they'd probably demand an enhanced loan to value ratio for the whole package too- aka you might need a 25-30% deposit for the whole transaction at the outset- which in itself could be the deal breaker.

There are brokers out there who used specialise in organising 'mezzanine financial arrangements'- aka- putting together packages that traditional lenders wouldn't normally consider. I'm not aware that anyone offering special vehicles of this nature- are still operating in the Irish market- I know they did in the past.

camphor

commited wrote: »

Bit of a thread resurrection but I'm just wondering if someone can help me with a couple of queries.

Say a person was living in a property that they owned outright and decided to vacate the premises, let it and take a buy-to-let mortgage on the property, could they still claim 75% mortgage interest relief?

No. Interest relief is only allowed where the money was borrowed for the purchase or repair of the rented property. A landlord cannot re-mortgage a house and go on a world cruise with the money and then claim interest relief on the loan.

camphor

commited wrote: »

Would a bank entertain a scenario where 2 properties (1 owner occupied, 1 BTL) were under the same mortgage and 100% of the early principle payments went to the owner occupied until it's portion was paid off in order to maximise the 75% interest relief?

A mortgage can only exist over 1 property. If two properties are used as security for a loan then there are 2 mortgages. If 1 property in a portfolio of 2 is a PPR the banks are unlikely to agree to allowing the PPR to be paid off first with interest only on the BTL.

D3PO

camphor wrote: »

No. Interest relief is only allowed where the money was borrowed for the purchase or repair of the rented property. A landlord cannot re-mortgage a house and go on a world cruise with the money and then claim interest relief on the loan.

correct and just to add a point on committed theory anyway there is discussion of the government looking at removing the 75% interest as a tax deductible for LL's it may not happen but its certainly been bandied about so even if what you were proposing was theoretically possibly it would probably be foolish given the risk of the rug being pulled from under you anyway.