BTL in East Dulwich?

[theboycj]

Hi All

I know this might be a contentious topic but I'm looking for some advice regarding a property move from locals.

We are currently in a 2 bed flat in E Dulwich and have been here for a while - thinking about selling the flat but have recently been informed that we could also have the option of remortgaging the flat and still be able to make the move to a property that we have found that we would like to buy.

It would be interesting to get peoples views on what they recommend based on the E Dulwich market at the moment plus Cameron's new restrictions on BTL etc...

Cheers

[Lowlander]

If it's affordable you'd be crazy not to. (as long as it's a long term investment say 10 years +)

[Penguin68]

As long as you will be letting the property you already have, and moving to live in the new property, then I don't believe the increased stamp duty would be triggered - it only comes in from 1st April 2016 anyway - so not an issue if your transactions are completed by then. There are no other BTL penalties in this Autumn Statement.

Edited to add:- of course it has already been announced (I believe) that you will not be able to charge mortgage interest costs as an allowable expense on buy-to-let rentals - you will need to check the details on this.

[Castillo]

Any property that you are buying in addition to your existing (for rental purposes) will be subject to the increase in SDLT from April 16.

You can offset mortgage costs but the current allowance for full tax relief is being phased out over 4 years and will ultimately be limited to only 20%.

If you are trading "up" then you should definitely calculate the financial benefit of selling the flat instead and putting down a much bigger deposit on the place you are buying (or buying a bigger/better place). Given a BTL mortgage has higher rates applied be aware your yield in ED wont be too high so youll be mainly banking on capital gains, in which case I suggest at least a 5 year hold and therefore you should be prepared and comfortable to see no major financial benefit of this move until you sell it.

[theboycj]

Thanks for all the advice so far...5 year hold seems to be the consensus but wanted to see if there were thoughts on capital gains in east dulwich in that time too? We are quite risk averse so really need to think this through!

[Castillo]

If you are risk averse I'd sell it and have a smaller mortgage on the new property

Best of luck whatever you decide

[Jeremy]

You need to look very carefully at the rental income, mortgage payments, maintenance/agency fees, etc. It can be hard to make BTL work in London unless you have a lot of equity.

[theboycj]

Thanks all...forgot to mention that the remortgage would be on an interest only basis

[Mike Dodd]

Mind boggles

[maxxi]

theboycj Wrote:

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> We are currently in a 2 bed flat in E Dulwich and

> have been here for a while

26 July 2014 - "HI guys me and my wife are fairly new to the area,"

F*ck me you don't hang about do you?

[Cyclemonkey]

Oh so what are you wanting to achieve? If you remortgage interest only you won't be paying off any of the capital anymore so are you relying on house price appreciation to build up equity?

Secondly have you done your sums in terms of expenses? Have only recently stopped renting in East Dulwich I would say if it is a decent flat in a good location you would probably get around ?1,300 a month in rent. Out of that you have to pay the mortgage, agents fees, put aside money for essential repairs and maintenance and to guard against void periods and tax. Do your sums and see if you come out with much at the end of that. If you don't I can't see what you are trying to gain. The income stream probably won't be much and going interest only means you won't be paying off the mortgage. Are you simply holding on to it in the hope that value will rise and you will make more money selling it in several years time than now? That's a risky strategy and a lot of work for potentially modest equity gains. If I were you I'd sell and give yourself less work yo do and a better cushion of equity in your next home.

[Grok]

And this is what Louisa means

maxxi Wrote:

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> theboycj Wrote:

> --------------------------------------------------

> -----

> > We are currently in a 2 bed flat in E Dulwich

> and

> > have been here for a while

>

> 26 July 2014 - "HI guys me and my wife are fairly

> new to the area,"

>

> F*ck me you don't hang about do you?

[Loz]

As cyclemonkey says, you won't make a whole lot out of rents, but you can make a decent amount out of capital gain.

It is not a risk-free investment. Your entire strategy is reliant on house prices rising a decent amount some time in the next few years and interest rates not rising so much that your mortgage starts to swallow up all your rental income. You need to be *really* picky about your tenants - one bad tenant can cost you a lot of money. Always look to keep good tenants - they are so valuable and make your life much easier.

So long as you complete before April 2016, the new stamp duty rules won't affect you. But, if you are a 40% or above taxpayer you really need to consider the changes coming on interest relief - they will have a big impact on your calculations.

If you live reasonably close, I would recommend you manage it yourself - letting agents really aren't worth the sort of money they charge unless you need a local presence. The forum is an excellent place to find tenants and tradespeople. Contracts and forms for inventories, etc can be found online, especially if you join an association (worth it for the first year).

I'll see if I can put together a PM in the next day or so with a few more thoughts, things to consider and things to watch out for.

[old_bloke]

There's quite a few places you can get a BLT in East Dulwich and always very reasonably priced at abut ?8.40 My most fave is the little deli by the lights

[Dr De Soto]

A typical one bed flat round here now seems to be about ?400k. After costs you might get ?12k in rent per year, at most. So that's a 3% return at best. And that's ignoring the stamp duty/buying costs you have at the beginning. You'll be paying at least 3% in mortgage costs - I think the best current APR's are around 4%. So for this to be an investment, you are entirely dependent on capital growth - on which you will pay CGT which ignores inflation. And while property prices are forecast to go up (I remember the same view in 2007), as soon as there's a stock market scare or rising interest rates or a big incident in London they will go down, maybe dramatically.

So as a pure investment, I'd say BTL in London now looks like a mugs game even before the ?12k stamp duty extra you would pay on a ?400k flat after next April.

And that's before we get into any moral issues people may have about BTL as an investment.

(If the purpose of the investment is partly emotional - to keep a foothold in East Dulwich, or to give you options for where to live in future years, then it might be worth doing, but then you would need to buy somewhere that you could imagine you or relatives wanting to live, rather than something that is ideal for tenants.)

[old_bloke]

Isn't this about a sandwich?

[Angelina]

surely, if you have a repayment mortgage then you will end up owning the property.

Interest only, really - why?

[????]

Cheaper payments & tax relief

[Jeremy]

Yeah basically... cheaper payments. Making repayments sounds wise in theory, but only if you're making sufficient monthly profit after tax to afford it.

[Loz]

Angelina Wrote:

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> surely, if you have a repayment mortgage then you

> will end up owning the property.

>

> Interest only, really - why?

A few reasons.

1) You can rarely make repayment mortgages work with BTL. Rents usually barely cover the interest payments. E.g. 400k at 3.5% is ?1200 interest only or about ?2000 repayment. You are not going to get ?2000 rent for a property valued at circa 550k.

2) Tax reasons. You can do other things with that money that are more tax efficient.

3) If you are only in it for the short term (like the OP stated) paying off the mortgage for about five years won't get you very far, anyway.

[LondonMix]

Agree with everything Loz has said on the thread.

All things being equal, I do think houses in ED will be worth more in 5 years than today. However, all things are never equal and only a 5 year timeline is short for a relatively highly levered, illiquid investment like BTL.

Why only 5 years? Also, when doing your sums take into account the better interest rate you'd get on your primary residence if you put the extra equity there instead as well as the alternative investments you could make with your equity that might be safer / more liquid, and less hassle.

[robbin]

WTF is BTL?

Is it a TLA?

[Loz]

robbin Wrote:

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> WTF is BTL?

>

> Is it a TLA?

Yep. It stands for Buy to Let.

[edhistory]

Or Borrow-to-Let.

[DulwichFox]

Or Bacon Tomato lettuce.. E.D. alternative to BLT..

Foxy.