Buy to Let mortgage into retirement for applicants near or over the age of 65 years
If you have been following the news this year you will have seen the proposed changes to pension legislation which will be advantageous if you want to purchase a property to let in your retirement (buy to let). In this article I will try to answer some of the questions in relation to getting a Buy to Let Mortgage into retirement.
“Buy to lets” as they are common known can provide regular income well into your retirement. The pension legislation changes are still under consultation but are expected to be ratified on 22 July 2014 and will probably be implemented in April 2015. This should mean you are able to draw your whole pension fund after the age of 55 (rising to 57 in 2028). The first 25% will be a tax free lump and the rest will be taxed as income.
This capital could be used to purchase buy to lets to generate income in retirement. When combined with a mortgage of up to 75%, there is the opportunity to grow a small property portfolio but often clients don’t know where to start when it comes to getting a Buy to Let Mortgage into retirement.
How does a Buy to Let Mortgage in retirement work?
Well say you had access to £75,000 as capital. You use this to purchase a property in cash. Alternatively you could spread this across multiple purchases, for example three properties for £100,000 with a £25,000 deposit on each, the balance would be supported by a mortgage that could be used to offset tax on the rent.
Buy to Let Mortgage into retirement Example 1: Buy 1 buy-to-let for £75,000 in cash
Rental income £15,000 a year.
Outcome:
– Total assets £75,000
– All your savings in one asset (risky)
– 100% rental income is taxed
Example 2: Buy a 3 buy-to-lets for £100,000 with a mortgages
Total assets £300,000
Rental income £45,000 a year.
Outcome:
– Larger individual assets (more saleable and easier to let)
– Loss of income through void periods can be managed better (spread of risk across 3 assets)
– Easier to dispose of one assets whilst income is coming in from the other two.
– Mortgage interest payments can be used to reduce your income tax
– Potentially greater capital gains or inheritance tax liability (could be mitigated)
Am I too old to get a Buy to Let Mortgage?
Here’s where our expertise comes in, even if you retired we can help. The main requirement is that you already own a property. The underwriting is predominantly based on the rental income that is expected to be received, which as a guideline should be 25% higher than the mortgage repayment.
How much will a Buy To Let Mortgage into retirement cost?
Buy to Let Mortgage into retirement EXAMPLE: Based on a purchase price of £100,000 and an interest only mortgage of £75,000 over 25 years.
There is a telegraphic transfer fee of £25. Redemption Fee £90 on full redemption.
Mortgage products below are current as at 7 July 2014:
Product One: 2 Year Fixed
Initial pay rate 3.89% (APR 5.1)
Valuation Fee £365 / Arrangement fee £995
Currently at £243.13 per month until 31/08/2016. After this period the mortgage will revert to the lender’s variable rate at the time. Based on today’s prices this would be £311.88 per month.
The main early repayment charges are 5% of the amount repaid in the fixed period.
Product Two: 5 Year Fixed Rate
Initial pay rate 4.99% (APR 5.3)
Valuation Fee £365 / Arrangement fee £995
Currently at £311.88 per month until 31/08/2019. After this period the mortgage will revert to the lender’s variable rate at the time. Based on today’s prices this would be £311.88 per month.
The main early repayment charges are 7/6/5/5/5% of the amount repaid in the fixed period.
To find out you can boast your income in retirement through the purchase of buy to lets please complete our Contact Form or call T: 020 7993 2044.
For more information on getting a Buy to Let Mortgage into retirement please contact us on (020) 7993 2044 or alternatively complete the online enquiry form on this page.
Payam Azadi is a partner at Niche Advice Ltd who are Independent Financial and Mortgage Advisers in London and is an expert in the Buy to Let Mortgage into retirement sector.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Finance Brokers In London. His role is very much focused on Property financing both on residential and commercial lines.