Should I buy a third buy to let?

Hi Peter,

It is always very difficult to answer a generalised question when all individual's circumstances are different and particular to them. There is never a one size fits all answer.

The rules on mortgage interest relief restrictions (Section 24) have and are changing along with SDLT and you don't mention the structure of ownership eg. sole or joint names, tenants in common or Ltd Co.

I would strongly advise you start researching this vital area and you can start here >> https://www.property118.com/tax/
along with case studies, related articles and downloads to assist. It is not possible to beat your own due diligence.

You already have 3 good streams of income. You must be a certain age to be drawing a pension so I would advise not burdening yourself with another BTL property.

If you can arrange the distribution of income between yourself and your wife to keep both of you below the higher-rate income tax threshold, then it is worth considering. If you cannot do that, then go do the financial sums to see if you think it is worth it, basing your calculations on the final position of S24 (i.e.all of finance cost is disallowed in calculating profit).
You also need to consider what other savings and investments you have: property is illiquid, so you cannot get at your money quickly if needed.

If the third property’s income would push you into the higher rate tax band, consider creating a ltd company, lending funds to the company to buy the third property. The downside of a ltd co is the corporation tax on money going in to the company while the upside is you can choose when to take the money out, or stick it in your pension (up to 40k per year per person). But main reason for LtdCo is that you would be able to claim the mortgage interest as a cost.

However understand that landlords are the populist target of the govt for the foreseeable future. It’s going to be a harder business to be in

Hi Peter, There is a lot of good advice posted here except possibly from John Ward who presumes you are already drawing a pension but if I read it correctly you are still actually working although sadly you do not mention how long it will be before you draw the pension you mentioned.
There are a lot of pitfalls with being a landlord but nothing an intelligent person could not deal with from online information. You already own two flats so you are really in a good position to take on more and I get the impression that you already have good equity rather than borrowings. Looking at you figures Then I work it out you would gross £30,700 from an investment worth £600,000. This represents a rental value £10,3000 above a house I helped buy for my children 18 months ago which was purchased just under £600,000 a two bed Victorian terrace in Surbition, outer London. While Reading or Newbury may not be the best place in the UK to invest brick by brick as they say, (as our London buying is probably the worse example for that) this prospective purchase of yours is certainly not at all bad.
I do not entirely understand your second paragraph but looking at the worse, if your mortgage was £165,000 then the interest say of 5% would be about £8256 which due to section 24 the could not be offset as expenses being completely abolished by 2020 bringing that gross to £22,444. minus any repayment plans you have and any running expenses which you must already have experience of. But all the same may be very beneficial, depending on your age, as you are making a long term investment. You also need to know that stamp duty on properties other than you own home is now higher. You say you have have a lack of knowledge but all these thing can be investigated online and knowledge is always valuable.
Whether you can consider the other suggestions: if you share the rent with your wife or become a company you simply need to investigate as there are some many elements to consider. I had a property in a company and I found it a pain in the bum (excuse the expression). But that was long before Section 24 which has now become a burning question although I am not convinced as I think Property Companies could also be targeted.
Good Luck.

Peter,
I suspect that the rules changing that you refer to are the PRA Portfolio rules. These are already in place and you will be pleased to know that you would not be classed as a Portfolio landlord, and therefore, will not be subject to the new regulations.

The new rule is that if you have 4 or more properties, the lender (and broker!) needs to undertake further financial diligence regarding the performance of the portfolio in the background - not just the property that you are seeking to buy.

What constitutes a "property?" Well, it includes holiday lets, properties owned through a limited company, ‘consent to let’ properties and all BTL mortgages owned solely or jointly by the applicant(s).

Alas, there is no easy rule of thumb here to see whether a portfolio is compliant. Every lender has their own method of assessing whether a portfolio is performing satisfactorily or not. Once you are a Portfolio landlord, you really do need the services of a good Mortgage Broker to guide you.

Remember that you will pay almost £10,000 stamp duty on this property so you are actually paying £200,000 for something worth £190,000. In addition, you will start getting caught up in the s24 legislation so you will need more like a 40% deposit, so £75,000.

In the other hand, a yield of 6% sounds OK.

‘ LtdCo is that you would be able to claim the mortgage interest as a cost’ - dont assume this will remain the case. The government are currently reviewing this. Bad news for ltd companies.

That would kill off all the big corporates government are in bed with and trying to encourage.

Reply to the comment left by Neil Patterson at 23/03/2018 - 08:15
My understanding is that they are looking at small ltd companies (maybe private limited companies?); using 'look through' to use personal taxation rules on the owners rather than company taxation rules.
And applying that to all businesses, not just landlords.