Many people are quite fond of the idea of creating a property portfolio to fund their retirement.
Not everybody necessarily likes a pension plan, but they do understand their property. I know that over the past 20 or 30 years it has been a sound long term investment despite both the ups and the downs.
In this case study, we look at one way we helped a client in taking her very first steps on the road to becoming a landlord with a buy to let mortgage in Nottingham.
Penelope is a self-employed mum of two, working as a Director of two small businesses in Nottingham. She and her partner had a rather sizable amount of equity in their home and were interested in raising some capital to buy a low value buy to let property, possibly at an auction.
Penelope felt she would be able to find a few bargains at auctions, but she never had enough money to attend and make a purchase as a cash buyer.
She had looked into remortgaging her own house in Nottingham in order to achieve this, but had been advised that unless they could provide an address for the property they wanted to purchase, this would not be possible. A chicken and egg scenario, where neither can exist without the other.
Penelope also mentioned that once or twice a year, she received a dividend in the region of £3000 from one of the companies she was a sleeping partner in, and she has been prone to splashing some of that cash for luxury, without perhaps giving it some thought.
I could tell that Penelope was a very busy person but also an astute businesswoman. The dividends she received could be put to better use, especially as she had never particularly earmarked it for anything specific.
I recommended that she take out an offset remortgage in Nottingham, that Penelope and her partner secured on their home.
I found a lender who was happy to release the funds needed on completion, to be assigned to a future buy to let purchase without insisting on a specific property, giving them the opportunity they were looking for.
Penelope simply deposited the additional funds into the offset savings account that comes as part of the mortgage, and the money was left to simply sit there until it was needed.
The offset savings accounts do not attract interest but instead is offset against the mortgage balance.
To clarify, Penelope had £85,000 surplus funds from a total remortgage of £215,000. While the money is in the savings account, Penelope only pays mortgage interest on the £130,000 difference between the two figures.
The £85,000 is on instant access and is available at any point in time when she needs it.
Three months after completion, Penelope identified a suitable property that was in need of some desperate work. It was probably not mortgageable itself, but of course, Penelope had access to liquid funds to make the purchase as a cash buyer.
Penelope secured the property at a knock-down price of £55,000, but this amount needed to rise to a total of £70,000 to fund legal costs and a refurbishment program of works.
After an additional 9 months of work, with everything that needed to be done now completed, Penelope found it fairly easy to find a tenant. The house was now worth £90,000, and we raised a remortgage of £67,500 against it to fund the purchase of property number two.
Penelope had no initial intention of becoming a full-time landlord, but she can now see a way forward to owning three or maybe even four properties in the future, helping to fund her and her partners planned retirement lifestyle.
She loves the flexibility that her offset mortgage brings, having the freedom to spend some of it as she sees’ fit (which she can do!), yet without fail, half of it is deposited back into her offset savings account. This allows her money to work “for her”, in reducing the total amount of interest repayable.
If you are interested in offset mortgages or building your investment property portfolio, please feel free to book your free mortgage appointment today, and our remortgage advisors in Nottingham will be happy to assist you.