What a loaded question. Does anyone really believe there is any benefit to having a house-sized amount of debt hanging over you? Well, you may be surprised. While being mortgage-free may be an end goal for many, you might not always be as bad off as you think having a mortgage. Let’s look at an example using buy-to-let (BTL) properties.
Buy-to-let mortgages
While a property investor may acquire a modest portfolio of two or three properties mortgage-free, perhaps partly due to capital growth in their first property along with rental income and maintaining a day job, therefore being able to buy small BTLs with cash, there is an opportunity missed by not remortgaging. Take an investor who owns three £200,000 properties (originally purchased for around £60,000) outright. If they were to remortgage each one to 75% loan-to-value (LTV), they may release £450,000 in equity[1]. This is enough to cover a 25% deposit on seven more properties at a value of around £200,000 each.
This means the investor in question would now own 10 properties, generating a significant amount more in rental income, not to mention capital growth year on year. Of course, this is putting it in very simple terms but for those aspiring property moguls who believe mortgages should be shunned, it demonstrates that it’s worth speaking to a mortgage adviser and considering all the options available.
Mortgage-free with Early repayments
For those who are lucky enough to acquire a lump sum that could go towards paying off their mortgage either partly or in its entirety, there may be some factors to consider carefully before doing this, however tempting it may be.
Firstly, check if you have any additional, more expensive debts that need paying off first, such as credit cards or unsecured loans. These types of borrowing may have much higher interest rates, which will cost you more in the long run.
If you haven’t got a pension set up that you pay into regularly but have received a recent windfall to invest, now would be a good time to get started; pensions are one of the most tax-efficient ways to save due to the government tax relief that they are topped up with[2].
Alternatively, you may wish to find a savings or investment product that offers a better rate of return than the rate you are being charged on your mortgage.
Next steps
Whatever your situation, it’s always advisable to speak to an expert. Our dedicated B Mortgage Services advisers can assist with any queries you may have about remortgaging, buy-to-lets or going mortgage-free.
