Bank of mum and dad may be planning for retirement or they may already be retired. History shows it is always worth including property as part of your investment portfolio, but many people approaching retirement believe that a buy-to-let portfolio is now beyond them. We sought advice from Sam Memour, founder of property specialists Century Home Services, who are helping several of our investors to grow their property portfolios.
Yes, absolutely. They can’t always borrow in the traditional sense with a typical high street mortgage, but there are still lots of options available to them.
Yes – but that doesn’t mean they’re operating under the arches somewhere. They are proper banks who are FCA regulated. The only real difference – because they are specialist products – is that most lenders will only lend through an intermediary. We have a strategic partnership with Eternity Home Finance, home finance specialists in this market.
Lifetime Mortgages, a form of equity release is the big one. It’s very different from how it used to be when you basically sold your home to a lender. It now works more like a traditional mortgage where you own your home and borrow against it. A Lifetime Mortgage typically comes with an interest rate fixed for life and you won’t need to make repayments. The interest is accrued and paid off when you die.
If you have a lot of equity tied up in your home – but very little income – a Lifetime Mortgage can allow you to release some of that equity to put down a deposit on an investment property. You can then get a buy-to-let mortgage to pay the rest. A lot of people think you can’t get a buy-to-let mortgage after 65 but you can now. Again, it’s more the specialist lenders than the high street. You don’t need to be working; they can assess you on the rental income.
If you go down the traditional buy to let route, because of the taxation changes [the phasing out of finance cost relief for individual landlords], you may not be able to get a loan-to-value of more than 50 to 60% in the south. It might be possible to get more up north as the yields are higher.
However, if you invest through a limited company [where finance costs are still an allowable expense], you can get much higher LTVs of up to 75-80%. This calendar year, everyone purchasing through us has purchased through a limited company.
Yes – but not just that. Limited companies started as a means for our clients to deduct all of their expenses, but when we had deeper conversations with our tax advisers we realised that there were other benefits too. For instance, you may be able to issue shares to your children to reduce your inheritance tax. But you can also do it whilst still having complete control over your money. Most parents will do anything for their kids, but you have to think of yourself and whether you’re going to have enough to get by. People also worry about what will happen to their money if they give it to their children too early or if their children’s marriage fails. A limited company can offer that level of security and flexibility.
You can’t always avoid capital gains tax but there are many ways where this could be possible. In most cases our clients are looking to avoid this entirely. At Century Home Services we believe that it is important that tax implications are carefully considered as part of the overall plan.
A lot of our clients want to build a portfolio to pass on to their children as a legacy. They want to enjoy an income whilst they’re alive but be able to pass on that income to the children when they no longer need it. Most of our clients won’t build a portfolio to then sell it. They build one to keep and pass on. Because of this, they’re thinking more about rental income and rental growth than capital growth.
It may sound like a cliché, but please ‘don’t try this at home’. It’s vital that you get expert advice to make sure any plans put in place are safe and secure with the appropriate level of protection. We work with strategic partners who ensure that the highest level of home finance, taxation and accountancy advice is provided.