Illustration: We assume that at some time in the past, you acquired your buy to let property at £200,000 and had also taken a buy to let mortgage at £175,000. Now imagine that the property and the rent have both increased by 50 percent over time such that your property is now worth £250,000 and you still have £175,000 in owe to your interest only mortgage. Yow will have three options open to you as follows:
Keep the property and continue enjoying the profits you are currently gaining on your rent
Sell the property: Which will give you £175,000 less in costs. By selling the property you will get a capital gain which will attract a flat rate of 18 percent (if you are not eligible for tax relief)
You can remortgage the property: Considering that the property and rent have all risen, you can increase the mortgage by the same rate to release the equivalent equity and let the rent continue to pay for the additional mortgage. The advantage here is that you have not realized any capital gain, meaning you will not be exposed to any tax. Remember you still own the property since you have not sold it, thus letting you keep it long enough to cash on it once more.
At the moment (as of June 2010), there has been a witnessed fall in Buy to Let Remortgages. In fact, for the first quarter of 2010, the Buy To Let remortgages represented 28 percent which was a slow down from the 30 percent figure in the fourth quarter of 2009. The explanation for the decrease could be the lack of attraction for landlords to move from the standard variable rates of their banks given the low base rate. In addition, the amount of buy to let products has gone down to approximately 300 from a high of 3500, implying very limited options to choose from. A positive change in the base rate will ultimately get things moving and landlords can still expect the platform to get off the ground.
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