A number of threads on this site heve referred to people buying BTL properties as long-term investments with interest-only mortgages. In a significant number of these cases, the rental income does not cover the cost of the interest on the mortgage. When asked about the advisability of this, the response is invariably 'I'm in it for the long term -10-15 years'.
What I can't understand is how this could be a long-term investment. As far as I'm aware, interest only mortgages have to convert to regular repayment mortgages after a certain period. At that stage, the repayments would increase significantly and, given that the rental income is not covering the repayments now, it would imply that there would need to be a huge increase in rents in the next few years or else they would have to sell up and take the profit on capital gains. I can't see how this could be anything but a short-term investment.
Am I missing something here?
What I can't understand is how this could be a long-term investment. As far as I'm aware, interest only mortgages have to convert to regular repayment mortgages after a certain period. At that stage, the repayments would increase significantly and, given that the rental income is not covering the repayments now, it would imply that there would need to be a huge increase in rents in the next few years or else they would have to sell up and take the profit on capital gains. I can't see how this could be anything but a short-term investment.
Am I missing something here?