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BTL - Residential mortgage to fund or a BTL Mortgage - Which is best?

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JulieBirdLeicester
JulieBirdLeicester Posts: 6 Forumite
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edited 17 March 2017 at 9:29PM in House buying, renting & selling
Hia, all ,... I have spent hours on google in regard to this. I have also checked the /Gov.UK website and their answers are rubbish :-(

I am looking to buy a rental property and have the ability to either raise the funds on my own primary property as a residential mortgage or to get a traditional BTL mortgage.

My mortgage adviser said to get a BTL mortgage because the advantage is that if things go wrong then this will be the first house they re-possess and not my home

However... I am worried about this because if future governments/budgets decide to raise interest rates they will do it on BTL first and not residential, so longer term it is safer? And also BTL mortgages are not covered by the FCA, is this important though?

MY MAIN QUESTION HERE HOWEVER, is whether I can claim tax relief on the interest of a residential mortgage on my own property if it was taken out to buy a rental property? Or can you only claim tax relief on a rental property if it has an official BTL mortgage taken out against it 'directly'? This would of course be the clincher in whether I take out a resi or a BTL mortgage.

I hope this makes sense!

Many thanks, Julie

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  • cyantist
    cyantist Posts: 560 Forumite
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    JulieBirdLeicester wrote: »
    MY MAIN QUESTION HERE HOWEVER, is whether I can claim tax relief on the interest of a residential mortgage on my own property if it was taken out to buy a rental property? Or can you only claim tax relief on a rental property if it has an official BTL mortgage taken out against it 'directly'? This would of course be the clincher in whether I take out a resi or a BTL mortgage.

    I hope this makes sense!

    Many thanks, Julie

    No you can't. You can only claim tax relief for a mortgage that is actually on the rental property.

    What would the difference be between interest rates on your residential mortgage compared to a new BTL one?

    My BTL mortgage rate is way cheaper than my residential one, but I know this isn't normally the case and obviously there's no point paying 60% more interest just so you can save 20% in tax on the interest payments
  • Pixie5740
    Pixie5740 Posts: 14,515 Forumite
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    I don't think the above is correct. I don't think it matters how you fund the BTL as you can treat the cost of borrowing the money (i.e. the interest) as a business expense regardless of where the money comes from.
  • G_M
    G_M Posts: 51,977 Forumite
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    edited 17 March 2017 at 10:05PM
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    cyantist is wrong.

    You can claim relief on any mortgage that is used to fund the business. So yes, raise the money on your residential mortgage (which will be cheaper).

    However you need to look at the new tax laws coming in - eventually there will be no tax relief whether the money was raised on the let property, or the residential one.
  • anselld
    anselld Posts: 8,281 Forumite
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    G_M wrote: »
    cyantist is wrong.
    completely!

    G_M wrote: »
    However you need to look at the new tax laws coming in - eventually there will be no tax relief whether the money was raised on the let property, or the residential one.

    That may eventually be the case but that is not what has been announced so far. The current changes only limit tax relief to 20%, so still full relief for standard rate payers and partial relief for higher rate payers.
  • kingstreet
    kingstreet Posts: 38,766 Forumite
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    You'll only get a BTL mortgage upto perhaps 75% of the purchase price, or lower, depending on the rental income cover calculation.

    What's the source of the deposit?

    If you have to raise that on the residential, you might as well raise the lot as you will then have one mortgage for which you can treat the interest as an allowable expense on upto 100% of the purchase price of the let property regardless of the property on which the loan is secured.

    Do you have sufficient income to raise the new residential and can you manage void periods when you may have no tenant?

    Finally, remember there is an extra 3% stamp duty to pay on BTLs and second properties.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • dimbo61
    dimbo61 Posts: 13,716 Forumite
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    Hi Julie,
    If you get a 5 year fixed rate Mortgage on your residential property or a BTL Mortgage fixed for 5 years you do not have to worry about Interest rates for the next 5 years.
    I talk about 5 year deals as they are easier to get under new rules.
    If you are Mortgage free or have a small Mortgage left on your home and plenty of equity in your home you may find a lender who will give you a larger mortgage to buy a BTL property.
    You need a business plan !
    How much local properties rent for ? Rental market, yield etc
  • teddysmum
    teddysmum Posts: 9,471 Forumite
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    As someone who appears to know little about being a landlord, I suggest you read the new thread, on here,by someone with experience. He points out that there can be little or even no profit on your investment.
  • anselld
    anselld Posts: 8,281 Forumite
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    teddysmum wrote: »
    As someone who appears to know little about being a landlord, I suggest you read the new thread, on here,by someone with experience. He points out that there can be little or even no profit on your investment.

    If you mean this one ...
    http://forums.moneysavingexpert.com/showthread.php?t=5621481
    ... I would suggest you read again because that is not what the OP wrote. Indeed the OP just bought another investment property.

    If you mean another one then perhaps you could link it.
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