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  • FIRST POST
    • andy230uk
    • By andy230uk 15th Sep 17, 11:59 AM
    • 3Posts
    • 0Thanks
    andy230uk
    Can we get a buy to let mortgage to move into at a later date, and avoid stamp duty?
    • #1
    • 15th Sep 17, 11:59 AM
    Can we get a buy to let mortgage to move into at a later date, and avoid stamp duty? 15th Sep 17 at 11:59 AM
    Hi All,

    I own a flat in Leeds where my fianc!e and I live. We’re happy there for the immediate future but anticipate moving into the suburbs within the next 2 or 3 years.

    I’d like to keep hold of the flat and rent it out, and have calculated I can afford to do this. The issue is that we do not want to incur the extra 3% rate of stamp duty on a second home which I calculate to be £10,000 on a £250,000 property (as opposed to £2,500 if I didn’t own another property).

    The only solution I can see to the stamp duty issue is to avoid a joint mortgage and for my fianc!e to buy the second property on her own. I understand this would have to be done before we marry. I like to think it would be a ‘joint’ purchase for all intents and purposes with me sending her my half of the deposit and mortgage repayments. I appreciate the big downside here is that this is less legally sound than a joint mortgage and have had discussions with a solicitor about how to ensure both parties are protected.

    Since we don’t want to move just yet but would prefer to make the purchase before we marry (date TBA) to avoid stamp duty, we’re looking at getting a buy to let mortgage on a place that we’d like to live in further down the line. At the end of the initial buy-to-let mortgage term, we’ll switch it to a residential mortgage and move in. I’d then rent out the flat where we currently live. This could have the added advantage of buying a property soon, at a time where the prices seem to be rocketing.

    Is this a feasible plan if my fianc!e can get a buy to let mortgage on her own (she earns around £43,000 and we have a deposit of around £50,000)? Is it easy enough to switch mortgages from buy-to-let, to residential at the end of the mortgage term? Are there any flaws in our masterplan?

    Any help or advice would be much appreciated,

    Thanks,
Page 2
    • saajan_12
    • By saajan_12 15th Sep 17, 1:34 PM
    • 753 Posts
    • 492 Thanks
    saajan_12
    Research has many aspects, the legalities & responsibilities of being a Landlord are important but so is the financial viability, no rules on which order they're done (as long as before you actually take the plunge!)

    Tax evasion is doing illegal activities to hide from liabilities. This is tax avoidance at worst, which is perfectly legal.

    I agree technically fiance can buy property alone, without the 3% surcharge. When you marry, both properties will effectively be joint but there would NOT be a SDLT surcharge applied at this point. However I think you will face issues with

    1. Fiance getting a BTL mortgage with only 20% deposit and not already being a homeowner. This will reduce the pool of lenders, so she won't get the best interest rates.. so factor the extra interest in the costs compared to just paying the SDLT

    2. You'd likely have to declare your contribution to the deposit as a gift to satisfy mortgage lenders, but then have no protection to recover this if things go pear shaped between you.

    3. Few lenders will consider a gifted deposit from someone living in the property, so again smaller pool to choose from so higher interest paid.

    4. If you did get a lawyer to put in some agreement that you recover your contributions (unlikely) then you'd have a beneficial interest in the property.. which is enough to trigger the extra 3% SDLT. Then not paying it becomes tax evasion = illegal.
    • AdrianC
    • By AdrianC 15th Sep 17, 1:36 PM
    • 15,045 Posts
    • 13,368 Thanks
    AdrianC
    1. Fiance getting a BTL mortgage with only 20% deposit and not already being a homeowner. This will reduce the pool of lenders, so she won't get the best interest rates.. so factor the extra interest in the costs compared to just paying the SDLT
    Originally posted by saajan_12
    Oooh, I'd missed that %age. That's going to be a showstopper, I'd have thought.

    3. Few lenders will consider a gifted deposit from someone living in the property
    True, but they won't be living there - this is the BtL...
    • kingstreet
    • By kingstreet 15th Sep 17, 2:03 PM
    • 31,914 Posts
    • 17,058 Thanks
    kingstreet
    my fianc!e to buy the second property on her own
    Originally posted by andy230uk
    This all hinges on her being able to afford this on residential affordability terms.

    If she can't, it's a non-starter.

    Any lender willing to offer BTLs to non-homeowners tests affordability on a residential basis to make sure the applicant isn't buying s property to live-in while using the BTL affordability rules to "game" the system.

    TBH with many lenders (under the new PRA rules) insisting the rent must be 145% of the mortgage interest at an assumed rate of 5.5% per annum, the gap between residential and BTL affordability must be narrowing.
    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.
    • AdrianC
    • By AdrianC 15th Sep 17, 2:15 PM
    • 15,045 Posts
    • 13,368 Thanks
    AdrianC
    In fact, the more I think about the sums, the more I think the BtL mortgage for her alone is going to be a non-starter...

    80% LtV
    Not an existing property owner
    4.6x income

    What's the likely rent? Unless rent's over £1,500/mo, you're going to be struggling for 125%, based on 5% APR repayment.

    And is it even worth it?

    Let's say it's £1,500 rent. After basic rate tax, that's only £30/mo over the likely mortgage repayment. That's not a lot of headroom for costs. She's going to be damn near subsidising the tenants, and that's before any rate rises, voids, big bills...

    If we go for 145% at 5.5%, you'd need damn near £1,800/mo rent, although that does at least leave £200 clear between rent and repayment after tax, but before other costs. Assuming you self-manage. 10% management fee's going to take that straight back to pocket change.
    • cjdavies
    • By cjdavies 15th Sep 17, 2:15 PM
    • 2,567 Posts
    • 2,514 Thanks
    cjdavies
    Even these experienced landlords were new landlords once. Get a grip!
    Originally posted by dirtycredit
    Who did research first I assume and were not "accidental landlords".

    I'm not a landlord but only know some basics from being here, and would not consider as not worth the hassle and work involved.

    My mate is a landlord, he didn't protect deposit and flat was damaged, result: he had to return deposit.
    Last edited by cjdavies; 15-09-2017 at 2:19 PM.
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