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    • Maddi
    • By Maddi 30th Sep 17, 9:23 AM
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    Maddi
    Should we consolidate mortgages?
    • #1
    • 30th Sep 17, 9:23 AM
    Should we consolidate mortgages? 30th Sep 17 at 9:23 AM
    Hi I am looking for some advice. We are looking to buy a new house and we have our flat on the market. We are in Scotland. We already have some deposit money from the sale of my property and we were hoping to gain more deposit money from the sale of my husbands property, which had been rented out. We have been approved for a new mortgage. Here comes my dilemma as the property has not sold and we would like to move. There is about £35000 still to pay on it. We could have the option of keeping the flat on a buy to let mortgage or should be take out the max mortgage offered to us and pay the flat off and use the rental to help pay our new mortgage, therefore only having one mortgage rather than two separate ones? I am aware that unfortunately we would get stung with the LBTT tax on a second home, however we would have an investment in property for the future. So one mortgage or two? Thank you
Page 1
    • agrinnall
    • By agrinnall 30th Sep 17, 9:30 AM
    • 18,698 Posts
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    agrinnall
    • #2
    • 30th Sep 17, 9:30 AM
    • #2
    • 30th Sep 17, 9:30 AM
    I can't comment on whether it's better to have one or two mortgages, but the first question to ask yourself is do I want to run a letting business? If you do, then keeping the flat to rent out is an option for you, if not then sell it and put the money towards the new property.
    • 00ec25
    • By 00ec25 30th Sep 17, 9:55 AM
    • 5,555 Posts
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    00ec25
    • #3
    • 30th Sep 17, 9:55 AM
    • #3
    • 30th Sep 17, 9:55 AM
    i agree with the above, you are asking the wrong question

    you should be asking yourselves what is the best investment from both a capital growth and tax efficiency perspective. Also do you want to run a lettings business if you do retain the husband's property as a BTL

    there is no point taking out a residential mortgage on the new property if you could fund the purchase of that by instead maxing the mortgage on the rental flat (combined with your deposit) as that would mean you retain the tax efficiency of the loan against the rental income. You can't offset the interest on a residential mortgage against the rental income.
    • ViolaLass
    • By ViolaLass 30th Sep 17, 10:09 AM
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    ViolaLass
    • #4
    • 30th Sep 17, 10:09 AM
    • #4
    • 30th Sep 17, 10:09 AM

    there is no point taking out a residential mortgage on the new property if you could fund the purchase of that by instead maxing the mortgage on the rental flat (combined with your deposit) as that would mean you retain the tax efficiency of the loan against the rental income. You can't offset the interest on a residential mortgage against the rental income.
    Originally posted by 00ec25
    That's not an absolute truth, it depends what the two interest rates are.
    • ProDave
    • By ProDave 30th Sep 17, 10:45 AM
    • 443 Posts
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    ProDave
    • #5
    • 30th Sep 17, 10:45 AM
    • #5
    • 30th Sep 17, 10:45 AM
    Another vote to absolutely maximise the mortgage on the rental property so the interest is a legitimate expense to offset the tax liability (check the new rules I am not up to speed with the changes)

    Then the very minimum mortgage you need for your own property, ideally none at all.
    • AlexMac
    • By AlexMac 30th Sep 17, 11:18 AM
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    AlexMac
    • #6
    • 30th Sep 17, 11:18 AM
    • #6
    • 30th Sep 17, 11:18 AM
    Also depends on what yield or % return you'd get from rental income, which in turn depends on the value of property- versus- rent levels and demand locally for rented property?

    There's also the question of long term capital growth, which needs a crystal ball; the flat I bought in 1997 has performed stunningly in terms of capital appreciation; 600% increase in 20 years, and the one I then bought in late 2010 has done pretty well too; 80% in six years...

    but that was partly a matter of luck, location and timing, and ain't going to happen again, or at least in the next few years, as prices round here have flattened.

    And a holiday flat we bought in 2007 almost lost money - when prices dropped 20% in 2007-08 (luckily we'd bought a wreck to do up ourselves, but it would have been a bad business choice; partly becuase it was in an area where there had been the loss of a dominant local employer. So wages, and consequently rents and house prices were low; so it's all back to location?)

    On the upside, if your flat is in an area which is on the up, having a biggish mortgage will force you to keep investing in property, even if money is tight or you have a period with no tenents;or one who doeasn't pay; which is a kind of enforced long-term saving.
    • Maddi
    • By Maddi 30th Sep 17, 12:47 PM
    • 4 Posts
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    Maddi
    • #7
    • 30th Sep 17, 12:47 PM
    • #7
    • 30th Sep 17, 12:47 PM
    I was possibly thinking that the flat would be an investment for the future. There has always been tenants up until we decided to put it on the market . We would have to take the 2nd property hit on the tax if we decide to do this , but this option would allow us to move house quicker. Difficult decisions.
    • getmore4less
    • By getmore4less 30th Sep 17, 2:47 PM
    • 30,763 Posts
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    getmore4less
    • #8
    • 30th Sep 17, 2:47 PM
    • #8
    • 30th Sep 17, 2:47 PM
    where will the LTV sit for each level of borrowing.

    Sell and put all the money towards the new place.
    Don't sell and keep the current BTL mortgage.
    max out the new mortgage and pay off the BTL.

    and the 4th option max out the BTL and use that towards the new place

    You then have the rates and the net rate on the BTL after relief.

    What's the yield on the BTL that could swing the decision

    If prices are getting toppy and the exit yield is low might be time to cash in.


    Crashy will be along to say sell the lot and rent yourself.
    • saajan_12
    • By saajan_12 2nd Oct 17, 12:48 PM
    • 995 Posts
    • 671 Thanks
    saajan_12
    • #9
    • 2nd Oct 17, 12:48 PM
    • #9
    • 2nd Oct 17, 12:48 PM
    There's no absolute answer for the optimal number of mortgages. You need to consider the mortgage interest rate available for each of your options, accounting for

    (1) any new applications / remortgages may involve additional survey / application fees

    (2) BTL mortgage interest rates usually higher but you get tax relief on the interest portion (capped at 35% this year and gradually down to 20% from 2020 on)

    (3) higher interest rate for mortgage with higher LTV (ie larger loan relative to the property value so e.g. all else being equal, you'd likely pay a higher interest rate on a 90% mortgage on one property and nothing on anohter compared to two 45% mortgages on two properties. However balance this with the additional application fee for two mortgages. )

    (4) BTL mortgages are often available as interest only, meaning lower monthly payments if you need the cash flow, but note the balance would never decrease and still need repaying at the end.
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