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  • FIRST POST
    • ileven1225
    • By ileven1225 2nd Jan 18, 10:52 PM
    • 9Posts
    • 3Thanks
    ileven1225
    What type of mortgage I should apply for?
    • #1
    • 2nd Jan 18, 10:52 PM
    What type of mortgage I should apply for? 2nd Jan 18 at 10:52 PM
    Hi everyone,

    The question might be obvious to someone but is completely confusing me.

    I completely paid off a mortgage of my first property in CityA in July 2017 (well done!) and now am buying and applying a new mortgage for a 2nd property in CityB. The 1st property in CityA is curently being rented out to make some income for me. I am now living and renting a place in CityB. The 2nd property will be my residential property.

    My question is what type of mortgage i should apply? I have looked at different bank websites, buy-to-let, first time buyer, moving home, remortgage. I don't think any of those mortgage is suitable to my situation. Some websites have 2nd home mortgage which i think is most suitable. However, does it mean those major banks (natwest, halifax, HSBC, nationwide, santander) don't have any mortgage suitable to my situation? This can not be true.

    Can someone advise on the above please? Thank you!

    Dawei
Page 1
    • Slithery
    • By Slithery 2nd Jan 18, 11:05 PM
    • 500 Posts
    • 768 Thanks
    Slithery
    • #2
    • 2nd Jan 18, 11:05 PM
    • #2
    • 2nd Jan 18, 11:05 PM
    You just need a standard residential mortgage. Everyone does them.
    • 00ec25
    • By 00ec25 3rd Jan 18, 12:04 AM
    • 5,781 Posts
    • 5,227 Thanks
    00ec25
    • #3
    • 3rd Jan 18, 12:04 AM
    • #3
    • 3rd Jan 18, 12:04 AM
    you do not need a "second home" mortgage

    however, you do need to talk to your accountant about the most tax efficient way of funding the purchase of your new home in City B as the property in City A is now debt free and thus is being wasted given it is let

    find an accountant who understands about "withdrawing capital from a business" and the market value rule for let properties. Then look at a BTL (or in true technical terms a Let to Buy) mortgage on A and, if needed to top up your purchase fund, a simple residential mortgage on B
    https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45700

    you need to compare the higher costs of a BTL mortgage versus a residential mortgage to the amount of money you will be paying in interest compared to the taxable net profits you will have left on the City A letting if you get your debt structures correct for tax efficiency purposes
    Last edited by 00ec25; 03-01-2018 at 1:17 AM.
    • AdrianC
    • By AdrianC 3rd Jan 18, 9:01 AM
    • 16,105 Posts
    • 14,398 Thanks
    AdrianC
    • #4
    • 3rd Jan 18, 9:01 AM
    • #4
    • 3rd Jan 18, 9:01 AM
    Don't forget you're paying the +3% SDLT on the place you're buying...
    • ileven1225
    • By ileven1225 3rd Jan 18, 10:33 AM
    • 9 Posts
    • 3 Thanks
    ileven1225
    • #5
    • 3rd Jan 18, 10:33 AM
    • #5
    • 3rd Jan 18, 10:33 AM
    Don't forget you're paying the +3% SDLT on the place you're buying...
    Originally posted by AdrianC

    Yes, it is my 2nd property and there is no way I could reduce it.
    • ileven1225
    • By ileven1225 3rd Jan 18, 11:03 AM
    • 9 Posts
    • 3 Thanks
    ileven1225
    • #6
    • 3rd Jan 18, 11:03 AM
    • #6
    • 3rd Jan 18, 11:03 AM
    you do not need a "second home" mortgage

    however, you do need to talk to your accountant about the most tax efficient way of funding the purchase of your new home in City B as the property in City A is now debt free and thus is being wasted given it is let

    find an accountant who understands about "withdrawing capital from a business" and the market value rule for let properties. Then look at a BTL (or in true technical terms a Let to Buy) mortgage on A and, if needed to top up your purchase fund, a simple residential mortgage on B


    you need to compare the higher costs of a BTL mortgage versus a residential mortgage to the amount of money you will be paying in interest compared to the taxable net profits you will have left on the City A letting if you get your debt structures correct for tax efficiency purposes
    Originally posted by 00ec25

    Thank you and I have never thought of buy to let (BTL) mortgage. I probably need some more guidance from you to understand fully what you suggested. I am new to this kind of investment, so sorry to ask obvious questions.


    From what you just said,
    1) I could either apply for a normal residential mortgage to purchase the CityB property. I need to pay cash deposit from my bank account to the mortgage lender. This is the same way I did to mortgage my first property CityA.
    2) Alternatively, I could apply for a buy to let (BTL) mortgage using the CityA property (currently debt free). The obtained mortgage from CityA property will be used to purchase CityB. If the mortgage is less than the price of CityB, I need to pay some cash to make up the full amount.


    The 2nd method will help reduce the income tax for renting out the CityA property as the taxable rental income will be the gross rental income minus the mortgage on CityA (currently mortgage is zero). However, the use of the buy-to-let mortgage of CityA could be less profitable if the interest rate was high. Therefore, the decision will be based on the interest of a mortgage (either BTL or residential) and taxable rental income (BTL will reduce taxable rental income, residential won't)


    Please let me know if I am correct or completely misunderstood what you suggested.


    Thank you!
    Dawei
    • Crashy Time
    • By Crashy Time 3rd Jan 18, 11:54 AM
    • 5,380 Posts
    • 2,236 Thanks
    Crashy Time
    • #7
    • 3rd Jan 18, 11:54 AM
    • #7
    • 3rd Jan 18, 11:54 AM
    https://www.uswitch.com/mortgages/guides/mortgage-market-review/
    • Badegg
    • By Badegg 3rd Jan 18, 6:45 PM
    • 6 Posts
    • 0 Thanks
    Badegg
    • #8
    • 3rd Jan 18, 6:45 PM
    • #8
    • 3rd Jan 18, 6:45 PM
    Currently in slightly similar position. Own a 50% share of a BTL flat bought with cash worth maybe 320k and earning 1.3k monthly total

    Looking to buy flat to live in. Current salary means I can probably raise around 270-300k mortgage.

    Is it best to finance eg 100k of this via a BTL mortgage on existing flat and then use the 20% tax credit?

    I'm looking at ideally fixed 5yr + deals and both residential and BTL come out at around 2.5 % so seems that I can save roughly 1.2k a minimum per year in tax like this (500x12x20% on BTL mortgage offset)

    Thanks!
    • dimbo61
    • By dimbo61 4th Jan 18, 7:34 PM
    • 9,647 Posts
    • 5,207 Thanks
    dimbo61
    • #9
    • 4th Jan 18, 7:34 PM
    • #9
    • 4th Jan 18, 7:34 PM
    This is complex and you should talk to an accountant really who deals in BTL.
    I think ! you can offset the whole of the original purchase price ( BTL mortgage ) against tax.
    Example you paid £150,000 for the property 10 years ago. Property now worth £250,000.
    Lender happy to lend you £150K BTL mortgage on the property as the figures stack up ( rent, yield etc )
    You put the £150K towards your new property.
    I may well be wrong ! So speak to an accountant and maybe local letting agents to see what your property could rent for
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