How much deposit to put down?

David_Mee

Following my recent divorce I am now looking to buy a house. I have £50k to use as deposit. I have had an offer accepted on a house for £165k.

I am looking to live in the house but in about 12 months time I will be looking to rent it. At the moment similar properties are going for £700 a month rental. Letting agents fees 10% leaving £630

So.....

Do I whack the full 50k off the mortgage giving me interest only payments of about 530 a month or do I go for £130k of mortgage with payments of 630 a month and bank the 15k?

I know I will be taxed on the £100 "profit" the rental will make me but also I will pay tax on the interest on the 15k.

So..... any ideas??

Paul_Herring

When you say 'rent' is this you moving out to rent the whole house, or renting out a room?

0james0

As a general rule the best rates come in when you have a 25% deposit. Get your broker to try a few different scenarios to see what difference it makes. 25% on that price is £41,250.

Normally there is no difference in rate between say at 20% and 25% deposit, just cost more as you have borrowed more.

Don't forget on any profit you make from renting it can be offset against some expenses.

Also, make sure the lender you choose is ok with you renting the property and keeping your existing rate. Most are, but worth asking the question now rather than when it's too late.

Paul_Herring

Also, make sure the lender you choose is ok with you renting the property and keeping your existing rate

I thought this was only an issue if the mortgage turned from a personal one into a buy-to-let one (hence my question above.)

I thought things such as 'rent-a-room' wouldn't have affected it at all.

David_Mee

I will be renting out whole house.

Broker has found Northern Rock have just introduced a personal mortgage, fixed for 5 years, that can switch to buy-to-let, and is offset - being self employed I like offsets to dump tax savings etc in and rate @ 5.69 is cheaper than a bog standard fixed!

So... I can get mortgage @ 75% then put rest of 50k and all my other savings (should I put ISA's in too?) and then if I want to tweak rental earnings to cost of mortgage I withdraw the cash until they match?

Sound OK?

0james0

David_Mee wrote: »

I will be renting out whole house.

Broker has found Northern Rock have just introduced a personal mortgage, fixed for 5 years, that can switch to buy-to-let, and is offset - being self employed I like offsets to dump tax savings etc in and rate @ 5.69 is cheaper than a bog standard fixed!

So... I can get mortgage @ 75% then put rest of 50k and all my other savings (should I put ISA's in too?) and then if I want to tweak rental earnings to cost of mortgage I withdraw the cash until they match?

Sound OK?

Sounds good. You'll need to get "consent to lease" from N Rock when you move out but that is no problem at 75% LTV.

When deciding what savings to put in you need to work out what interest rate you will get net, so after tax has been deducted. If that is lower than your mortgage then the money is better off saving you interest on your mortgage rather than earning it. ISA's are normally the exception to the rule as you pay no tax on them. Depends on what rate you are getting on it.

David_Mee

They have already agreed to the "consent to lease"

If I understand correctly - I effectively "earn" 5.69% tax free on any monies saved in the offset? So If I am getting 6% in ISA it might as well stay there but everything else needs to be earning 7.12% (5.69 + 25%) to beat bunging money into mortgage?

0james0

David_Mee wrote: »

They have already agreed to the "consent to lease"

If I understand correctly - I effectively "earn" 5.69% tax free on any monies saved in the offset? So If I am getting 6% in ISA it might as well stay there but everything else needs to be earning 7.12% (5.69 + 25%) to beat bunging money into mortgage?

Yeah, exactly. Interest on savings is only 20% though.

Does depend on how they calculate the interest, things like if its annual or daily interest but thats a whole different story...... they are prob both daily, I know N Rock is.

David_Mee

Thought you got taxed at your highest rate on savings?? so 40% or 25%??

0james0

yeah you do so deduct 40% if you are a higher rate tax payer