2 houses - which one to mortgage?

johnny

Hi, I was hoping someone could help with the following.

Basically the housing market where we live was barmy and you could only get houses by going to closed bids. If you were in a chain you were on a losing street already but we didn't want to put ours on the market till we had a house lined up.

We were mortgage free in a 3 bed terrace but wanted a bigger house and the one we saw needed loads of work (turns out alot more then first expected). To buy it we borrowed from family expecting to be done in 6 months. However, the credit crunch started and we were unable to sell our other house to fund renovation so had to do most of the work and has taken 2 yrs.

We are ready to move in but still own our other house and owe family the money. With market the way it is we will rent out our old house. When the market picks uop we will try and sell it again. In the meantime we are going to get a mortgage to pay some of the money back to our family.

My question is what house should i get a mortgage on. Should we get a buy to let on the house we rent out (so the rent that covers the interest is tax free) but the interest rates are more and so are the initila charges. Also if mkt does pick up in 12-18 months and we sell we will transfer the mortgage to the house we live in (so it will need changing to residential mortgage which will incurr fees).

Or should we just take a normal repayment mortgage on the one we will live in and just take a hit on paying tax on the rent from the other one?

I plan to go to a financial advisor but htought I would ask here first as I'm not sure how independant the adviso would be (if it is commision based they might be quite keen on the buy to let route).

Thanks in advance

jon

johnny

any advice appreciated

getmore4less

I would mortgage the cheaper way

Get tax advice there should be a way to get tax relief up to the value of the rental at the time you start renting the place.

bordercars

im not a FA, but i do have some BTL's. my thoughts would be.
as rental income is taxable go for a BTL if its short term maybe interest only. independant really should mean that, and you will tell by the products they offer if they are tied, as to the advice of btl or main res mort as getmore suggested the cheaper option and again this would show in examples given.

unite79

Dont think you can offset the Interest only on this, as the rules say the sole purpose to offset has got to be the purchase of the property, which in this case is not - it is to repay family, however if you can show a very clear line beteen borrowing the money and the purchase you may be ok - If this line can be shown, it would not matter which property the mortgage was on, as it could still be offset against tax - My personal opinion though is that this will not be the case!