Renting my flat - Mortgage Advice

Cassidyi

Hi last year I rented out my flat which I had lived in for 5yrs to a family member and bought another property for me to live in.

The rent I get for the flat is £450 and the mortage fixed until 2012 with Nationwide is £442.

I think what im looking for is advice on how best to manage this property the rental income hardly covers the mortgage and theres maintainence and insurance costs that I pay in addition to this.

I was in two minds whether or not to place the property up for sale but I have just aggreed a minimum 6 term let to another family member at £425 / month.

I am coping with the situation of having two mortages but was wondering if an interest only mortgage would be a solution and if this would be recommended or not for my situation.

I dont know a lot about interest only mortgages but I have an idea that the unpaid capital has to be paid back towards the end of the term I do have a sharesave out in 5yrs which will be a minimum of £14,000 so I guess this could be a possibilty.

Many thanks for any ideas

Ian

poppysarah

Do you have permission to let and persmission to let to a family member from
(a) your mortgage company
(b) your insurance company

Sell the place.

RedSoleShoes

From people I have spoken to, an interest-only mortgage generally only offers a slight reduction and is not ususally worth the long-term hassle.

<sebb>

You can only claim tax relief on the interest portion of your mortgage and for expenses of letting the flat. Are you're declaring the rest to the HMRC?

For that (and other) reasons, it generally makes sense to have the BTL mortgage as interest only and use any excess money pay off your own residential mortgage quicker.

G_M

Have you complied with the multitude of regulations relating to letting property?
Gas Safety certificate?
All furnishing fire resistant?
Electrical safety?
Permissions?
Tax
etc etc

Yes, the point about interest only mortgages is that you pay interest for (25 - whatever) years, but then have to pay back the capital yourself at the end.

There are tax advantages to interst only though.
Justy because it's a family member does not mean you don't have to comply!

Cassidyi

I have permission to let from my mortgage provider and the insurance for the building is a multi occupancy one and I have it in writing that the letting of the property is allowed.

Cassidyi

The flat is unfurnished and has a fire detection system and fire doors. For tax purposes I have to notify HMRC then?

Does anybody know how I go about this does anyone know what sort of tax I will pay for renting my place out?

scottishblondie

Tax on Rental Income - An Overview

DirectGov Website

Jowo_2

Don't forget how Capital Gains tax kicks and that your exposure to it will be based on the 3 years prior to its sale.

Off the top of my head (and you will need to check this), if you haven't lived in it for 3+ years and then sell it, the tax man is due 18% of the gain between purchase and sale, after the 10k exempt amount and the cost of the improvements have been taken into account.

Don't just take a short-term view of the rental expenses and income, get to grips with your potential exposure to CGT - how much will you have to cough up to the taxman once you've lost your initial 3 years private residence relief has been lost?

As it stands, it looks like you are not making any kind of profit from the rental or are virtually subsidising your relatives (should the repair bills/tax bill be high) and then stand to lose a chunk of the equity to the taxman if you continue doing this for a few years.

Cassidyi

I havent lived in the property for almost 12 months and do not make any profit from the rental income and pay my portion of the buildings insurance and ground rent and maintaince totaling around £550 a year.

I need to do some low value maintaince repairs to the flat ie painting and things like that from the comments and advice here is my best option to sell the place?

sindygirl58

G_M wrote: »

Have you complied with the multitude of regulations relating to letting property?
Gas Safety certificate?
All furnishing fire resistant?
Electrical safety?
Permissions?
Tax
etc etc

Yes, the point about interest only mortgages is that you pay interest for (25 - whatever) years, but then have to pay back the capital yourself at the end.

There are tax advantages to interst only though.
Justy because it's a family member does not mean you don't have to comply!

why are you implying that she is not complying? that had nothing to do with her question.

you pay back the capital from what you make on the house sale.
you wont pay tax on rental income as you are not making a profit.
Keep it, let it out to someone you have no ties with and increase the rent.

See a specialist buy to let mortgage advisor for quotes and advice.
you seem to be perhaps fixed in at a hight rate? My deal finished last year and my BTL mortgage is 2.9%, variable rate.