Mortgage confusion?!?

B2_LNW

Hey guys,

My mind can't get my head around something, wondered if anyone on here can make sense of it.

Here goes;

We have a flat with:

Mortgage £104,000.
Value £125,000
Interest rate of 2.5%
Term 20 years

We have got consent to let on this property and it has a tenant currently paying £600 per month.

With regards to paying tax on this property I understand we can claim against the interest payments on the mortgage. This is where I'm confused, we have a repayment mortgage and not a buy to let. So with a buy to let can you claim against the whole payment?

Would there be any reason a BTL mortgage would be better for us?

Obviously the rate would be higher, so I assume not, unless it is better for claiming against for tax? Plus we would still be left with the whole payment to pay at the end so would need to save £5k+ a year. Obviously this could be earning interest... not sure whats best.

Not to great on the tax side of things. Not even fully sure I understand about claiming interest payments???:o

Any help would be greatly appreciated.

Thanks

dimbo61

You dont pay tax on the property you pay tax on the profit from renting out the property!
Now the interest only payment on £104K at 2.5% is £217 a month so anything over that is profit and you will pay tax on £600-£217= £383
You have consent to let and are still only paying 2.5% ?
Have you taken out landlords insurance?
Gas safety certificate,electric safety certificate, EPC , fire blanket,fire extinguisher ETC
I assume the 2.5% interest rate is the lenders SVR
You have at best 15/20% equity and might not even get a BTL mortgage as rates are higher and you also have fees of 2/2.5%

B2_LNW

Thanks for reply, I didn't explain it too well. I knew it wasn't tax on property but the payments.

Yes consent to let from Nationwide on their base rate. Luckily we got consent to let just before the new charges adding 1.5%.

What is confusing now is how it would work on a BTL, as the interest payment would be higher with a higher rate?

For example;

BTL mortgage rate is 5.75%
So interest payments per month will we higher(not sure how to work out amount?) Assume £450 just for arguments sake.

So now would I only pay tax on the £150 profit?

Does that make any sense?

If so would it be worth doing if I can get extra to make up 25% deposit.

Thanks in advance!

anselld

Why on earth would you want a more expensive mortgage just to pay less tax?
Would you take a pay cut in order to pay less tax?
You are very lucky with what you have got and doing just fine. Just make sure you only claim the interest element as expense.

Paul_the_Painter

Currently you are getting in
Rent £600/month

You are paying out
Mortgage interest - £216
Insurance/repairs/inspections etc. £75 (could probably make that £100)

So your net profit is £600-(£216+£75) = £308

If you are paying 40% tax, you end up with £185/month after tax

Of course you are also using some of that money to pay down the mortgage, so don't have it in your current account - but you will benefit down the line.

---

If you remortgage

Rent £600/month

You are paying out
Mortgage interest (5.75%) - £498/month
insurance/repairs/inspections - £75

So your net profit is £600 -(£498+£75) = £27

If you are paying 40% tax, you end with £16 in your current account


£185 x 12 = £2220/year
£16.20 x 12 = £194.40/year

It's your choice - but to remortgage would be stupid - you would essentially be taking money from your pocket - and the Tax mans pocket - and giving it to the bank instead,

dimbo61

You may only have consent to let for a MAX of 3 years so be aware of that information or read the paperwork from Nationwide!