Repayment or Interst Only Mortgage ?

1jacks64

I am looking to buy a house and rent it out. I am going to take out a buy to let mortgage to do this. What I would like to know is, is it better to have an interest only or a repayment mortgage from a tax point of view?

I understand that you can rent out a house and claim tax relief on your tax return for the interest that you pay on your mortgage. My father told me that you can only claim tax relief on the interst on your mortgage only if the mortgage is on an interst only basis. Can anyone confirm whether my father is right or wrong on this? and could anyone confirm if there are any tax implications to having an interest only or repayment mortgage or whether it makes no difference from the tax man's point of view.

(I am a PAYE basic rate tax payer if this makes any difference and i do not complete tax returns currently.)

BobProperty

You get the tax relief on the interest so it doesn't matter repayment or IO as far as the tax is concerned.

As far as why you are worrying about it, that's a whole new ball game as they say.

A_Nice_Englishman

There are far more important things to worry about than this if you are thinking aout starting a property rental business, particularly one financed with borrowed money.

Do void periods, bad debts, repairs, redecoration, legal fees,insurance, agents fees, costs of evicting bad tenants, possible (likely?) rises in interest rates and possible falls in property values figure in your business plan?

F_T_Buyer

The smaller the mortgage, the less tax interest payments you can offset against the tax. So, you have an option of pocketing the rent before paying down the mortgage.

But then again, will the rent be higher than an interest only mortgage? The statistics say not for new entrants.