Repay BTL or home mortgage

saucerish

Hi All,
First post so be nice!

We have 2 mortgages: one on a BTL with Mortgage Express with c 100000 remaining over 15 years, on a repayment. This is now on a SVR of BBR + 1.5% for the term. We currently have enough rent to pay this and some...we may have to pay more than we are taking once rates rise. I think we would be very lucky to get another BTL mortgage at this deal although a fix would be nice.

The other is a offset tracket with First Direct on our home with 125000 remaining with 12 years to run, repayment as well. We are paying 0.5% over BBR on that.

We are on what I think is 2 very good deals but clearly will be exposed when rates rise.

The question: Should we overpay on the BTL now, even though we would lose tax relief on interest as the balance goes down (whild leaving our main mortgage at minimum repayments)...or should we overpay on main mortgage?

Meeper

I would do the calculations and see which one worked out the best option if I were you.....

It's purely a numbers game, no advice needed.

Leon_W

Neither in my opinion.

You should be able to get a better return on your money by putting your savings elsewhere.

The First Direct offset would be lunacy to overpay or even hold anything against it to "offset". The ME BTL is a closer run thing but you should be able to find something paying over 2%.

I don't know your tax position but BTLs on repayment mortgages generally don't make much sense.

CLAPTON

saucerish wrote: »

Hi All,
First post so be nice!




The question: Should we overpay on the BTL now, even though we would lose tax relief on interest as the balance goes down (whild leaving our main mortgage at minimum repayments)...or should we overpay on main mortgage?

you don't lose tax relief if you pay down the BTL mortgage; you can use the interest on your home loan to offset instead.

You can offset interest on capital up to the value of the property when first let out... it doesn't have to be secured on the BLT.

Wh05apk

Agree with leon here, you are paying 2% on btl, every £ you repay will increase the profit and tax on this as well, so I would look at cash isa's here, at least until rates change, then reconsider then.

Wh05apk

CLAPTON wrote: »

you don't lose tax relief if you pay down the BTL mortgage; you can use the interest on your home loan to offset instead.

You can offset interest on capital up to the value of the property when first let out... it doesn't have to be secured on the BLT.

Good point, it does not have to be secured on a BTL either!

saucerish

CLAPTON wrote: »

you don't lose tax relief if you pay down the BTL mortgage; you can use the interest on your home loan to offset instead.

You can offset interest on capital up to the value of the property when first let out... it doesn't have to be secured on the BLT.

Thanks for the quick responses!

Clapton, I'm not sure I understand what you are suggesting. When I do tax returns I set the interest paid over the year against profit (which is always a loss because of various costs). Are you saying that I can actually claim as if I have been on an interest only from the start rather than that based on a reducing capital debt?
I am a higher rate tax payer btw. Thanks:o

madeupname1

CLAPTON wrote: »

you don't lose tax relief if you pay down the BTL mortgage; you can use the interest on your home loan to offset instead.

You can offset interest on capital up to the value of the property when first let out... it doesn't have to be secured on the BLT.

Yes please explain further

CLAPTON

saucerish wrote: »

Thanks for the quick responses!

Clapton, I'm not sure I understand what you are suggesting. When I do tax returns I set the interest paid over the year against profit (which is always a loss because of various costs). Are you saying that I can actually claim as if I have been on an interest only from the start rather than that based on a reducing capital debt?
I am a higher rate tax payer btw. Thanks:o

lets say your BLT property was worth 130,000 when you first let it out

and lets say your BLT mortgage is now for 100,000
and you own home mortgage is for 80,000
then you can offset interest up to 130,000 against the BLT rental

as the BLT is repayment then although the interest will fall each year you can still offset interest from your home loan to make the total up to the interest on 130,000

Meeper

What he means is that if the property was worth £150,000 when you turned it into a Rental property, you can offset the interest on mortgages up to the value of £150,000 against the rental income, regardless of whether the mortgage is secured on the rental property or another one entirely.

So, in that example, you could have a £75,000 mortgage on the rental property at Base + 1.5% which costs £125 per month and £75,000 on your main residence at Base + 0.5% costing £62.50 per month, you can offset £187.50 against the rental income.

Hope that makes sense.

M

EDIT: Bah! He beat me to it!

Thrugelmir

Leon_W wrote: »

I don't know your tax position but BTLs on repayment mortgages generally don't make much sense.

In certain circumstances they do. As you need to generate cash (after tax profit) to repay the capital element of your mortgage.

Recent speculation has been based on capital appreciation alone which obviously wasn't sustainable in the longer term.