Rental income and mortgage payments

Cekim

Hi all, first post so here goes…

I’m after some info on the whole rental income and mortgage interest thing.

I’ve bought a new house and will be renting out my old one. I’ve re-mortgaged my old house in order to draw out some of the money wrapped up in it but not to the full value of the house; the house is worth £200k and I’ve re-mortgaged for just £150k.

I’ve used this as a deposit on the new house but have also taken out a mortgage on the new house to make up the rest; new house is worth £350k so less the £150k deposit means a mortgage of £200k.

I know I can offset the rental income against the interest on the payments for the re-mortgage on the old place but since I’ve not drawn out all of the money wrapped up in the old house, there’s another £50k in there, as I see it I’ve effectively loaned the “business” that £50k and I’m paying interest on it. Can I also offset the interest on that £50k against the rental income?

Hope that makes sense…

From what I've read in a couple of other post it would seem I can but I just thought I'd verify it.

Thanks,
Mike

Alan_M_2

Fundamentally I don't think it matters where the money is rasied, it's what it's being used for.

Also you can only offset the rent against the interest part of the mortgage.

ie if the rental income is £1500 per month and your mortgage is £1350 per month (made up of £1000 interest and £350 capital repayment) you can only offsett the £1000 and you'll pay tax on the remaining £500.

Obviously this is very simllyfied, as maintainance etc can be offset, but I'm not sure if improvements can.

Bottom line is, with the sums involved get an accountant it will be worth while in the long run.

silvercar

it is the purpose of the loan, not where (or if) it is secured that counts. The limit is the value of the property when it started being a rental business.

In your case you have the interest on the £150k mortgage on the property plus interest on £50k of your home loan.

dealornodeal_3

Cekim wrote:

Hi all, first post so here goes…

I’m after some info on the whole rental income and mortgage interest thing.

I’ve bought a new house and will be renting out my old one. I’ve re-mortgaged my old house in order to draw out some of the money wrapped up in it but not to the full value of the house; the house is worth £200k and I’ve re-mortgaged for just £150k.

I’ve used this as a deposit on the new house but have also taken out a mortgage on the new house to make up the rest; new house is worth £350k so less the £150k deposit means a mortgage of £200k.

I know I can offset the rental income against the interest on the payments for the re-mortgage on the old place but since I’ve not drawn out all of the money wrapped up in the old house, there’s another £50k in there, as I see it I’ve effectively loaned the “business” that £50k and I’m paying interest on it. Can I also offset the interest on that £50k against the rental income?

Hope that makes sense…

From what I've read in a couple of other post it would seem I can but I just thought I'd verify it.

Thanks,
Mike

Just take into consideration that not to rely solely on the tenants rent when letting. They could fall behind with their rent, because they have lost their job or refuse to pay. And you could have court cases that lasts for months and damage to the property! However much you or your agent have screened them for references!

Also consideration for bills for your second property.

If you are on a tight Budget my advice is to leave it!

Cekim

Thanks all for the replies, it's as I thought which is good

I'll be getting in touch with an accountant so things should be confirmed officially as such.