Mortgage Dilemna

freddykrueger

Hope this is the right forum area to post this in

I currently have a mortgage that has around £42,000 outstanding on it with just over 10 years left - saying that the payments should be £427 but I am currently paying £850 per month into this mortgage to try and reduce the term. I am on a tracker rate at 2.64% until September.

The thing is we need to move house and have identified a couple around the £125,000 mark that we are interested in but the houses around us are not selling at all but it is a strong rental market. Therefore we have been looking at letting this and buying an additional property.

If we ploughed all our savings into the current mortgage we could nearly pay it off which would leave it free and clear but would leave us no money for a deposit. However it would be good as any rental income would be free and clear etc.

The other option is just to change it to buy to let and then effectively have 2 mortgages, one of which would hopefully be covered by rental income.

I have been mulling this over in my head trying to figure out the most sensible way to do this but I just can't decide the best option so would really appreciate any advice/guidance that anyone has :beer:

TrickyDicky101

Bear in mind you have to pay tax on rental profits so it would be in your best interests to minimize your rental profits by expensing as much interest as possible against this rental income. It is harder (but not impossible) to do this if the property you rent out isn't the one with a mortgage against it.

freddykrueger

TrickyDicky101 wrote: »

Bear in mind you have to pay tax on rental profits so it would be in your best interests to minimize your rental profits by expensing as much interest as possible against this rental income. It is harder (but not impossible) to do this if the property you rent out isn't the one with a mortgage against it.

OK thanks for that so are you saying that I would be better renting out the property whilst it still has a mortgage against it?

TrickyDicky101

Given that you need funds to invest in another property (which you will live in) then yes. You would need to get your lender's permission to rent it out (assuming you currently have a standard residential mortgage). There is also the possibility to raise additional funds against your existing property (eg to increase the size of the deposit against property number 2) but this would need to be considered in light of what your rental yield is likely to be.