second home

shimster1_2

Hi i am just wondering if anyone can help me with a question that's been bugging me.
My wife and i have 31 more payments left on our mortgage and then we are free (thanks to this site) and because we are still relatively young we have thought about buying again. Now i have heard that if we buy again as a buy to let then we would have to pay a hefty deposit, but if we are mortgage free in the old property and rent that out and we move into the new property would we still have to pay that large deposit?
Hope someone can help and keep up the great work everyone.
Happy New Year to you all !!
shimster1

Leon_W

There would be no need for the large deposit as you require a residential mortgage not Buy to Let.

In theory, dependent on income, you could get a 125% mortgage with no deposit at all. Not saying it's a good idea but you get my drift !

Regards

shimster1_2

Thanks and yes i get what you mean but i would never do that Leon. I wasn't sure if we would be classed as buy to let even if we were mortgage free on the other property. If thats true then i can just get the same deals as everyone else and as long as i don't touch the capital gains threshold then it would be a sound investment especially if i can get someone else to pay a majority of said mortgage.
Thanks again and anymore thoughts would be gratefully appreciated.
shimster1

herbiesjp

Indeed if you have a negligile/no mortgage on your current property, then you can get another residential mortgage on the new one you are looking to buy.

As you rightly say, same deals as any other borrower.

shimster1_2

Thanks this is great news as i had thought that i would have to pay a big deposit.

MortgageMamma

Make sure you look into the taxation situation properly, CGT and poss IHT if relevant.

shimster1_2

The cgt i understand but what is IHT? I believe the threshold to be £300000 for cgt and as i am from the north prices are not so bad and i can keep within that even if the value goes up.
Thanks for the post.
shimster1

herbiesjp

IHT = Inheritance Tax liability -the more assets you have the greater the liklihood of there being a IHT liability to pass on. Unless you have already looked at ways of mitigating this, if it is a priority to you.

MortgageMamma

shimster1 wrote:

The cgt i understand but what is IHT? I believe the threshold to be £300000 for cgt and as i am from the north prices are not so bad and i can keep within that even if the value goes up.
Thanks for the post.
shimster1

What part of from the North are you from? I practice in Lancashire, and in my locality house prices are still rising healthily. The IHT threshold for this year is £285,000. So it is quite easy to reach that with a second property - keep your eye on the market/tax situation and if in doubt about anything take advice from a professional.

Ian_W

shimster1 wrote:

The cgt i understand but what is IHT? I believe the threshold to be £300000 for cgt and as i am from the north prices are not so bad and i can keep within that even if the value goes up.
Thanks for the post.
shimster1

Whoops - the £300K threshold [2007/8 tax year, £285K this] you refer to is for IHT NOT CGT.

You would be liable for CGT when you sell a second property assuming it has gained in value between you buying and selling it. There are a number of expenses you can offset and reliefs you can claim before the profit is taxed. You get £8.8K [this tax year] personal allowance [x2 if jointly owned] as well.

More info at:
https://www.direct.gov.uk/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/BeginnersGuideToTaxArticles/fs/en?CONTENT_ID=4016313&chk=dyI1d%2B

A_Nice_Englishman

My usual response to those thinking about BTL (apologies to the OP if he's already done his homework and to those who've read this before)

Starting a property rental business is like starting up any other business. You need a business plan.

Do void periods, bad debts, repairs, redecoration, legal fees,insurance, agents fees, costs of evicting bad tenants, rises in interest rates to, say, 8% and possible falls in property values figure in your business plan?

Are you familiar with the 50 Acts of Parliament and 70 sets of regulations which may apply? Did you know you can be held responsible for the anti-social behaviour of your tenants?


Then you need to look at the taxation side. Any profit you make will be taxed at your highest rate of income tax and if you make a profit when you sell you will have to pay Capital Gains Tax. though there may be reliefs.

I own the property I used to let out outright but decided I would be better off keeping the money in the bank. You need to decide whether or not to borrow the money. If you feel that property is still a good investment you may be better off buying a more expensive house to live in yourself. At least that would avoid the CGT problem.