Existing property as guarantor

Oneday77

My wife and I would like to buy a new larger house to move into. We would like to keep our existing property to rent out and possibly keep as an investment. It has no mortgage so wouldn't be an additional drain on our resources.

The facts are we earn £66,500 combined with a £41,000\£25,500 split. Our deposit is approx £150,000 and we are looking at properties about £450,000.

As our income is borderline for the value of property can we use our existing asset, the falt, without selling it?
We would be loking at about £800pm Net from renting it out but it isn't on the market yet and will never be guaranteed.
Thanks for any responses in advance.

Caz3121

It may be beneficial to look at BTL mortgages for the current property to release equity to add to the deposit. The interest on this mortgage can also be deducted from the rental payments for tax purposes (in addition to other renting expenses)

Thrugelmir

Oneday77 wrote: »

We would be loking at about £800pm Net from renting it out but it isn't on the market yet and will never be guaranteed.
.

Is that net of tax, along with costs and expenses?

What's the value of the property?

Oneday77

Thrugelmir wrote: »

Is that net of tax, along with costs and expenses?

What's the value of the property?

The value of the existing property is approx £250,000 an similar build properties on our development go for £1,200pm. So £800 net is a guess but I reckon a fair one that takes into account insurance, fees and Tax. Of course I may be being optimistic.

Caz3121 wrote: »

It may be beneficial to look at BTL mortgages for the current property to release equity to add to the deposit. The interest on this mortgage can also be deducted from the rental payments for tax purposes (in addition to other renting expenses)

I thought of that but wasn't sure if it would complicate matters. The offset for the tax is a new idea though, thanks

Wh05apk

Your income should be enough to get a £300k mortgage, some lenders will take into account the anticpated rental income (Abbey for example)

You do not need to look at BTL mortgages, these will be expensive, if the flat value is £250k, you will be able to offset £250k worth of interest on the new mortgage against your tax.

Oneday77

Wh05apk wrote: »

Your income should be enough to get a £300k mortgage, some lenders will take into account the anticpated rental income (Abbey for example)

You do not need to look at BTL mortgages, these will be expensive, if the flat value is £250k, you will be able to offset £250k worth of interest on the new mortgage against your tax.

So if I understand you correctly. If we don't go BTL but take amortgage out on our new residential home. All interest costs on £250,000 of our new mortgage can be used to reduce our tax bill on the income from the Flat?
I suppose in a way we are paying interest on the flat as we could mortgage it but it is being consolidated with the new property. I hope I'v eunderstood correctly

Meeper

You have indeed.

holly_hobby

Nationwide BS are another lender who (on an unencumbered let property) will look to consider a portion of the rental income in addition to earned income, for residential mortgage affordability purposes.

However, with regards to offsetting of interest for tax purposes, it should be made clear that.

You may only deduct interest charges on a loan made in relation/connection to a let property - ie- you are not permitted to deduct interest on a residential mortgage, which was purely used to finance the purchase of your primary residence, against gross rental income derived from another property (for income tax purposes), if there is no relationship between the 2.

So, for example if you released equity on your let property (via a BTL mortgage) to fund the purchase of your new residential property - THAT interest is deductable (subject to maximums relating to when the property became a commerical asset). As it is classed for HMRC purposes as withdrawal of business capital.

In the same way if you raised capital on your residential home and mortgage to fund the purchase, or additional investment into a let property - THAT interest element in respect of the investment into the let property, facilitated by your residential mge, is deductable against gross rental income, of which there must be a clear audit trail between the 2 events for HMRC purposes.

But as I say, you can not simply offset the interest on your own private residential mge, which was wholly used purely to purchase your own primary residence (notwithstanding the above equity release option) - against gross rental income derived from a separate (semi)commerical property.

Hope that helps, its important to understand how permitted offsetting works before taking the plunge ... it is also always wise to clarify tax information provided on a forum, with either a tax adviser or HMRC directly, before acting on the same.

Hope this helps

Holly

Wh05apk

holly_hobby wrote: »

But as I say, you can not simply offset the interest on your own private residential mge, which was wholly used purely to purchase your own primary residence (notwithstanding the above equity release option) - against gross rental income derived from a separate (semi)commerical property.

Hope that helps, its important to understand how permitted offsetting works before taking the plunge ... it is also always wise to clarify tax information provided on a forum, with either a tax adviser or HMRC directly, before acting on the same.

Hope this helps

Holly

Sorry Holly, have to disagree with you there, in this example the OP is placing £205k worth of property into their "business", so the "business" owes them £205k, they are simply withdrawing this capital from the business, where the mortgage is secured is largely irrelevant.

But as you say "it is also always wise to clarify tax information provided on a forum, with either a tax adviser or HMRC directly"

Bluemeanie_2

I am finding this thread extremely useful and informative, as this is what me and Husband are working towards, albeit in much smaller figures but the principle exactly the same. We were unsure whether to remortgage house 1 on BTL to release funds and also to offset tax.

Thrugelmir

Wh05apk wrote: »

Sorry Holly, have to disagree with you there, in this example the OP is placing £205k worth of property into their "business", so the "business" owes them £205k, they are simply withdrawing this capital from the business, where the mortgage is secured is largely irrelevant.

The interest on the new property mortgage would not be offsetable against rental income as Holly says. In this case the existing property would need to be remortgaged to make it qualify.