Change to interest only

Inforashekel

Hi all,

I currently have a normal residential mortgage with the Alliance & Leicester. I'm looking to buy another property, which will be our main home, and rent out my existing house. I have obtained a consent to let from A&L, and my IFA suggested moving to interest only. Apart from the obvious lower payment what are the benefits of this? I know the main risk is obviously not paying capital back, but we plan to sell it after letting for 3 years, to make the most of the CGT exemption.

What's the best strategy to convince A&L to change it? Or is this usually easy to do. We're lucky to be able to pay both mortgages anyway, but obviously a lower mortgage would mean more spare cash.... and as the new house will be a major project the extra cash will be useful!

Thanks in advance,

K

kingstreet

There is no strategy to adopt. You simply ask them if they will do it and they say yes, or no.

Landlords tends to choose interest-only as it's only the interest which can be offset against the rental income for tax purposes. Therefore if you continue on repayment, you won't be able to offset all you're paying.

domcastro

I'm in same boat. I decided to stick with repayment but if it comes too much (bad tenants etc) then I will probably remortgage to a buy to let interest only. I will reevaluate in 3 years too - either sell because of the CGT exemption or maybe keep house on as my pension

Thrugelmir

Inforashekel wrote: »

I know the main risk is obviously not paying capital back, but we plan to sell it after letting for 3 years, to make the most of the CGT exemption.

I would consider the main risk to be a fall in prices within the 3 year time window.

Inforashekel

Thrugelmir wrote: »

I would consider the main risk to be a fall in prices within the 3 year time window.

You are, indeed, correct However, in that case, we would choose not to sell; instead we would keep longer term, and have to swallow the CGT impact as and when we chose to sell.

You pays your money, you takes your chances

Thrugelmir

Inforashekel wrote: »

You are, indeed, correct However, in that case, we would choose not to sell; instead we would keep longer term, and have to swallow the CGT impact as and when we chose to sell.

You pays your money, you takes your chances

Personally I would approach the letting from a profitability on rental perspective, treating any capital gain as a bonus.