Re-mortgaging a buy to let

ajaxgeezer

Hi,

I have a mortgage on a buy-to-let house. Does anyone know the rules concerning remortgaging the house with regard when tax implications kick in? Can it always be remortgaged only up to the original mortgage amount of £96k, or can it be remortgaged up to the purchase price of £113.5k?

thanks,
Martin

silvercar

I think you may be confusing the tax implications with what you are allowed to do.

The property is yours, so you can remortgage to whatever you want. You will only be able to get tax relief on the interest element of the motgage repayments upto the value the property had when it you first started letting it.

Leon_W

I foresee many problems with remortgaging Buy to Lets over the coming months.

For instance (i'll use your figures to illustrate but it doesn't mean it applies in your case)

You buy a flat 2 years ago for £113000 and the maximum you could borrow is 85% of that = £96000. At that time the lender was charging 4.25 % and wanted rental cover of 125% which equals a monthly mortgage payment of £340 with a corresponding rental figure of £425. All well and good.

Move forward 2 years. Say the property is now worth £120,000 and is renting for £450 and you wish to remortgage the £96000. You find a mortgage that requires 125% rent cover BUT, interest rates are now much higher than 2 years ago. With this scenario, if we calculate backwards the monthly mortgage payment can be no more that £440 if we assume a current rate of say 5.5%, this means the flat would have to rent for £550 !!

The maximum loan the lender could offer is only £78,500 !

Ok, some lenders will not want as much rent cover but believe me, the calculations on these are getting tighter and tighter all the time with lenders willing to look at lower rent coverage charging 1.5% to 2% as an arrangement fee for a 2 year fix !

To answer your original post though. You cannot mortgage up to the "value" of the property, the lender will always want some equity (say 15%) left but the main lending decision is based on the rent you receive.

ajaxgeezer

Thank you both guys.

Leon, you are totally right and I can see that some landlords will be stuck with some big mortgages for this reason. In my case it was more than a simple investment for cash, I had to provide a home for my family which was habitable - it's costing me £30 a month, but you can't buy peace of mind... and anyway, that rental shortfall will be more than made up by the capital gain over what will be a loooong rental with tenants who are going nowhere. I got it for a steal too. In a year or so it will self fund, begin to wash its face and still be a good investment.

Silvercar, I phrased it badly, but thanks for picking up on what I was getting at. I did indeed mean the tax implications - I was unsure whether I was allowed to tax-offset the interest based on the original mortgage figure or on the value of the property. I now know that it's the value of the property.

Thanks again both.