Let To Buy vs Bigger Repayment?

fred_davies

Hi all,

Been struggling to work out the best of a mortgage predicament we're in and can't work it out.

We wish to move house to property 'B' and rent our current house (property A) out. We overpaid on our mortgage so have £20k we can release and transfer to a mortgage on the new place, but to make up the difference, have a couple of options:

1. 'Let to Buy' on 'B' of £60k at 5.99% and Repayment Mortgage of £20k at 2.50%
2. Standard Repayment on 'B' of £80k (£60k at 4.09% for 5 years, and £20k at 2.50%)

We understand that the interest on the 'Let to Buy' mortgage can be offset against profit, but is this better than having one big mortgage at a lower rate and then paying income tax on any rental profits (minus expenses)?

Property 'A' is a long term investment so we're hoping we will keep it for many years, thus taking Capital Gains Tax out of any short-medium term thoughts.

This is a bit of a headache at the moment as to which way to go. In my head I'd rather have one big loan to service - seems daft to have two loans when one would do, though don't want to have double arrangement fees, paperwork, confusion, and also end up over-taxed or taxed twice on any income. Don't want to dodge tax but don't want to give the banks more than they deserve!

We can't work out overall if income servicing a LTB loan is higher or lower than earnings after income tax on rental income... please can anyone advise?

dazarooney1987

Have you made a decision on this? If not I would say let to buy is the better option but maybe give these guys a call, Buy To Let Landlord Solutions (http://www.buytoletlandlordsolutions.com/index.php/mortgages/let-to-buy-mortgages), they deal with let to buy mortgages and might help with your decision.

fred_davies

Thanks Dazarooney, and nope - not made a decision yet. Think its a job for the experts - maybe a tax advisor or the firm you mention.