Help! Paying for a house i'll never living in again.

Andrea75

Hi all, i started renting my property last year and have been making regular overpayments every month since.

I have 11 years left on the mortgage but i intend to sell the house at some point (i think) in the future as it's a house i shared with my ex-partner. Friends and family all tell me not to sell as it's an investment for the future.

My dilemma is.....do I continue to make large overpayments when I can be putting the money elsewhere even though I never intend on living in the house again and intend to sell anyway or keep them going? I don't feel as if i'm really gaining anything from doing this but everyone around me thinks it's the best option.

I'm confused and really don't know what to do for the best. Any advice welcome and appreciated!

Thrugelmir

Are you currently renting it out?

holly_hobby

is the ex still party to the mortgage and property ownership/does he have any legal claim to profits or free capital on its sale ?

is it rented out (as already asked by Thurls) and if so, do you have either consent from your mortgage lender/or a buy to let mortgage in place ?

is it a repayment or interest only mortgage ?

Holly

Andrea75

Yes, i'm currently renting it out and I completed a transfer of equity before I started renting it so my ex has no legal claim to the property. And yes I have consent to rent from my lender. It's a repayment. Thanks peeps.

DVardysShadow

As long as you don't need to access the money, overpayments into a mortgage will give you a better return than any risk free savings product. If it is BTL, the return from overpaying is of course higher. You are unlikely to find a savings product with a higher interest rate unless you have a pre crash tracker mortgage.

As for whether to sell or not, if you have a good tenant covering all or most of your mortgage, in the long run, it will be a good investment. Of course, if you intend to buy another property for yourself in the foreseeable future and need the equity from this one, it will probably be better to sell sooner rather than later unless the rent covers more than the mortgage.

holly_hobby

Don't forget to ensure that you are declaring rental income to HMRC, ensure you mitigate your net income for tax purposes by offsetting all permitted allowances.

Only mortgage interest element (of total mortgage repayment sum) is a permitted deduction from gross rental income, so the only thing to be aware of is the lower the os mortgage and respective interest element, the less that can be offset - which on a repayment mortgage won't have such a huge impact as if you were on a straight IO mortgage (also subject to your tax band of course).

If you do sell within 3 yrs of vacating the property as your primary residence, there will be no CGT liability - after this period CGT liability does come into play on the gross gain, which is offset in this case by lettings allowance, plus annual personal cgt allowance, time held as a primary residence and any losses - which will greatly reduce your net liability when eventually sold (subject of course to any intrim changes by HMRC to permitted allowances/deductions of between now and its date of disposal).

Remember to advise HMRC within 2 yrs of your change of primary residence (if not already done so) for CGT purposes (otherwise they may make the election for you !).

Plenty more to consider when renting, but hope this gives a little grounding to start with.

Hope this helps

H x

DVardysShadow

holly_hobby wrote: »

Only mortgage interest is a permitted deduction from gross rental income,

For clarification, I think you mean that capital repayments are not tax deductible. I believe that other expenses can be deducted - eg Agents fees

holly_hobby

Sorry, yes of course, its general knowledge that only the interest element of mortgage repayments are a permitted deduction (wrote this stuff that many times missed the typo on the proof read !) - all associated management costs are a permitted deduction, as are essential property repairs and other noted deductions as published by HMRC ....

Hope this clears that up

Holly

Andrea75

Thank you so much.

H, I've registered for SA and submitted my tax return already.

DVS, not sure why a the return would be more with a BTL, I don't understand all that. Rent's paying the mortgage which is good and i've notified HMRC of my change of residence...just want to do everything right and by the book to avoid anything bad happening.

Fuzzyness

holly_hobby wrote: »

Remember to advise HMRC within 2 yrs of your change of primary residence (if not already done so) for CGT purposes (otherwise they may make the election for you !).

Plenty more to consider when renting, but hope this gives a little grounding to start with.

Hope this helps

H x

sorry to hijack the thread but what are the implications if you dont do this i.e. let HMRC make the election for you?

kingstreet

OP - are you an owner-occupier as well?

If so, what's the rate for the mortgage on the let and what's the rate on the mortgage on your residence?

You should concentrate overpayments on the place you reside in, as reducing the mortgage on the let is reducing the amount of interest relief you can offset against the rental income. This may not work so well if there's a disparity in the two mortgage rates, so let us know.