Overpay BTL or personal mortgage

Engeroosi

Personal mortgage 118k on 2.99% tracker for term of 14 years - property value 153k

BTL mortgage 46k reverts to 3.99% in June and has 14 years left - property value 85k - 90k

I know the tax implications with the BTL mortgage but I dont actually make profit on the BTL per month to have to pay tax, it basically just pays for itself. Also on the BTL I am able to withdraw the overpayment reserve whereas the personal one I wouldnt have that facility.

Any suggestions or advice?

dimbo61

Pay down the debt on your own home every time.
You get no tax relief on the interest on your own home
You have nearly 50% LTV on the BTL but only 20/25% on your own home so another reason to pay down your home mortgage
Simples

Engeroosi

I do not have to pay tax at the moment anyway. I use an accountant who does my tax returns.

dimbo61

But if you do pay down your BTL mortgage you may end up paying tax.
If you cant afford to pay the mortgage on your home then you are homeless but if you cant afford to pay the mortgage on the BTL you will lose the rental property.
You can offset the interest on your BTL property against your rental income but you cant offset any of the normal mortgage payments on your own home.
A BTL is a business and not your home.
Clear the debt on your home first then pay off the BTL

Engeroosi

I can afford to overpay easily, I want the best result financially, in your opinion do you think I should release as much equity as possible from the BTL and reduce the amount on my home? I have also thought of this but not sure how easy it would be.

Thrugelmir

Engeroosi wrote: »

I do not have to pay tax at the moment anyway. I use an accountant who does my tax returns.

There's nothing magical in what your accountant is going. Your accountant will be operating within the tax laws.

If you have made losses previously and or are making losses currently. Then maybe worth speaking to your accountant. As the only way of utlising these losses is make a profit on letting the BTL. So depending on your plans in the short to medium term for the property worth keeping your eye on.

holly_hobby

Engeroosi wrote: »

I can afford to overpay easily, I want the best result financially, in your opinion do you think I should release as much equity as possible from the BTL and reduce the amount on my home? I have also thought of this but not sure how easy it would be.

The important thing to note here, is the situation of any equity release from the business (as it is classed as capital withdrawal for HMRC purposes), is the ability to offset the BTL mge interest off gross rental come, which will be capped at the pch price OR value of the property, when it entered commercial let (relevant if this was orginally a private or primary residence of yours, before it entered commerical let).

So just something to be aware of when releasing equity, if the equity you release is encompasing an increase in the market value of the property, and you want to keep the figs deductable (where possible).

Of course you may release as much equity as reqd (notwithstanding rental v mge at 125%, and any earned income requirement the lender may have), but the important aspect to note is that anything in excess of the original pch price/value (when it became a let unit), is NOT a permitted HMRC deduction from rental income. Meaning in essence that you'll be indirectly taxed on it.

Now, given what you may be saving on your primary residence mge as result of any lump sum reduction, this may still be a winning combination for you (despite the tax issue), your Accountant will of course (should) take account of this and accordingly advise the most efficient way to play with the figs given your circs and particular requirements.

Hope this helps

Holly

Engeroosi

Thanks to all who have responded.

To clarify I am NOT making a loss, if anything I may have a small gain which can be written off within the rules.

My accountant does my returns for me due to my work payments and the complications with where I pay tax, anyway to cut a long story short the accountant isnt employed for benefit of rental income tax return just comes as part of the deal.

Ideally I dont want to release funds from mortgage as it may mean I have to revert to a BTL product and pay a fee, currently on a consent to let on a fixed which ends June, then I go onto 2% above BoE plus 1.5% fee for consent to let. (Who can all guess who its with?)

holly_hobby

Then, actually you don't want to release equity from your BTL do you (as its not a BTL mge but a CTL arrangement) - which rather makes the above response now defunct (unless of course you elect to remortgage onto a BTL and release equity if/as reqd) !

Hope this helps

Holly