reduce BTL mortgage or add to offset

silvercarsilvercar Forumite, Ambassador
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I have an offset mortgage fixed at 4.99% til January. This now has sufficient rainy day funds in it (years salary). I also have a BTL on variable rate, currently 6%. Next chunk of income coming in and I can't decide whether to pay down the BTL (no redemption charges) or increase the offset.

Reasons to pay down BTL:
Higher interest rate.

Reasons to add to offset:
Money available for future (though no plans for it),
tax benefit of keeping BTL mortgage high.
once reduced BTL mortgage can't get money back.

At the moment I don't pay tax on rental income as it is same level as mortgage interest, but that will change in the long term as rentals go up. Though there is some slack in other expenses that could be tax deductable. I feel nervous of paying down the BTL mortgage as once done, that money is gone, whereas in the offset the money can be instantly accessable. On the otherhand there is loads of money in the offset already so I don't have a need for it.

Any thoughts gratefully received. anything I've not considered?
I'm a Forum Ambassador on The Coronavirus Boards as well as the housing, in my home and student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to [email protected] (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.

Replies

  • hello

    i think you have sort of already decided what you think is the best idea. i too would be thinking of the possibility of the tax implications on the BTL - is the mortgage interest-only?

    why not put it in the offset for now whilst you have a think and see what the markets do?

    maybe keep your business money and personal money separate -as you say, once it is off the BTL mortgage, there is no going back.
  • MarkyMarkDMarkyMarkD Forumite
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    Silvercar

    I don't think you have the right approach at present, if you are just ignoring your BTL trading loss (i.e. the surplus of mortgage interest and allowable expenses over the rental income).

    You should calculate the trading loss and report it to HMRC, as you can carry it forward against future rental profits.
  • silvercarsilvercar Forumite, Ambassador
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    MarkyMarkD wrote: »
    Silvercar

    I don't think you have the right approach at present, if you are just ignoring your BTL trading loss (i.e. the surplus of mortgage interest and allowable expenses over the rental income).

    You should calculate the trading loss and report it to HMRC, as you can carry it forward against future rental profits.

    Thanks for that. I will be reporting it, property was only bought in the 2006-07, so no tax return for it yet.
    I'm a Forum Ambassador on The Coronavirus Boards as well as the housing, in my home and student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to [email protected] (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.
  • silvercarsilvercar Forumite, Ambassador
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    Another option is to wait until I've got enough money built up in the offset + spare cash to pay off the BTL mortgage from the offset. Then both mortgage amounts will be secured on my home and I can still get tax relief on the part that was the BTL mortgage.

    A few years until I can afford to do that, so not sure if the extra interest I am paying out in the mean time justifies the tax saving. There is always the question of whether it is secure to have everything borrowed on your home, if the worst should happen.
    I'm a Forum Ambassador on The Coronavirus Boards as well as the housing, in my home and student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to [email protected] (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.
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