New House but Keeping Old One

LovesMadMen

Hi all,

I've been reading the forum for a while, but I need some help please.

We're in the process of buying a new house (we're combing our assets with my mum who will be living in a separate part of the house) so the majority of the purchase will be cash, though we will require a small mortgage.

Me and my partner have our house, but we are lucky that we don't need to sell it to purchase the new one. That currently has a small mortgage with Nationwide on their variable rate.

Is the best solution to get a buy to let mortgage on the old house and a new mortgage on the new one? Can we pay the existing mortgage off with a bigger mortgage on the new house? One last thing, are we classed as buyers who are moving home, even though we're keeping our first house?

Thank you for your help in advance and sorry I'm not that clued up on all this (even though I should be!)

kingstreet

Why do you need to change the mortgage on the current property?

What are you planning to do with the property?

LovesMadMen

Hi,

Thanks for your reply.

We're looking at renting it out.

kingstreet

Ok.

Do you need to raise funds from the property, perhaps to put towards the purchase of the new one, or are you set on mortgaging the new one?

LovesMadMen

Hi,

We are getting a small mortgage on the new property (30% LTV) We weren't going to take it out on the existing property as the new mortgage amount, plus the existing mortgage is more than what the existing house is worth.

Hope this is making sense!

kingstreet

Right.

In that case, you leave the current mortgage where it is. Ask Nationwide for consent to let. It will raise the rate by 1.5%, but this will probably be comparable to remortgaging to a BTL product, but without the heavy fees which would be involved.

The lender for the mortgage on the new property may "tax" you the cost of the old mortgage, but some will ignore a single let property/mortgage in the background, if it is self-financing.

Learn the legal and moral responsibilities of becoming a landlord and check the allowable expenses which can be offset against the rental income for tax purposes. Only mortgage interest qualifies, not the capital element of a repayment mortgage.

steeeb

If it ends up being problematic to get a BTL mortgage (sometimes it can be, if the value and rental potential don't match - in some cases regardless of what the morgage is for), then obviously the best thing to do would be to pay off your mortgage so you own it and then you can let it out, and get a bit of a bigger mortgage on the new property.

LovesMadMen

Hi,

Thank you both for your replies.

Kingstreet - thank you for the advice. I looked briefly at that Consent to Let form. It sounds like it's only for a maximum of 3 years. Is that right?

Steeeb - I thought about doing that. So what would we be classed as? Existing customer - moving or remortgaging? I'm sticking with Nationwide

We're going to see them on Monday (hopefully) but if not, I think we can apply online.

kingstreet

A remortgage is a change of lender for the mortgage on your current home. To Nationwide you are a current borrower moving home, or a homemover to other lenders.

I would think very carefully about the implications of repaying the current mortgage. Although HMRC will confirm it doesn't matter which property a loan is secured on, you have a clear trail between the property to be let and the mortgage on it, therefore getting the mortgage interest as an allowable expense is a foregone conclusion.

If you "submerge" the borrowing within the mortgage on your new home, you may find HMRC is unwilling to accept the interest on that element as an expense if it cannot see a clear audit trail between the mortgage and the property.

Nationwide may only allow CTL for an initial three years, I don't know. If your current mortgage is under 75% and the rental income will be 125% of the monthly mortgage interest at 6%, you may be able to remortgage to a formal BTL lender/product. However, why do something today you could put off, for three years, perhaps even longer? As I said, the fees for such business are high and there may be little, or no, saving on the rate payable.

LovesMadMen

Hi,

If I'm honest, I didn't even know you could get the interest tax deductible.

In your opinion (I've read your signature, so don't worry!) what would you do? Maybe the question would be, what is the easiest thing to do? Have a bigger mortgage on one property and having two properties with two smaller mortgages?

kingstreet

I wouldn't presume.

Most landlords would look to maximise their income and minimise the tax they pay.

The only way you can make a definitive decision is to explore the costs and benefits of each option as fully as possible.

As I said in post #6, you REALLY need to learn the landlord thing before you go any further. You're approaching this from a position of little knowledge (none intended! ) and you need to get a basic grounding quickly!