Mortgage/tax advice please....

Sparks33

I wish to buy a new house due to arrival of baby! Have found just what i need but have to act fast before someone else gets it! (this happened to me before)
Have had mine on the market for a few weeks but no offers as yet.
Today i thought maybe i could rent my existing house out, which will part fund the mortgage on my new one. At the moment i am mortgage free. If i rent mine out will i have to pay tax on the income even though it will be part paying the interest on my new home? Or, can i offset the rental income on the ineterst payments? (My mortgage payments are likely to be around £800 pounds a month and my rental income around £600.)
Advice much appreciated!

herbiesjp

I beleive that tax would indeed be payable on that income - you may be able to deduct expenses from that income to reduce teh tax bill i.e property maintenance etc as it would then be let out

Do you already have the deposit to hand to put down for the new property? Or do you need to raise funds against your current propety?

MortgageMamma

This would be possible its called a let to buy mortgage. Not all lenders are happy to do them so seek advice before applying for your mortgage. Remember if you do let it out you will be taking on a big responsibility for your tenants. Useful places to find information about your obligations as a landlord are www.landlordzone.co.uk www.landlords.org.uk www.rla.org.uk

A good mortgage broker is a valuable addition when arranging a let to buy.

silvercar

You can offset mortgage interest payments, upto the value of the let property when you first started letting it, against rental income.

A lot of brokers won't know all the tax rules; no reason why they should.

An accountant experienced in let properties could help you or seek advice on some of the letting forums that MM mentioned. The basic fact often missed is that the mortgage doesn't have to be secured on the property that is being rented out.

In your case it is quite clear that you are taking a mortgage on the new place to facilitate letting the property out; had you sold your current property you would have no need to raise a mortgage of the sixe you are doing.

herbiesjp

Just wanted to clarify that what I said about the tax was based on an unencumbered property as it is currently.

Otherwise you can indeed offset, but it is the purpose of the loan, not the fact that it is a BTL mortgage that is tricky.

So if the purpose of the loan,against the currently unencumbered, is to get a main residence it will need further discussion with a tax speacialist as pointed out above

Sparks33

Thanks for all the replies. I'm still not clear on my options though. The way i see it is i have two options. I either remortgage my own property to raise the cash to buy the new house OR i take out a new mortgage just for the new house. But, the only way i can pay the interest is by renting out my existing house so it will need to be tax deductabe or the plan just won't work!
BTW, any let to buy or other type of mortgage will have to be self cert, as im self employed and dont have proof of income to show at the moment. Are self cert 'let to buys' possible?
Any advice gratefully recieved :-)

silvercar

BTLs are generally based on the potential rental income; though an income of your own is also required.

Sparks33

silvercar wrote: »

BTLs are generally based on the potential rental income; though an income of your own is also required.

Does the same apply to 'let to buy's' ?

herbiesjp

THe let to buy is the mortgage on the new property, in this case your new residential property. So it will be based on your personal income as opposed to the rental income, and will be trated as an ordinary purchase.

Most let to buy lenders will want to know however, that if you have a mortgage on the first property, that any rental income received on it, will cover mortgage payments by somewhere around 125% or 130%. That way the let out property is "disregarded" when applying income multiples on the new purchase

HTH

Sparks33

So, are 'let to buy' mortgages available as self-cert? And if so, can i offset the interest payments on my new property against the rental income on my 'old' property?
BTW, there is no mortgage on my existing property and i plan to mortgage the new one at about 80% of value.

silvercar

I would have thought you would be getting an ordinary residential mortgage on your new property. Your income would include your normal income and the rental income you would expect to receive. Some lenders may be a bit picky about your rental income and may not give it the same weighting as standard income. Then again, if you are going self-cert, I don't know how much evidence you need to produce.